Commerzbank said it will post higher earnings in 2011 and start to repay its bailout money as a rebounding German economy lifted profits at its core businesses including investment banking.

German state bailout fund SoFFin injected €16.2 billion of so-called silent participations, a form of non-voting capital contribution, and took a 25 per cent stake in Germany's second largest lender during the financial crisis.

"We will do our utmost to ensure that the German government concludes its support measures on a positive note," chief executive Martin Blessing said in a statement as the company reported stronger-than-expected 2010 financial results.

Aside from paying back part of the bailout, Commerzbank said it would also pay interest on the funds this year, a precondition for lifting a state-imposed cap on pay for board members.

In 2010, Commerzbank posted net profit of €1.43 billion, above analyst expectations of €1.3 billion.

Commerzbank's core Mittelstandsbank unit, which focuses on lending to mid-sized German companies, again proved to be a key profit driver, attaining the best result ever.

"The fourth-quarter pretax profit will please the market. A big surprise was the good performance in corporates and markets (investment banking), and Commerzbank confirmed it wants to repay silent participation," WestLB analyst Neil Smith said.

"That should help lift share price."

German business morale rose to a record high in February, its ninth consecutive increase, signalling the strong recovery in Europe's powerhouse economy remains intact, shrugging off spending cuts and slowing growth abroad.

The investment banking and portfolio restructuring units also proved to be profit contributors, benefiting from a favourable market development as well as from write-backs and lower risk provisions.

"We had a good start in January, February has so far also developed positively," finance chief Eric Strutz said in the statement.

The bank expects to see a further decline of at least 200 million euros in loan loss provisions this year, giving the bank leeway for the repayment of the state's non-voting capital contribution called silent participation.

"For 2011, we expect to close the year with an operating profit according to IFRS that will be significantly higher than that seen in 2010," Mr Blessing said.

Commerzbank said it expected further growth in 2011 at its Mittelstandsbank, its investment bank as well as in central and eastern Europe.

Despite posting a 2010 profit under international accounting standards (IFRS), Commerzbank will not service 2010 interest payments on state aid because it posted a full-year net loss of €1.2 billion under German accounting rules due to writedowns on commercial mortgages.

Reuters