Commerzbank AG raised its outlook for lending income and said it will seek approval for another buyback as the tailwind from rising interest rates lifts revenue.
The Frankfurt-based lender said it expects net interest income of at least €7.8 billion this year, up from a previous guidance of about €7 billion ($7.7 billion). At the same time, it raised the outlook for costs to €6.4 billion from €6.3 billion and said net commission income will decline from a year ago.
“The first half of the year was yet another very good one for Commerzbank,” Chief Executive Officer Manfred Knof said in the release. “We are fully on track to achieve our targets for 2023 and 2024.”
Rising income from lending has provided a boost for Knof, who is considering raising a key profitability target along with shareholder payouts as part of a new strategy to be unveiled later this year, Bloomberg has reported. The lender, which is heavily dependent on retail and commercial banking, has been a key beneficiary of higher rates, allowing it to start returning cash again after a long period in which Commerzbank paid little to no dividends.
Commerzbank said it will seek regulatory approval for another share buyback, without indicating how big it will be, saying only that it maintains a target for a 50% payout of net income. The share repurchase would follow a €122 million buyback that Commerzbank completed last month, and is widely anticipated.
While Knof’s next plan will include additional savings as well as targeted investments, he doesn’t see the need for more sweeping changes after he embarked on steep cost reductions more than two years ago, people familiar with the discussions said previously.
Commerzbank also improved its outlook for credit provisions, lowering it by €100 million euros for the full year. It said the worsening cost outlook for 2023 comes on the back of the lender’s good performance as it will lead to higher staff bonuses.
Net income for the second quarter rose 20% from a year earlier, in line with estimates, as better-than-expected revenue made up for costs that were higher than analysts had predicted.
(Updates with CEO quote in third paragraph, details on credit provisions and second-quarter results from seventh.)
