FRANKFURT (AFP) - Germany's second largest lender Commerzbank said on Thursday it plans to cut 9,600 jobs, or one-fifth of its workforce, by 2020 and withhold dividends to pay for a 1.1-billion-euro (S$1.67 billion) restructuring.

The firm added that the US$1.23 billion (S$1.67 billion) plan, still to be agreed at a supervisory board meeting on Friday (Sept 30), would see it report a loss in the third quarter as it writes down the value of goodwill and other intangible assets.

But it forecasts a "slightly positive" bottom line for the whole of 2016.

Like other German banks, Commerzbank is fighting headwinds from low interest rates in the eurozone, tough regulation, intense competition, and the arrival of new digital actors on the market.

Board members aim to achieve "sustainable profitability" by focusing on private and business banking customers while shrinking investment banking activities, it said in a statement.

"Profit volatility and risks from regulatory changes will be reduced and capital freed up for the core business" with the retreat from investment banking, the statement continued.

To cover the costs of the restructuring, the bank said it would "cease dividend payments for the time being".

Commerzbank reported a profit of 1.06 billion euros in 2015, and paid its first dividend since the 2008 financial crisis at 20 cents per share.

Shares in the bank lost 0.77 per cent to trade at 5.95 euros by 0945 GMT in Frankfurt, while the DAX 30 index of leading firms gained 0.69 percent.

Commerzbank's employee roster would shrink by roughly 9,600 - around a fifth of its current level of 51,300 - if the plan is put into action.

Managers predict that the restructuring will create savings of 6.5 billion euros per year and allow them to create 2,300 new jobs in "growth areas" at the bank.