EuroBusiness Media (EBM): BNP Paribas, one of Europe’s largest banks, reports 2018 third quarter results. Jean-Laurent Bonnafé welcome! You are the CEO of BNP Paribas.
Jean-Laurent Bonnafé: Thank you!
EBM: What would you highlight about the Group’s performance in the third quarter of the year?
Jean-Laurent Bonnafé: In the third quarter, BNP Paribas delivered a good level of net income. Business activity continued to progress with outstanding loans up by 4.2% year-on-year in the context of economic growth across Europe.
Revenues of the operating divisions were up 0.8% on a comparable basis with strong growth of International Financial Services, slightly lower revenues at Domestic Markets due to the low rate environment, and a still lacklustre context for FICC activities within CIB in Europe.
Costs of the operating divisions progressed on the back of the continued development of the specialised businesses in Domestic Markets and IFS. However, they marked a decrease in the retail networks and in CIB.
Cost of risk at Group level was still at a low level, equivalent to 34 basis points of outstandings, essentially in line with the third quarter 2017.
The Group’s net result stood at 2.1 billion euros, 4% higher than in the same quarter last year. Netting one-offs, it was in line with last year and equated to a Return on Tangible Equity of 11%.
In terms of financial structure, the Group is well capitalised and the fully loaded Common Equity Tier 1 ratio increased to 11.7% at the end of September.
EBM: How have your Domestic Markets fared in the current European context? In particular, what can you tell us about your Italian operations?
Jean-Laurent Bonnafé: Our Domestic Markets showed good business drive in the context of economic growth with loan growth in both the retail networks and in the specialised businesses and deposits increasing in all countries.
Private banking’s assets under management continued to increase and Hello bank! expanded its client base by nearly 14% year-on-year to stand at nearly 3 million overall. We saw strong client acquisition particularly in France where Hello bank!’s clients topped 400,000 at the end of September.
Domestic Markets is progressively developing new client experiences and pursuing its digital transformation. The number of active mobile users is rising sharply in the retail networks and was 17% higher than a year ago.
In terms of P&L, overall revenues were slightly lower at roughly 3.9 billion euros, still impacted by the low rate environment but partly offset by the good business drive I mentioned and strong growth in the specialised businesses.
Operating costs were marginally higher due to the continued development of the specialised businesses but were 1.3% lower in the retail networks.
Given a reduction of the cost of risk in particular at BNL in Italy, pre-tax income was not far from 1 billion euros, only slightly below last year.
Regarding our Italian subsidiary BNL, revenues were down due to the low rates and the strategic choice to focus on the better-rated corporates. There were also some non-recurrent items impacting this quarter. Looking forward we expect an improvement of the evolution linked to an increase in margins.
In any case, BNL is successfully reducing its costs on the back of ongoing digitalisation and continued branch network reduction. Its cost of risk continues to improve significantly, at 67 basis points, and is well oriented to reach our 2020 target of 50 basis points. Thanks to this and despite the political turmoil, BNL is steadily improving its profitability.
Before I conclude, one word on our French Retail Banking which is showing an improving revenue trend with a quasi-stable net interest income this quarter due to the normalisation of the loan renegotiations as well as business growth.
So summing up on Domestic Markets, good income resilience on the back of the continued business drive and despite the persistent low rate environment.
EBM: Beyond the Eurozone, how has your international retail banking performed this quarter? More specifically, what about your Turkish operations?
Jean-Laurent Bonnafé: Our International Retail Banking confirmed its business drive in the third quarter.
Looking at Europe-Med, loans and deposits were up and it continued to implement its digital transformation as illustrated by the success of our digital banks with Cepteteb in Turkey increasing its client base to 617,000 clients and BGZ Optima in Poland to over 220,000.
We also extended the use of e-signature as well as continued automating processes thanks to the rollout of robots.
At constant scope & exchange rates, Europe-Med’s revenues were up 16% with an increase in all regions and in particular in Turkey. Costs increased at a much slower pace than revenues, generating significant positive jaws. Cost of risk, which was at a low level last year, was affected by an increase in Turkey this quarter. Overall, Europe-Med’s pre-tax income showed good resilience with -5% on a comparable basis but was 25% lower at historical scope & exchange rate due to the significant devaluation of the Turkish Lira over the period.
