GERMAN lender Commerzbank is taking major risks in pushing into the small business market and by competing aggressively on price, according to credit ratings agency Moody’s.
The bank is investing €2bn (£1.6bn) on updating its IT and processes, while it slashes fees and rates to attract more business in the small business sector. The plan is to reshape Commerzbank, creating a more competitive institution for the long run.
But Moody’s warned the proposals are risky.
“We take the view that Commerzbank had to take corrective action in terms of both strategy and risk-taking, in order to win back market confidence,” said the ratings agency.
“However, the strategic adjustment entails disproportionate and extremely costly asset-rundowns and divestments alongside the recently declared €2bn investment into the core businesses, which implies limited potential for profit growth at group level for several years yet.”
And it noted the bank is taking on well-established rivals in the small business space, meaning “the ultimate success of the new core bank strategy remains uncertain.”
Commerzbank declined to comment.