Germany's Commmerzbank has reported a steep drop in first-quarter earnings, with volatile markets and low interest rates hitting its business with German medium-sized companies especially hard. 

Net income dropped by half to €163m but was in line with the expectations of analysts, who had on average forecast a profit of €166m.

"Given the increased burden in relation with the ECB's further interest rate cut in March and the highly volatile global capital markets it has become more ambitious to reach the consolidated profit 2015", Commerzbank said in its quarterly report. 

The comments echoed remarks made by former chief executive Martin Blessing last month. Blessing turned over the helm to Martin Zielke on May 1.

Germany's second-biggest lender earned a net profit of €1.06 billion last year. 

Commerzbank's cash cow unit Mittelstandsbank - which caters to Germany's raft of small and medium sized companies - reported a 43% slump in operating profit to €209m as deposit margins narrowed and provisions for bad loans increased.

Operating profit at its investment bank decreased 72% to €70m after an exceptionally strong first quarter last year, weighed down by weak capital markets, which have also hit its peers.