Focusing on Turkey, the cost of risk increased by a few tens of millions. However, this was partly offset by an increase in revenues. All this is small at Group level as our activities in Turkey represent just 2% of the Group’s total commitments and mainly comprises the bank TEB which is well capitalised, very liquid and has strong deposit inflows.
Turning now to US retail banking, BancWest continued its business drive in the third quarter and sold an additional 30.3% of First Hawaiian Bank which reduced the stake to 18.4%.
At constant scope & exchange rate and compared to the same period last year, loans were up 1.1% net of a securitization in the fourth quarter 2017 while deposits increased by 1.5%.
Private banking’s assets under management progressed by 11% to stand at
over 14 billion dollars thanks to strong net asset inflows in the third quarter.
BancWest is also continuing to strengthen its cash management in co-operation with CIB and has recently expanded its product offer with the launch of three new products.
Still at constant scope & exchange rate, revenues were up 0.8% on the back of volume growth and costs were 2% higher net of some non-recurring elements. Overall, BancWest generated 286 million euros of pre-tax income, down 9% on last year but 31.7% higher at historical scope & exchange rate on the back of the capital gain from the sale of 30.3% of First Hawaiian Bank.
So, in a nutshell, a resilient performance from our International Retail Banking.
EBM: Personal Finance is a thriving business in the current low rate environment. What can you say about its third quarter results?
Jean-Laurent Bonnafé: What I can say is that Personal Finance continued to show strong business drive in the third quarter with outstanding loans progressing by over 13% on a comparable basis thanks to robust demand across Europe and the positive effect of new partnerships. I remind you that the business line acquired the financing business of General Motors Europe at the end of October last year.
Personal Finance is also continuing the implementation of its digital transformation as shown by the significant extension of robots and the gradual introduction of chatbots in several countries.
In terms of results, revenues increased by over 13%, or 9.9% on a comparable basis, in connection with higher volumes and the positioning on better risk products. Costs were up 11%, or just 4.4% on a comparable basis with significantly positive jaws. Cost of risk was still low but higher than the particularly low level seen in the first half of the year. As a result, pre-tax income stood at 424 million euros, slightly up on last year.
Summing up, in a favourable context across Europe, Personal Finance confirmed its strong operating trends in the third quarter.
EBM: How did your savings businesses perform this quarter? And how have assets under management evolved?
Jean-Laurent Bonnafé: Starting with the evolution of our assets under management, these increased to 1 trillion and 66 billion euros at the end of September marking a 2.4% year-on-year increase. In the first 9 months of the year, we actually saw net asset inflows for a total of 16 billion euros driven in particular by the positive contribution of Wealth Management and Insurance. The performance effect for the period was negative but almost fully compensated by the integration this quarter of the assets under management deriving from the acquisition of ABN Amro’s activities in Luxembourg.
Focusing on the Insurance business first, it continued to show good development with strong net asset inflows in savings in both France and Italy as well as a good performance in protection insurance in Asia.
In addition, our recently launched protection & casualty offer, developed by the joint venture between Cardif and Matmut, has already resulted in 75,000 contracts sold in our French retail since May.
In terms of results, on a comparable basis, Insurance revenues were over 11% higher whereas costs progressed at a lesser pace than revenues. Pre-tax income was optically lower due to the SBI Life capital gain booked in the third quarter of last year but like-for-like progressed by 7% in the third quarter.
Turning to Wealth & Asset Management, Wealth Management as I mentioned finalised the acquisition of ABN Amro’s activities in Luxembourg that will strengthen its positioning on the large entrepreneurs in the country. Asset Management was awarded the highest rating by the international network PRI for its socially responsible investment. And Real Estate confirmed strong business activity, in particular in Advisory in Germany, France and Italy.
In terms of P&L, Wealth & Asset Management’s revenues were up 5% driven by the Real Estate business. Costs increased at a higher pace on the back of the development of the business and of some non-recurring items. Bearing in mind the strong performance of the third quarter of last year, pre-tax income marked a 31% year-on-year reduction.
To wrap up, good growth in Insurance and continuing business development in Wealth & Asset Management in the third quarter.
