Commerzbank sees lending income dip in 2024 as deposit beta climbs

Commerzbank AG expects its lending income to slip in 2024 as the amount that the German bank pays depositors increases.

Deposit betas — the percentage of changes in market rates that banks pass on to their customers — will be higher than the 2023 average, CFO Bettina Orlopp said on the bank's Nov. 8 third-quarter earnings call. In Germany, the deposit beta was roughly 25% in the quarter and is expected to increase to about 30% in the last three months of the year, the bank said.

Commerzbank also does not expect further rate increases by central banks, Orlopp said. The bank has enjoyed significant tailwinds from higher interest rates, with its net interest income (NII) for the first nine months reaching €6.24 billion. It sees more benefits in the fourth quarter and expects its full-year NII to be above €8.1 billion.

The European Central Bank, after a series of 10 consecutive interest rate hikes totaling 4.5 percentage points since July 2022, decided to maintain its rates at its October monetary policy meeting. Banks have enjoyed higher profits as a result of rate hikes but have also been criticized for being too slow to pass it on to customers.

Commerzbank's overall third-quarter consolidated profit came in at €684 million, up from €195 million a year ago and beating the €611 million company-compiled analysts' estimates. Revenues in the quarter hit €2.76 billion, up 46% from the year-ago €1.89 billion.

For full year 2023, the bank revised its consolidated profit guidance and now expects the figure to be about €2.2 billion, which would be up by more than half from €1.4 billion in 2022. Annual revenues are also now expected to clock in at €10.6 billion, with the return on tangible equity (ROTE) at 7.5%.

The third-quarter results were stronger than expected, according to analysts at UBS, Deutsche Bank and Morgan Stanley. Commerzbank's fourth-quarter guidance for deposit beta is below a previous assumption of 35%, analysts at UBS Global Research noted.

Commerzbank also detailed targets for its new strategy until 2027, including a higher capital distribution. By then, the bank expects to reach an ROTE of more than 11%.

The group has also announced a larger-than-expected share buyback program of as much as €600 million, the regulatory approval for which is expected toward the end of 2023, Orlopp said. Repurchases are then expected to begin early in 2024 and to end before the bank's next annual general meeting.