Credit Update: Deutsche Bank sustains earnings momentum; credit profile remains sound

• Deutsche Bank’s 2Q26 earnings remained strong, led by Investment Bank growth and supported by resilient banking-book revenues.
• Asset quality remains manageable, with CRE a concentrated risk rather than evidence of broad loan-book deterioration.
• Funding and liquidity remain robust, supported by strong deposits, low loan-to-deposit ratio, and ample regulatory liquidity buffers.
• Capitalisation is comfortable, with a 13.9% CET1 ratio, solid MDA headroom, and substantial MREL/TLAC buffers.
• Deutsche Bank bonds appear broadly fairly valued; Tier 2 offers better intra-issuer carry, but peer-relative value remains limited.

Revenue growth remains healthy, led by IB

Deutsche Bank’s revenue momentum remained strong in 2Q26, with net revenues increasing +9% y/y to €8.5b (Chart 1). Investment Bank was its largest growth contributor and accounted for almost three-quarters of the Group’s revenue uplift, although Private Bank and Asset Management also delivered solid growth themselves.

Investment Bank delivered the strongest growth, with revenues increasing +19% y/y to €3.2b (Chart 2). Fixed Income & Currencies (FIC) revenues rose +16%, led by FIC Markets (+27%), as management cited market-share gains alongside strong client demand for risk management and trading. Its Investment Banking & Capital Markets (IBCM) business also did well (+36%), with debt origination up +20% and equity origination up +148%. On a q/q basis, FIC revenues moderated from a particularly strong 1Q26, while IBCM continued to improve sequentially.

Private Bank revenues increased +8% y/y to €2.6b, supported by both Personal Banking (+6%) and Wealth Management (+11%). Net interest income (NII) rose +10% to €1.7b, while commission and fee income rose 8%. We see two key factors underpinning this performance. First, higher deposit balances and Deutsche Bank’s structural hedges supported NII despite lower European policy rates; second, continued asset gathering supported fee income, with AUM increasing +13% y/y to €732b alongside €9b of net inflows in 2Q26.

Asset Management revenues rose just +4% y/y to €756m. Management fees rose +13% y/y, again helped by a strong +18% increase in AUM (+11% on a TTM basis) alongside robust net inflows (€25b in 2Q) (Chart 3). However, headline revenue growth was held back by a decline in performance and transaction fees, likely normalising after strong market performances in previous quarters (observed by the sharp peak in performance fees) (Chart 4).

Corporate Bank revenues increased just +1% y/y to €1.9b. NII was broadly unchanged at €1.2b despite a large decline in net interest margins from 3.6% in 2Q25 to 3.3% in 2Q26, with higher client balances offsetting margin pressures. Fee income saw a slight uplift of +4%, supported by higher client activity. Encouragingly, sequential revenue growth (+5% q/q) looked more optimistic, suggesting a possible turnaround following a period of lower rates.

To summarise, we characterise Deutsche Bank’s 2Q26 revenue growth as market-sensitive, given the large contribution from Investment Bank. Nevertheless, underlying franchise trends remained constructive where strong net inflows and AUM growth supports the asset-gathering businesses, while higher balances and structural hedges helped cushion margin pressure in the banking businesses.

Chart 1: Net revenues grew +9% in 2Q26

Chart 2: Investment Bank was the strongest growing by revenues

Chart 3: Asset Management benefited from AUM growth amid steady net inflows

Chart 4: Performance fees normalised from unusually high levels in 4Q25 and 1Q26

Costs were well-managed; deliberate de-risking actions on provisions

Credit loss provisions rose +9% y/y to €460m in 2Q26, despite some sequential moderation (-11% q/q). 2Q26 annualised cost of risk was approximately 38 bps, versus 36 bps in 2Q25 and 43 bps in 1Q26 (Chart 5). Importantly, around €120m of provisions related to planned exits of certain non-performing exposures (largely CRE) as part of deliberate capital-accretive de-risking actions. Management estimated these exits added around 10 bps to 2Q26’s cost of risk and described underlying performance as consistent with its normalised provision rate of around 30 bps through 2028. We do not view this recent increase in provisions as evidence of a broad deterioration in asset quality at this point.