EBM: Conditions have been rather mixed for market activities in the third quarter. What are the highlights of your CIB business lines?
Jean-Laurent Bonnafé: Yes, conditions for our CIB businesses were somewhat mixed especially in Europe but it showed resilience thanks to its diversification.
CIB’s revenues stood at 2.6 billion euros, down 3.5% compared to the third quarter last year. Let’s now look at each business. Global Markets’ revenues were down 8% on the back of a still lacklustre context for FICC activity in Europe that was partly offset by higher revenues in Equity and Prime Services.
FICC revenues were actually down 15% year-on-year as client activity on rates remained weak in Europe and the market context was lacklustre for forex and to a lesser extent for credit. Nonetheless, the business confirmed strong positions in bond issuance in the first 9 months with the top ranking for all bond issues in euros and number 9 for all international bonds.
On the other hand, Equities revenues progressed by 4.5% thanks to higher client volumes in equity derivatives and a slight increase in Prime Services activity.
Turning to Corporate Banking, revenues were down 1.9% but just 0.4% excluding the transfer of the correspondent banking activity to Securities Services this quarter. Corporate Banking showed good revenue resilience in a decreasing market context for syndicated loans where it confirmed its number 1 position in the EMEA region. Transaction banking continued its good development in cash management & trade finance with the business consolidating its top spot on trade finance in Europe.
Corporate Banking is also actively implementing its digital transformation as illustrated by the successful client on-boarding with Centric, our corporate digital platform that accounted over 9,400 clients at the end of September.
Turning to Securities Services, revenues increased by 5.6%, and 2.7% net of the transfer of correspondent activity, on the back of good business drive and the positive effect of new mandates. On the digital front, the business has already automated 40 processes with a further 35 under way and it’s developing new services exploiting artificial intelligence for things like automated document generation and virtual assistants on client platforms.
Moving now to total CIB costs, they were down 0.7% thanks to the cost efficiency measures that have already generated 413 million euros of recurring savings since end-2016. Leveraging its digital transformation, CIB has already automated more than 120 processes out of 200 identified and has started delivering the first functionalities on two of the four End-to-End projects, namely on credit process and client on-boarding.
Overall, given a net provision write-back this quarter, CIB generated 734 million euros of pre-tax income, down 5.6% compared to the previous year. It showed good resilience in terms of profitability with a pre-tax Return on Notional Equity of 16% in the first 9 months of the year thanks to effective cost measures and the active management of financial resources.
EBM: What progress are you making in your digital transformation plan, particularly regarding apps for mobile banking and the various banking channels you provide to your customers?
Jean-Laurent Bonnafé: I have referred several times to our digital transformation which is being implemented across all our business lines according to plan.
I’ve talked about the successful development of our digital banks with Hello bank! notching up close to 3 million clients and our digital banks in International Retail Banking also showing altogether 840,000 customers with good client on-boarding. Moreover, in France Nickel, our simple account and payment offer, has broken through the 1 million accounts opened, confirming its resounding success.
In each operating division we’re actively deploying new customer experiences.
In Domestic Markets we’re continuing to see a sharp rise in the number of active mobile users which stood at 3 million at the end of September, up 17% on last year.
Looking at IFS we’re extending the use of the e-signature in the international networks and in Personal Finance where, for example, in the third quarter nearly half of the total contracts were signed electronically.
The obvious example for CIB is Centric that I mentioned before and that is currently deployed in 45 countries providing access to 31 applications.
Another aspect of our digital transformation involves the use of innovative technologies and artificial intelligence. Robots have been introduced in several businesses to perform tasks ranging from controls to reporting to chatbots.
In Asset Management we’re leveraging the acquisition of Gambit in robo-advisory to roll-out innovative solutions for individuals and wealth management clients.
We’re using new trends as an opportunity to launch innovative products.
For example, we entered new services with the launch of Lyfpay in France, the universal mobile payment solution developed with leading retail groups, which has already exceeded 1 million downloads of its App.
These are just a few examples of the far-reaching transformation that we’re actively implementing. The successful roll-out of our digital plan has also contributed to attaining the recurrent cost savings that we’re accruing quarter after quarter and that stood at a cumulative 1 billion euros at the end of September.
EBM: Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!
