What You Should Know About comdirect bank Aktiengesellschaft’s (ETR:COM) Risks
The banking sector has been experiencing growth as a result of improving credit quality from post-GFC recovery. As a small-cap bank with a market capitalisation of €1.61b, comdirect bank Aktiengesellschaft’s (ETR:COM) profit and value are directly affected by economic growth. This is because borrowers’ demand for, and ability to repay, their loans depend on the stability of their salaries and interest rates. Risk associated with repayment is measured by bad debt which is written off as an expense, impacting comdirect bank’s bottom line. Today we will analyse comdirect bank’s level of bad debt and liabilities in order to understand the risk involved with investing in the bank.
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How Good Is comdirect bank At Forecasting Its Risks?
comdirect bank’s understanding of its risk level can be estimated by its ability to forecast and provision for its bad loans. If it writes off more than 100% of the bad debt it provisioned for, then it has poorly anticipated the factors that may have contributed to a higher bad loan level which begs the question – does comdirect bank understand its own risk?. comdirect bank’s low bad loan to bad debt ratio of 98.82% means the bank has under-provisioned by -1.18%, indicating either an unexpected one-off occurence with defaults or poor bad debt provisioning.
How Much Risk Is Too Much?
comdirect bank is engaging in risking lending practices if it is over-exposed to bad debt. Typically, loans that are “bad” and cannot be recuperated by the bank should comprise less than 3% of its total loans. When these loans are not repaid, they are written off as expenses which comes directly out of the bank’s profit. Since bad loans only make up a very insignificant 0.026% of its total assets, the bank exhibits very strict bad loan management and is exposed to a relatively insignificant level of risk in terms of default.
How Big Is comdirect bank’s Safety Net?
comdirect bank profits from lending out its various forms of borrowings and charging interest rates. Deposits from customers tend to carry the lowest risk due to the relatively stable interest rate and amount available. As a rule, a bank is considered less risky if it holds a higher level of deposits. comdirect bank’s total deposit level of 97.7% of its total liabilities is very high and is well-above the sensible level of 50% for financial institutions. This may mean the bank is too cautious with its level of its safer form of borrowing and has plenty of headroom to take on risker forms of liability.
Next Steps:
How will COM’s recent acquisition impact the business going forward? Should you be concerned about the future of COM and the sustainability of its financial health? The list below is my go-to checks for COM. I use Simply Wall St’s platform to keep informed about any changes in the company and market sentiment, and also use their data as the basis for my articles.
Future Outlook: What are well-informed industry analysts predicting for COM’s future growth? Take a look at our free research report of analyst consensus for COM’s outlook.
Valuation: What is COM worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether COM is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