Non-interest expenses grew +8% y/y to €5.3b in 2Q26, though management stated that underlying cost growth was lower at +4%. The reported comparison was distorted by around €100m related to the Private Bank’s India-franchise exit and around €120m of litigation releases that benefited 2Q25. Other drivers included incremental investment and higher compensation associated with business volume and inflation, though these generally remained well-controlled. Overall, we view the underlying cost trend as manageable for now.

Chart 5: Cost of risk was well managed, provisions stable

Profitability continues to improve from a more normalised base

Group net profit rose +10% y/y to €1.9b in 2Q26. Revenue growth continued to outpace underlying costs, while the increase in credit-loss provisions remained manageable – cost-to-income ratio improved from 63.6% in 2Q25 to 63.0% in 2Q26.

Importantly, the latest +10% figure this quarter comes from a cleaner base than FY25, with no major one-off items this time. While Investment Bank – a typically market-sensitive segment – was a big driver this quarter, we like that Deutsche Bank displayed other notable underlying growth drivers including resilient net interest margins and steady net inflows / AUM growth over time.

Outlook & guidance maintained

Deutsche Bank maintained most of its FY26 guidance following a strong 2Q (Table 1).

Management continues to guide for €33b of revenues by FY26 – we think this revenue target appears increasingly achievable. This represents a modest +3% increase from FY25, while the €17.2b of already-generated revenue in 1H26 gives Deutsche Bank some buffer even for a weaker h/h performance in 2H26. Management indicated during their earnings call that they would not be surprised if FY26 revenues modestly exceeded this €33b figure, although formal guidance remains unchanged. Meanwhile, NII across key banking-book segments is now expected to slightly exceed its previous guidance of €14b, supported by loan and deposit growth and structural-hedge rollover.

On costs, management guided for its cost-income ratio to remain under 65%. Underlying credit-loss provisions are still expected to be slightly lower y/y, although further capital-accretive NPL disposals could cause reported provisions to finish slightly above FY25. Given the 60.9% cost/income ratio achieved in 1H26 and underlying portfolio performance to date, we view these targets as achievable.

Beyond 2026, Deutsche Bank also maintained its various FY28 targets, including a ROTE above 13%, cost/income ratio below 60%, and revenue CAGR above 5% from FY25 – FY28. With several years remaining, we view these targets as achievable but dependent on sustained revenue growth alongside maintaining cost discipline.

Table 1: Most targets maintained; management signalling slightly greater confidence

Improving asset quality, but CRE remains important risk

Underlying asset quality remains broadly manageable. Stage 2 loans outstanding fell -15% y/y to €48.8b, offset by a +6% increase in Stage 3 loans to €15.6b. However, we did not observe any broad-based deterioration, as Stage 3 loans remain just around 3.3% of the portfolio, little changed from 3.2% a year ago (Chart 6).

Loan book coverage remained relatively stable. Overall loan book coverage increased modestly to 1.28% compared to 1.25% a year earlier; stage 3 coverage was reported at 32.8% in end-June 2026 compared to 31.0% a year earlier. The modest increase in coverage provides marginal additional protection against losses (especially Stage 3), though we note that Stage 3 coverage in Investment Bank (where some CRE exposure is parked) remains lower than that in other segments.

CRE remains an important exposure and potential driver of credit risks. Deutsche Bank has reduced its non-recourse CRE portfolio by -22% since 2022 (-41% for US CRE), to €31b as of end-June 2026. However, around 40% of its US CRE portfolio remains office-related, where the outlook remains challenging for weaker borrowers with less attractive assets. Nonetheless, we primarily see CRE as a concentrated tail risk rather than evidence of outright asset-quality deterioration.

