EuroBusiness Media (EBM): BNP Paribas, one of Europe's largest banks reports 2017 second-quarter results. Jean-Laurent Bonnafé, welcome! You are the CEO of BNP Paribas, what are the highlights of the Group’s second quarter results?
Jean-Laurent Bonnafé: BNP Paribas’ second quarter results showed dynamic business activity and good income growth.
Revenues of the operating divisions progressed by 2.5% compared to the second quarter 2016 with the IFS and CIB divisions marking good progress. Domestic Markets was slightly down due to the low rates environment despite good business development.
Costs of the operating divisions marked a decrease thanks to the implementation of the operating efficiency plan. CIB’s costs were down, benefitting from the launch of the CIB transformation plan at the beginning of last year. IFS’ cost evolution reflected the increased levels of activity while Domestic Markets’ were higher on the back of the continued development of the specialised businesses.
The Group’s cost of risk was again at a low level this quarter standing at 36 basis points. This low level of cost of risk resulted from the continued decrease at BNL combined with write-backs in some businesses.
One-off items were negative this quarter whereas they had been quite positive the previous year. In Q2 2017 the Group delivered a strong net result of 2.4 billion euros. Excluding one-offs, it progressed by over 17% compared to last year, illustrating the very good performance of the operating divisions.
If we consider the actual semi-annual results, which delivered a very good 4.3 billion euros of net results after a solid first quarter, this translated into an annualised Return on Equity of 10.6% and a Return on Tangible Equity of 12.5%.
In terms of financial structure, the sound profitability of the second quarter, net of 50% dividend pay-out, helped the fully loaded Common Equity Tier 1 ratio progress by 10 basis points versus last quarter to stand at 11.7% at the end of June.
As you can see, a strong operating performance of the Group this quarter and for the first half of the year.
EBM: You have announced an ambitious transformation plan by 2020. Can you tell us how its implementation is progressing?
Jean-Laurent Bonnafé: We are actively implementing our ambitious programme of new customer experience, digital transformation and savings across the Group that entails total investments for 3 billion euros by 2020. We have already identified some 150 significant programmes at Group level.
The launch of the plan has started in line with the defined timetable and the programmes are being implemented gradually. Transformation costs are progressively ramping up and should gradually attain a cruising speed of about 250 million euros per quarter.
At the end of June, we had already booked 243 million of transformation costs and generated 186 million of recurrent cost savings.
EBM: Economic activity in the Eurozone has improved recently and the outlook remains good. How have your Domestic Markets performed in this context?
Jean-Laurent Bonnafé: Domestic Markets showed good business drive in the second quarter with good loan growth in all the networks and in the specialised businesses; deposits also continued to increase in all countries.
Private banking confirmed a good trend with assets under management increasing by 7.9% and net inflows reaching 1.5 billion euros in the second quarter.
Hello bank! continued to develop well with good levels of new clients on-boarding especially in France where new clients were up 18% compared to last year. Alongside this, we’ve been pressing ahead with new client experience and digital transformation. In fact, a couple of weeks ago we finalised the acquisition of Compte-Nickel - which is a success story and already has over 630,000 accounts - and in May we launched a new value-added App called Lyf pay jointly with Crédit Mutuel and in partnership with leading retail groups in France.
In terms of P&L, revenues were close to 4 billion euros in the second quarter, only slightly below last year’s level. As I mentioned, we saw good business drive in our domestic markets but we continued to be impacted by low interest rates. Commission income marked an increase in all the networks.
Operating costs were moderately higher due to business development investments in our specialised businesses this quarter. Taking just the 3 large retail networks, costs were up just 0.5% on average.
Given a significant reduction in cost of risk, especially on the back of the continued improvement at BNL in Italy, pre-tax income stood at a high level, topping 1 billion euros but slightly below last year.
In conclusion, our Domestic Markets performed quite well, showing good business drive but of course still reflecting the low interest rate environment.
EBM: Beyond the Eurozone, what has been the performance of your International Retail Banking? Have you started seeing the benefits of higher rates in your US retail banking?
Jean-Laurent Bonnafé: Starting with Europe-Med, business activity showed good growth with loans increasing in all regions and deposits also marking good progress.
Our digital banks confirmed their successful development with Cepteteb in Turkey reaching 420,000 clients and BGZ Optima in Poland at 205,000 clients.
At constant scope & exchange rates, revenues progressed by 4.0% thanks to the good volume growth I mentioned. Costs increased at a somewhat similar pace on the back of the good business development. Overall, given a lower cost of risk due to a write-back this quarter, Europe-Med’s results increased by 12% in the second quarter of the year. This increase was 1.6% at historical scope and exchange rates given the unfavourable exchange evolution.
Moving to our US retail banking, BancWest confirmed its strong business drive. Loans were up over 7% driven by both individuals and corporate lending while deposits were up 11% compared to last year.
