Commerzbank raised its provisions for bad loans for the second time since November, as Germany’s second-largest bank braces for a bigger hit from the country’s latest lockdown.
The lender said on Friday that it is earmarking “at least” €1.7bn for loan losses stemming both 2020 and some of this year, an increase of almost a fifth from the midpoint of its previous guidance of €1.3bn-€1.5bn.
The extra provisions are expected to widen the bank’s expected net loss for 2020. In November, when the bank last laid out the likely drag from the pandemic, analysts estimated the loss at €323m.
The move from Commerzbank comes just a week into the tenure of its new chief executive Manfred Knof, a former Deutsche Bank manager. Mr Knof has previously warned that the bank needs “a fundamental transformation” and has promised to present a new strategy by the end of March.
The bank’s decision in November to lift provisions for bad loans was prompted by Germany’s second lockdown, which has been repeatedly tightened since. Restaurants, bars and non-essential shops as well as many schools will be closed until at least the end of this month.
While the government is trying to mitigate the economic fallout by paying billions of state aid to companies caught up in the crisis, economists forecast a wave of insolvencies in coming months.
“By increasing our risk result we are responding to the ongoing Corona pandemic and feel well prepared for further developments this year,” Commerzbank’s chief financial officer Bettina Orlopp said in a statement on Friday.
The lender’s provisions are now almost on a par with those of larger domestic rival Deutsche Bank, which is braced for €1.8bn in loan losses but had said in late October said that the damage to its loan book from the pandemic was abating quicker than expected.
Commerzbank added on Friday that “deteriorating market parameters, in particular the level of interest rates in the euro area and in Poland” will lead to a €1.5bn impairment charge. The lender stressed that the charge will not affect its cash position or capital ratio, which it expects to be at around 13 per cent this year.
In late December, Commerzbank said it will book a €610m charge for restructuring costs in 2020 after reaching a deal with unions over 2,900 job cuts.
“After this balance sheet clean-up, we are well prepared for the road ahead of us,” Mr Knof said.
Shares in Commerzbank lost more than 3 per cent in early afternoon trading while the wider German market was up 0.75 per cent.
Get alerts on Commerzbank AG when a new story is published