Chart 6: Stage 3 loans still well-managed (3.3% of total)

Funding and liquidity profile remain robust

Deutsche Bank’s funding profile remains supported by a large and growing deposit base, limiting its reliance on wholesale funding. Deposits increased +7% y/y to €698b in 2Q26, compared with a +4% growth in loans to €491b, resulting in a lower loan-to-deposit ratio of 70.3% (72.3% a year earlier). Deposits accounted for around 58% of its adjusted net balance sheet (Chart 7), of which a majority is sourced domestically, reflecting Deutsche Bank’s strong market share within Germany. Wholesale funding needs also remain manageable, with €9.0b of its €10 - 15b FY26 issuance plan already completed by mid-July.

Liquidity remains comfortably above regulatory requirements, notwithstanding some normalisation from the particularly high levels at FY25. Deutsche Bank’s liquidity coverage ratio (LCR) remained strong at 140%, while net stable funding ratio (NSFR) was 118%. Both ratios represent significant buffers over regulatory requirements - for instance, the LCR implies approximately €68b of liquidity above requirements.

Deutsche Bank’s stressed net liquidity position provides a somewhat more conservative perspective, declining from €94.1b at end-December 2025 to €76.7b at end-June 2026. The reduction mainly reflected higher net impact from loans and modelled stress outflows. While the decline is worth monitoring, we believe the stressed liquidity surplus (€76.7b) remains adequate and coupled with its resilient deposit-funded balance sheet, indicates strong capacity to withstand periods of market stress.

Chart 7: Deposits account for 58% of total funding, helped by strong domestic franchise

Capitalisation remains comfortable, though not expected to improve significantly

Deutsche Bank’s CET1 ratio has moderated from its 2025 highs, currently around 13.9%, but remains comfortably above its 11.2% regulatory requirement (i.e. 270 bps buffer) (Chart 8). The buffer has also remained consistently above 2.5% for multiple quarters now, indicating a consistently comfortable buffer over time. From end-2Q25 to end-2Q26, the decline in CET1 ratio from 14.24% to 13.92% primarily reflected greater capital deployment, as risk-weighted assets (RWA) rose +8% while CET1 capital rose just +5%. Management continues to target a 13.5% - 14.0% CET1 operating range – we think this is feasible, with future earnings accretion likely to be offset by capital distributions (e.g. buybacks and/or dividends).

Apart from CET1, Deutsche Bank’s capital ratios remain comfortably above regulatory requirements. Deutsche Bank reported a 17.2% Tier 1 capital ratio versus a 13.2% requirement, 19.0% total capital ratio against a 16.0% requirement, MREL ratio of 36.4% versus a 30.4% requirement, and a 4.5% leverage ratio against a 3.6% requirement. Of these figures, its binding requirement remains CET1, where it maintains a sizeable €10b buffer over MDA. Furthermore, management stated their sizeable MREL buffer gives them flexibility to pause new issuances for at least 1 year.

Deutsche Bank’s CET1 buffer is broadly comparable with European peers (Chart 9). We primarily compare with major European G-SIBs, while adding on Commerzbank for a German comparator. Its buffer of 2.7% is similar to that of BNP Paribas (2.6%) and Societe Generale (2.9%), but slightly lower than Commerzbank’s 4.1% buffer. We nonetheless highlight Barclays’s thinner buffer – this was already mentioned in our 2Q26 coverage on Barclays. Hence, Deutsche Bank’s buffer is not unusually large, but sits broadly within the range of comparable banks.

Chart 8: CET1 buffer remains adequate, has generally kept over 250 bps over time

Chart 9: CET1 buffer is also broadly comparable with European peers

Other risks to note

As highlighted in previous articles, Deutsche Bank remains exposed to interest rate risks, though sensitivity analyses suggest these risks are currently manageable. On interest rates, Deutsche Bank estimates that a hypothetical +25 bps parallel shift in yield curves would reduce NII by just €10m in 2026, before increasing NII by €50m in 2027 and €115m in 2028. Conversely, a -25 bps parallel shift would increase NII by €5m in 2026, but reduce it by €70m in 2027 and €140m in 2028 respectively. In other words, barring extreme interest rate changes, we do not expect Deutsche Bank’s NII to be significantly affected.

