Investing.com -- Commerzbank AG (ETR:CBKG) on Wednesday reported revenues that surpassed consensus estimates by about €55 million, due to stronger net interest income (NII), other income sources, and fees, though offset by a weaker-than-expected performance in trading income.
Net interest income came in 2% above expectations, adding €39 million to the top line despite a 1% decline from the previous quarter.
“The results are in-line with our expectation, but we need to understand drivers for cost and loans loss into 2025e,” said analysts from Barclays (LON:BARC) in a note.
The sequential drop in NII was attributed to declines in contributions from both Corporate Clients and the Private & Small Business Customers segment in Germany.
These declines stemmed from lower European Central Bank (ECB) rates and a higher deposit beta, paired with a slight volume dip in deposits and current accounts for Corporate Clients.
Nevertheless, mBank in Poland delivered positive results due to effective management of customer deposits and loan growth.
Operating costs remained well-controlled, coming in slightly under expectations, which helped bring the group cost-to-income ratio to 58%, down approximately two percentage points from the prior quarter.
This ratio is up by a similar margin from the third quarter of 2023, indicating some year-over-year cost pressure.
Credit costs were a notable area of concern, exceeding estimates by €39 million, with the quarterly cost of risk at 25 basis points.
Of the €255 million in credit charges, €130 million was tied to three large cases, and €147 million stemmed from updates to the bank's risk assessment methodology, particularly related to environmental and climate risk coverage.
Commerzbank partially offset these expenses with a €94 million release of top-level adjustments, bringing the remaining TLAs to €242 million.
Despite the elevated credit costs, Commerzbank’s pre-tax profit edged past consensus by 2% due to the stronger-than-expected revenue. Net profit saw a larger 21% beat at €113 million above consensus, helped by a notably lower-than-anticipated effective tax rate of 22% for the quarter.
The bank’s capital position remains strong, with CET1 ratio at 14.8%—slightly ahead of estimates and stable on a quarterly basis.
A decrease in risk-weighted assets for Corporate Clients, due in part to regulatory changes to counterparty risk models and reduced undrawn credit facilities, provided a buffer to capital.
Although CET1 capital experienced a small sequential dip from foreign exchange reserve adjustments and increased prudential valuation deductions, the bank’s capital strength remains intact.
Commerzbank has reaffirmed or raised several aspects of its 2024 financial guidance. For the full year, NII is projected at around €8.2 billion, up from a prior €8.1 billion forecast, assuming an average ECB deposit rate of 3.8%.
Non-interest income is expected to exceed 5% growth, and credit costs are projected below €800 million.
The bank’s cost-to-income ratio remains targeted at about 60%, while CET1 capital should hover around 15%, and net profit is forecasted to reach around €2.4 billion, slightly ahead of previous guidance.
For its longer-term outlook, Commerzbank estimates NII for 2025 between €7.6 billion and €7.9 billion, with an average ECB deposit rate of 2.1% to 2.8%.
By 2027, the bank anticipates NII to stabilize at €8.4 billion, assuming modest loan and deposit volume growth, stable deposit beta, and additional contributions from its replicating portfolio.
Commerzbank faces some headwinds in mBank’s NII, which it expects to be €200 million to €300 million lower in 2025 compared to 2024.