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Commerzbank expects high burdens from Polish subsidiary

Commerzbank headquarters in Frankfurt

Despite the expected one-off charges, Commerzbank is sticking to its annual target.

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.

“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.”

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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.

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.

Due to the dispute over Swiss franc loans and the outbreak of Corona, the M-Bank share price had fallen so sharply 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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