Commerzbank Aktiengesellschaft - CMVM

8 MANAGEMENT REPORT
Structure of provision for possible loan losses
Equity slightly higher
Per end-2003, we had equity as shown in the balance-sheet of 79.1bn, compared
with 78.8bn a year earlier. The Bank’s capital ratios continue to exceed our target
levels: at 7.3%, the core capital ratio remained at its year-earlier level; the own
funds ratio rose to 13.0%. As a result of our clean-up, the revaluation reserve
moved from –7769m at end-2002 to a current 71,240m.
Marked improvement in operating results
Our efforts – above all on the cost side – bore fruit last year. As against 7192m
in the previous year, we achieved an operating profit of 7559m in 2003.
However, net interest income made no contribution towards improved
results, falling by 11.4% to 72.8bn. In addition to the weak dollar and the
absence of interest income from Rheinhyp (roughly 7220m), the further reduction
of risk-weighted assets made itself felt. While we managed to widen our
average interest margin at the Parent Bank, this was not enough to compensate
for the decline in volume.
Provision for possible loan losses was down by almost 7240m from its level
of 71.3bn in 2002. At the start of the year, we had assumed an amount of 71.2bn.
Ultimately, we used 71,084m for provisioning purposes, even though the economic
situation remained tight in 2003 and the number of insolvencies was even
higher. We attribute the need for less provisioning to our further improved risk
management and in particular to the reduction of bulk risks. We have also systematically
scaled back latently endangered credits. In this way, we have not
been involved in several of the major cases of insolvency that have occurred in
recent years.
We also managed a turnaround in our net commission income, which
showed a small increase to 72.14bn after two years of decline. Above all, as
from mid-year we benefited from a recovery in securities markets and also
achieved growth in both foreign commercial business and payment transactions.
We were also more successful with our trading profit than we had been a
year previously; it was 35.5% higher at 7737m. We were able to draw upon our
strength in equities business, which was also lifted by the emerging recovery of
the markets.
Commerzbank Group, in 7 m 2003 2002 2001 2000 1999
Germany 813 946 555 529 522
Abroad 260 365 325 148 89
Global provision 11 10 47 8 78
Total net provisioning 1,084 1,321 927 685 689