By James Wilson

in Frankfurt

Commerzbank, Germany’s second-largest bank, raised its provisions against loan losses to more than €1bn ($1.48bn) in the third quarter of the year as it tackled the likely cost of its exposure to the weak economies of eastern Europe and the battered property sector.

The bank, which will make a loss this year after its troubled acquisition of Dresdner Bank amid the financial crisis, also drew attention to the challenging economic environment for small and mid-sized companies in Germany.

“From the current vantage point we expect risk provisions to rise again in the fourth quarter,” Commerzbank said in its interim report.

Shares in Commerzbank fell 4.44 percent in late trade in Frankfurt. The bank’s operating profit of €122m in the three months to September was the first quarterly operating profit since June last year.

“The German core business is profitable, but Commerzbank will close 2009 with a loss,” Martin Blessing, chief executive, said. The bank has said that the cost of integrating Dresdner will reach €2bn in 2009.

Commerzbank’s loan loss provisions during 2009 amount to €2.9bn but Eric Strutz, chief financial officer, said on a conference call with analysts that loan loss provisions should be lower in 2010 than this year.

The bank this week reported a net loss during the third quarter of €1.06bn, including goodwill writedowns of €650m that are linked mainly to its Eurohypo property finance and public finance unit.

This is slated to be sold off within five years under an agreement struck with the European Commission to get Brussels’ approval of an €18.2bn state aid package given to the bank.