Shares of Germany’s second-largest lender Commerzbank rallied Tuesday after its first-quarter profits beat forecasts.
The bank also said it aims to resume its dividend payouts for this year.
Commerzbank’s Chief Financial Officer (CFO) Stephan Engels told CNBC’s Annette Weisbach in Frankfurt Tuesday that the company’s plan to win business from smaller rivals was paying off.
“The basic model that more customers means more assets and more assets is the foundation for more profitability is working. We are managing to compensate for the drag effect of negative interest rates,” he said.
Nonetheless, Commerzbank’s strategy to gain market share and reap rewards when interest rates rise is coming under pressure from stuttering European growth. With European data appearing to soften in recent weeks, Engels did not foresee a rise in European interest rates until the second half of 2019.
“(At) the beginning of the year we had higher hopes on interest rate rises, and I think that we have seen a little bit of sobering of that view during this last quarter,” he added.
Engels said he believed the European Central Bank would slow its asset purchase program in 2018 and that would benefit corporate yield spreads by the end of this year.
A lowering of corporate bond yields should reduce a firm’s borrowing cost and stimulate new issuance.
The CFO added that consolidation would be a required step should European banks seek to compete with bigger U.S. rivals.