Commerzbank posts profit on lower provisions for bad loans

Commerzbank returned to profit in the fourth quarter as provisions for bad loans fell thanks to Germany's robust economy, allowing it to draw a line under a six-year restructuring by announcing to close its 'bad bank' comprising non-core assets.

Germany’s second biggest lender said on Friday it posted a quarterly net profit of €187 million, in line with expectations, after it lost €280 million in the year-earlier period.

Commerzbank also said on Friday that it expects a slight increase in net profit in 2016.

"For the first time in five years we have attained a (full-year) net profit of more than 1 billion euros and have seen further significant strengthening of our capital base," said outgoing chief executive Martin Blessing.

According to people familiar with the bank, the lender plans to present a successor for Mr Blessing by its annual shareholder meeting on April 20.

Analysts see Commerzbank as having strengthened its financial position markedly over the last few years by slashing its multi-billion euro commercial real estate and shipping portfolios and boosting capital.

After reducing the portfolio of its non-core assets division to €63 billion at the end of 2015 from €160 million in 2012, and after halving the division’s full-year operating loss to €401 million , the remaining assets will be transferred to other divisions.

Like other lenders, low interest rates continue to hamper Commerzbank’s ability to boost profits in its home market, where fierce competition among banks keeps margins worrisomely thin.

While Commerzbank saw the operating profit of its retail bank double to €160 million in the quarter, the result of its cash cow Mittelstandsbank - which caters to Germany’s prized medium-sized companied - decreased 15 per cent to €212 million on lower margins.

Earnings at its investment bank shrank by 60 per cent to €47 million, in line with the performance seen at peers like bellwether Deutsche Bank.

Commerzbank’s Polish subsidiary mbank remains vulnerable to possible changes in that country’s banking laws, with analysts worried government moves to convert Swiss franc-denominated mortgages into zlotys could herald a more hostile environment generally for banks.

Reuters