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Commerzbank stock plunges but it's not a risk for investors, CFO says

Commerzbank's chief financial officer reassured that lender was safe for investors after the German lender warned of further pressures on its 2016 revenues and its share price tanked almost 8 percent on Tuesday.

"In general, Commerzbank is one of the most un-riskiest stocks in banking that you can currently get. We are well-capitalized, we have a strong leverage ratio, we have an extremely low NPL (non-performing loan) ratio and in that sense, that is a good reason to invest," Stephan Engels, chief financial officer of Commerzbank told CNBC on Tuesday.

"Secondly, we are still the second biggest bank in the fourth biggest economy in the world which is still growing so there is a lot of good argument to go for the stock."

Commerzbank
Hannelore Foerster | Bloomberg | Getty Images

Engels' comments came amid a rout in European banking shares as worries about the health of the region's lenders continued to weigh on sentiment, with the sector down 2.5 percent in morning trade Tuesday.

Commerzbank was one of the worst performers with its share price down almost 8 percent after it said cautious customers and the ongoing hit to revenue from the European Central Bank's negative interest rates would cause earnings to drop in 2016.

The bank had previously said that economic environment was making it "more challenging" to match last year's net profit of 1.06 billion euros ($1.2 billion).

Engels added that, having seen what happened in the bank's second-quarter earnings – in which net profit fell to 209 million euros from 307 million a year earlier – it was now "totally unrealistic to believe that we can top the 2015 results in 2016."

"What exactly will happen at the end of the year is difficult (to predict). The first two quarters have been so un-normal to a certain extent that I'm not really sure how to predict the upcoming two quarters," Engels said, adding:

"We have to wait." He did not think the general condition of the market would improve, however.

Commerzbank was not the only bank to perform badly on Tuesday. News that Barclays, BBVA, Commerzbank, HSBC and Societe Generale had joined a consortium of banks to pre-underwrite the capital increase for troubled Italian lender Banca Monte dei Paschi di Siena, according to Il Sole 24 Ore, also did not help sentiment towards the region's banks. Shares of BMPS were down nearly 9 percent and briefly suspended from trade.

Unicredit tanked and was briefly suspended from trade over concerns about its bad loan portfolio with investors worried it will need a larger-than-expected capital raise.

Asked to comment on Commerzbank's share price drop on Tuesday, Engels said it was "somewhat difficult" to comment on the bank's share price move on a daily basis and said many banks were affected.

"What we have obviously seen is a lot of pressure on banking stocks in general and it's too early to judge what has driven markets today and my tendency is to wait to see what happens in the next few days and my guess is that it will level out a bit."

When releasing further details on its most recent earnings on Tuesday, Commerzbank said that headwinds from interest rates and persistent customer caution due to geopolitical uncertainties were hitting income, despite growth.

"The bank expects the negative rate environment and the adverse markets to further weigh on revenues," Commerzbank said in its quarterly report, adding that loan loss provisions were likely to rise moderately, in part due to continuously challenging shipping markets. Commerzbank had already announced preliminary earnings figures for the second quarter late last month, which showed that net profit had fallen by one third from a year earlier.

Operating earnings at its cash cow Mittelstandsbank unit, which caters to small and medium-sized companies, fell 40 percent to 412 million euros.

Retuers contributed to this report.