Despite the expected one-off charges, Commerzbank is sticking to its annual target.
(Photo: Bloomberg/Getty Images)
Frankfurt Commerzbank has to digest high burdens again at its Polish subsidiary M-Bank. Because of a new law to suspend installment payments for real estate loans, M-Bank expects negative income of 210 to 290 million euros in the third quarter, as the institute announced on Friday. The operating result of Commerzbank will then be burdened in the corresponding amount.
Polish President Andrzej Duda signed a law on Thursday intended to relieve private borrowers in the face of high inflation and higher interest rates on loans. It allows them to defer their monthly installment payments on current mortgage loans up to eight times until the end of 2023. M-Bank expects that 60 to 80 percent of eligible borrowers will make use of the so-called “credit holidays”.
“Unfortunately, the changed legislation in Poland is causing significant one-off costs,” said Commerzbank Vice President Bettina Orlopp. “In view of the ongoing good development of our operating business, we still expect consolidated earnings of more than one billion euros for the full year.”
However, as before, the forecast is subject to the proviso that there is no significant deterioration in economic development, “for example due to further bottlenecks in the gas supply”. Orlopp is alluding to the danger that Russia will not resume gas deliveries to Germany after the planned end of maintenance on the Nord Stream 1 Baltic Sea pipeline on July 21.
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If this were to happen, Commerzbank – like many other financial institutions – could increase its general risk provision and collect its annual targets. On August 3, the institute will present its half-year figures and express its expectations for the remainder of the year.
At the end of last year, M-Bank had to set aside a further 436 million euros because of the dispute over how to handle Swiss franc loans.
Due to low interest rates in Switzerland, many Poles took out loans in Swiss francs to finance their homes. Then the national currency, the zloty, lost a lot of value against the Swiss franc, increasing the burden on home builders. Many borrowers then took action against Polish financial institutions because of possibly unlawful clauses. M-Bank therefore had to increase its risk provisions several times.
A burden rarely comes alone
The current law is now about loans in zloty. It is part of a package of measures with which the government in Warsaw is reacting to high inflation and higher interest rates on loans. Poland’s central bank recently raised the key interest rate to 6.5 percent, putting many borrowers under pressure.
However, Commerzbank, like other financial institutions operating in Poland, finds it wrong that they are now supposed to grant deferrals to all borrowers – regardless of their financial situation. The Frankfurt Institute therefore wants to examine legal action “against this unusual regulation”.
In addition to the deferrals, Commerzbank in Poland must also pay money into a support fund for debtors in distress. Orlopp estimated the costs for this at 30 to 40 million euros at the beginning of June. In the second quarter, the bank also has to post an additional mandatory contribution of EUR 83 million for the supplement to the Polish deposit insurance.
Commerzbank holds 69.3 percent of M-Bank. Former CEO Martin Zielke announced a sale of the stake in 2019, but then called off the sale in May 2020.
The M-Bank share price had fallen so much at the time due to the dispute over Swiss franc loans and the outbreak of Corona that Commerzbank was unable to achieve an attractive price. In addition, according to financial circles, the last remaining interested party, the second largest Polish bank Pekao, did not want to take on the risks associated with Swiss franc loans as part of a transaction.
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