* 2014 profit to rise considerably from 2013
* Bank says ready for ECB and EBA health checks
* Shares outperform European banking index
FRANKFURT, March 21 Commerzbank confirmed its turnaround plan was on track with profit expected to rise considerably this year and said it was well-prepared for a health check by the European Central Bank.
Germany's second-biggest lender on Friday said it would rely on a combination of growth and cost-cutting to improve results, and that it expected costs for bad loans to fall slightly this year compared with 2013.
"Commerzbank's consolidated profit, both pre-tax and after tax, should be considerably higher in 2014 even in a challenging economic and capital market environment," the bank said in its annual report. Commerzbank earned 78 million euros net profit in 2013.
Its shares gained almost 3 percent, outperforming the Dow Jones STOXX index of European banks, which was near flat at 1223 GMT. Commerzbank shares have risen almost 50 percent in the past year compared with a 17 percent rise for rivals in the index.
The lender was one of the highest-profile casualties of the global financial crisis after an expansion drive backfired, with the German government spending around 18 billion euros to bail it out. Restructuring has gained traction over the past year with the bank turning a corner in 2013.
Separately, analysts from Morgan Stanley upgraded the stock to "Overweight" from "Equal Weight" after reassessing the value of Commerzbank's non-core assets such as shipping loans or commercial real estate that the bank plans to sell or run down over time.
"We think the market is still too conservative," Morgan Stanley analysts wrote in a note.
Commerzbank said it expects the non-core unit to make an operating loss again in 2014, albeit a smaller one than in 2013.
"Most analysts broadly agree on the value of Commerzbank's core bank, but their views differ greatly on value of the non-core asset portfolio," said Guido Hoymann from brokerage Metzler. "Commerzbank will have to show that it can make further progress with winding down these assets."
Commerzbank's non-core assets stood at 116 billion euros at the end of 2013, compared with 289 billion in 2008 during the crisis. The bank aims to reduce that sum to 75 billion euros by 2016.
Chief Executive Martin Blessing reiterated in letter to shareholders that the bank was well-prepared for the bank health-check being run by the European Central Bank and the European Banking Authority.
"We cannot rule out effects on capital adequacy from the ECB comprehensive assessment, which includes a stress test. However, we do not expect this to result in any material deviation from our forecast," the bank said.
Unlike many other banks, which have significantly increased the salaries of their top executives, the total 2013 remuneration for Commerzbank management board inched up to 13.3 million euros from 12.9 million.
CEO Blessing, who waived his 2013 bonus, took home the same 1.4 million euros he got in 2012, thereby earning less than the other board members, whose top earner was investment bank head Michael Reuther with 1.5 million euros. (Reporting by Jonathan Gould and Arno Schuetze; Writing by Thomas Atkins; Editing by Erica Billingham)