We continued to grow the assets under management in our private banking which progressed by nearly 16% on last year to stand at 12.6 billion dollars. BancWest also continued to foster cross-business co-operation with other Group businesses such as CIB, Leasing and Personal Finance.
At constant scope & exchange rates, revenues were up 7.9% on the back of the good volume growth and, as you mention, the higher interest rates. Commissions marked an improvement.
Costs progressed but at a lesser pace leading to a largely positive jaws effect. On the whole, BancWest’s pre-tax income increased by over 11% on last year, confirming a strong operating performance in the second quarter.
EBM: Your consumer lending business, Personal Finance, is continuing to grow at a healthy pace. What are the highlights of the second quarter?
Jean-Laurent Bonnafé: Personal Finance continued to show very good business drive in the second quarter with outstanding loans increasing by 11.9% thanks to higher demand in the Eurozone and the positive effect of new partnerships.
Consistently with its 2020 development plan, in Q2 Personal Finance expanded its footprint by buying the Swedish consumer finance specialist SevenDay Finans. It also continued to innovate its product offer and pursue its digital development, as shown for example by the recently launched digital signature via mobile in Italy which already accounts for 23% of the total after just one quarter.
In terms of results, revenues were up 4.4% on the back of volume growth combined with the shift towards products with a better risk profile. Revenues progressed particularly well in Italy, Spain and Germany.
Costs progressed on the back of the increased level of activity.
Cost of risk was at a low level and pre-tax income marked a significant improvement to 445 million euros, marking a 22% increase on last year.
In conclusion, Personal Finance delivered another strong quarter with a very dynamic business drive and a significant improvement of its income contribution.
EBM: Your assets under management have been showing steady growth in recent quarters. How have they evolved in the first part of the year? What has been the P&L evolution of your savings businesses this quarter?
Jean-Laurent Bonnafé: The Group’s total assets under management stood at 1,033 billion euros at the end of June, thanks to good asset inflows since the beginning of the year in all our businesses and a positive performance effect. In fact, over the past 10 quarters our assets under management have increased by 139 billion euros with nearly two thirds coming from net asset inflows.
Looking at the Insurance business first, it continued to register good net inflows into unit-linked policies. Revenues benefitted from a favourable market context as well as from the good performance of protection activity and savings activity in Asia, and were up 1.4% compared to Q2 last year where we had booked a high level of capital gains.
Costs were up due to the continued development of the business and, overall, in the second quarter Insurance pre-tax income was only slightly below last year’s level at 376 million euros.
Turning to Wealth & Asset Management, revenues were up 2.3% with a rise in particular in our Asset Management. Costs marked a reduction, leading to positive jaws. As a result, pre-tax income marked a near 25% improvement to stand at 226 million euros in the second quarter.
To wrap up, revenue growth in our Insurance business despite a high comparison base in Q2 2016 and a good performance in all businesses in our Wealth & Asset Management.
EBM: Your CIB has shown good performances in the last quarters. How have your CIB business lines fared in the second quarter?
Jean-Laurent Bonnafé: Our CIB posted again good results this quarter.
Revenues reached 3.2 billion euros, marking a 4.6% increase despite a high comparison base in Q2 of last year. Both Corporate Banking and Securities Services marked good revenue growth while Global Markets displayed good resistance.
Focusing on this last business line first, revenues were 2.3% down due to lower business activity in Fixed Income that was, however, almost fully offset by the strong performance of our Equity & Prime Services.
Fixed Income was actually impacted by the lower level of activity at industry level. As a result, revenues decreased by 15.9% compared to a favourable Q2 the previous year. In this lacklustre context, we confirmed our top ranking on all bond issues in euros and number 9 position for international bond issues.
Equities revenues, on the other hand, showed strong growth on the back of a solid performance of equity derivatives and the good development of Prime Services.
Our recognised expertise in this area was confirmed by the 2017 Extel survey which voted Exane-BNP Paribas pan-European number 1 for brokerage, sales and equity research.
Turning to Securities Services, revenues progressed by 7.9% on the back of growing outstandings and higher transaction levels. The business line also benefitted from the positive impact of the new mandates.
Finally, Corporate Banking revenues were significantly higher, up 13.5% on last year with growth in the EMEA and Asia Pacific regions while the Americas was essentially stable. Transaction banking evolved well, with sound growth both in cash management and in trade finance. Q2 saw a good level of capital gains realised as part of the current business activity.
Turning to total CIB costs, these showed a significant reduction of -6% year-on-year on the back of the cost efficiency measures that we have been implementing in the CIB division since 2016. Hence, CIB continued to improve its operating efficiency with the fourth consecutive quarter of cost/income improvement.
As a result, gross operating income leapt by 28.4% and, given another quarter of net write-backs in cost of risk, pre-tax income rose by 48.7% to stand at 1.35 billion euros.
So, in a nutshell, a very good overall performance for our Corporate & Institutional Banking with continued improvement of its operating efficiency and strong income growth.
EBM: Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!