Deutsche Bank’s global business model also exposes it to ongoing regulatory and litigation risks. Legacy legal risk has continued to decline but has not disappeared, as litigation provisions fell to €1.2b at 2Q26, compared to €1.7b a year earlier. Contingent liabilities also declined from €1.2b to €0.9b over the same period. Recent investigations also highlight that legacy conduct issues may not be over, such as a July raid on its headquarters regarding suspected ‘cum-cum’ tax transactions from 2008 – 2010. While these do not appear material relative to Deutsche Bank’s earnings or capital buffers, they reinforce the possibility of episodic litigation provisions.

Bond comparison

To summarise, we believe Deutsche Bank remains poised for continued growth and is still well-capitalised despite manageable ongoing risks relating to CRE and litigation (among others).

Following the call of Deutsche Bank’s SGD bonds, its more accessible outstanding opportunities are now concentrated in USD, EUR, and GBP. We assess relative value across these currencies below. We find Deutsche Bank’s bonds fairly priced relative to peers. However, within Deutsche Bank’s own capital structure, we prefer their Tier 2 over senior bonds for the additional spread and limited extension risk, though peer-relative value remains modest.

USD bonds

Within the USD space, Deutsche Bank has many bonds outstanding, including non-perpetuals (Table 2) and perpetuals (Table 3).

Deutsche Bank’s senior non-preferred bonds maturing 2029 (DB 6.720% 18Jan2029 Corp (USD))  yield around 4.93%, broadly in line with similarly-rated and similarly-dated bonds from Societe Generale and Barclays. We find these Deutsche Bank bonds fairly priced with no compelling relative value over peers.

Deutsche Bank’s Tier-2 subordinated bonds maturing 2031 yield around 5.68%. Selected peer Tier 2 bonds, however, offer higher headline yields of around 5.8% - 6.0%, while the Deutsche Bank bonds also have spreads (119 bps) on the tighter end of the peer range. We do not see clear relative value for Deutsche Bank’s Tier 2s versus comparable peers, but still find them more attractive than Deutsche Bank’s own seniors.

Finally, Deutsche Bank’s USD AT1s do not appear especially cheap versus peers. Its 8.1301% perpetuals trade at broadly comparable yields to AT1s, and lower than AT1s by French banks like BNP Paribas and Societe Generale.

Table 2: USD non-perpetuals outstanding – Deutsche Bank bonds bolded

Table 3: USD perpetuals outstanding – Deutsche Bank bonds bolded

EUR bonds

Looking at the EUR space, we find DB 1.467% 21Dec2027 Corp (EUR) fairly priced (Table 4). There is no compelling yield pickup over BNP Paribas bonds, while the small outstanding amount (€51m) likely limits the liquidity available in the secondary market.

Deutsche Bank’s perpetuals could be interesting to those who already are comfortable with perpetuals. We show two perpetuals below (4.625% and 10.000% coupons), which have similar time to reset but very different yields. DB 10.000% Perpetual Corp (EUR) has a very high reset spread (compared to most other outstanding EUR bonds), and we think this greatly incentivises a call in 1.2 years. Meanwhile, DB 4.625% Perpetual Corp (EUR) offers a higher yield, and is also currently priced to call, though the reset spread is notably lower than its 10.000% peer.

Table 4: EUR bonds outstanding

GBP bonds

Looking at the GBP space, we find DB 1.875% 22Dec2028 Corp (GBP) fairly priced versus peers, though there is a slight yield pickup over peer bonds by BPCE and BNP Paribas (Table 5).

Table 5: GBP bonds outstanding

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold NIL positions in the abovementioned securities. This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.