The rating reflects Scope’s view that Commerzbank can retain a leading position in private and commercial banking in its home market of Germany. Commerzbank is one of the few remaining national universal banks in Germany, though its market share and pricing power is limited by the fragmented structure of a banking system dominated by public and cooperative banks. The bank has launched a new strategy to improve its profitability, cut costs and improve its digital front. Scope sees potential for in-market mergers in Germany but we are concerned that consolidation will progress only very slowly.

Scope lists the following rating drivers in the assessment of the bank (in descending order of importance):

• Commerzbank has materially de-risked and restructured its balance sheet, creating a good foundation to rebuild a strong retail, SME and corporate franchise in Germany. However, the bank has yet to achieve adequate returns.
   
• The liquidity and funding metrics of the bank remain strong and capital ratios are satisfactory, although the latter compare less favourably with European peers.
   
• Low interest rates continue to be a drag on the bank’s profitability.
   
• Having improved substantially since 2016, asset quality has recently shown weakness in view of slowing economic growth and specific corporate exposures.

Scope cited the following rating-change drivers in its analysis of Commerzbank:

• Strong efficiency gains and improving capital ratios, based on the successful restructuring of the bank’s business model.
   
• A material decline in profitability, rising NPLs as well as a deterioration in asset quality – for example, due to any excessive risk-taking in response to the current subdued margins – with a pronounced impact on the bank’s capital ratios.
   
• Any reduced capital market access could challenge an appropriate funding and capital profile.

This is not a rating action; you can access the rating action from 15 October 2019 here.

Download the updated report.