EuroBusiness Media (EBM): BNP Paribas, one of Europe’s largest banks is reporting is third quarter results for 2016. Jean-Laurent Bonnafé welcome! You are the CEO of BNP Paribas, what are the highlights of your third quarter 2016 earnings report?
Jean-Laurent Bonnafé: In the third quarter BNP Paribas delivered a good set of numbers and confirmed strong capital generation. Revenues of the operating divisions were up 4.8% despite the low rate environment. This confirmed once more the effectiveness of the Group’s integrated and diversified business model. Costs of the operating divisions progressed at a lesser pace than revenues, reflecting both increased levels of activity in some businesses and higher regulatory costs. Our savings plan Simple & Efficient successfully offset the natural cost drift. Cost of risk at Group level was significantly lower standing at 43 basis points with most businesses lower or at a low level.
The Group’s net result progressed by 3% to stand at nearly 1.9 billion euros. Excluding exceptional elements, it progressed by 15%. On a cumulative basis for the first 9 months and net of one-offs, the Group’s Return on Equity improved to 9.8% and the Return on Tangible Equity to 11.7%.
And, as I mentioned, the Group’s solid and recurrent capital generation was confirmed in Q3 with a significant improvement in the fully loaded Common Equity Tier 1 ratio which reached 11.4%, up 30 basis points this quarter mainly thanks to the Q3 net result but also thanks to the roughly 5 basis points contributed by the first tranche of the IPO of First Hawaiian Bank.
EBM: Starting with Domestic Markets, how did this division perform in the low rate environment this quarter?
Jean-Laurent Bonnafé: Domestic Markets resisted well in the low rate environment. A gradual improvement in loan demand was confirmed while strong deposit growth continued in all businesses. In Q3 Domestic Markets confirmed its dynamic business drive and continued to evolve its digital offer. We’re actually bringing together Wa! and Fivory which was developed by Crédit Mutuel in order to launch a common multi-service payment solution next year that combines payments, loyalty programmes and coupons. It will be developed in partnership with major players like Carrefour, Auchan and Total.
So, as you can see, sizeable banking and distribution players are joining forces to propose an innovative solution to customers. Also in terms of customer journeys we’re continuing to enrich the offer in all our networks for both Retail & Private and Corporate clients. For example, we launched new online applications in Belgium and in France which allow customers who envisage to buy a home to simulate their loan and get some additional services.
In terms of P&L, revenues were essentially stable at 3.9 billion euros. Low rates of course continued to weigh but the specialised businesses and Belgian Retail marked a good performance. Operating costs were moderately higher while cost of risk decreased significantly especially in Italy. On the back of this, pre-tax income reached 1 billion euros in Q3 marking a 9% improvement on last year.
To sum up, higher income on the back of lower cost of risk for our Domestic Markets division, which relentlessly continues to develop its digital offer.
EBM: Coming now to Personal Finance, how did it fare in the third quarter? Has Q3 confirmed the lower credit risk of the first half of the year?
Jean-Laurent Bonnafé: Personal Finance showed good business activity in Q3 with outstandings increasing by 9% on a comparable basis, driven by higher demand in the Eurozone and the positive effect of new partnerships. Car loans business also continued to develop well. In addition, the digitalisation of the business is ongoing. For example, the digital processing of files is currently being extended in several countries.
Revenues were up almost 1% on a comparable basis on the back of volume growth combined with a gradual shift towards products with a better risk profile. The Belgian and Italian markets performed particularly well this quarter. Costs remained well under control while cost of risk marked a significant reduction. The lower cost of risk trend was actually confirmed in Q3 on the back of the low interest rate environment and a gradual shift towards products with a better risk profile, such as car loans. All this resulted in a sizeable increase of pre-tax income which reached 411 million euros, up 13.5% at constant scope & exchange rates.
In conclusion, Personal Finance continued to fare strongly in Q3 confirming a dynamic business drive and its significant contribution to the Group’s results.
EBM: Can you give us the highlights for International Retail Banking for the quarter? What can you say about the IPO of First Hawaiian Bank in the US?
Jean-Laurent Bonnafé: Starting with Europe-Med, business activity progressed well in all regions both in terms of loans and deposits. Our digital banks in this area continued to increase their client base: Cepteteb in Turkey has reached 320,000 clients while BGZ Optima in Poland has close to 200,000. At constant scope & exchange rates, revenues progressed well on the back of volume growth and higher margins. Costs increased mostly due to the new banking tax in Poland; net of this they were up just 1.6% confirming a good overall control and the benefit of cost synergies from our Polish operations. On the whole, Europe-Med’s contribution to Group’s results increased significantly to 165 million euros. Moving to BancWest in the US, a significant event of the quarter was indeed the IPO of First Hawaiian Bank as we successfully placed 17.4% in the market at the beginning of August. As I said, this sale contributed roughly 5 basis points to our Common Equity Tier 1 ratio in Q3. BancWest’s business activity remained strong with deposits increasing by over 10% and loans by over 9%. We also continued to steadily increase the assets under management in our Private Banking which reached 11.4 billion US dollars, up 1.6 billion compared to last year.
At constant scope & exchange rates, revenues were 4.4% higher on the back of strong volume growth which was however mitigated by lower rates in the US compared to last year. Costs were higher due to increased compliance costs, charges related to First Hawaiian’s IPO and investments to strengthen the commercial set-up. Given a very low cost of risk, BancWest’s pre-tax income stood at 210 million euros in Q3, slightly down on last year.
EBM: How did your Savings and Insurance businesses perform in terms of inflows and income generation?
Jean-Laurent Bonnafé: This quarter our total assets under management broke through the 1 trillion mark for the first time to stand at 1,004 billion euros. This good performance was driven by good net inflows in all our businesses as well as a strong performance effect. If I take the Insurance business first, Q3 revenues were 17% higher reflecting the positive market evolution this quarter compared to a weak base in Q3 of last year as well as a high level of capital gains realised.
Costs progressed as a result of the continued development of the activity while the contribution of associated companies improved. Given all this, Insurance pre-tax income marked a significant improvement to stand at 427 million euros in Q3. Turning to Wealth & Asset Management, revenues showed a good overall resistance in an unfavourable context. Costs progressed mostly on the back of investments in the Wealth Management business leading to a lower pre-tax income this quarter which stood at 161 million euros.
To sum up, our Insurance business showed a strong income improvement this quarter while our Wealth & Asset Management marked good resistance in a still unfavourable context.
EBM: What can you say about the performance of your Corporate & Institutional Banking in the third quarter?
Jean-Laurent Bonnafé: In Q3 our Corporate & Institutional Banking division showed good business activity and delivered growing results. CIB is actively implementing its Transformation plan in line with the planned timetable and cost-saving measures have been launched in all regions. Revenues stood at 2.9 billion euros marking a strong 13% increase on last year with a good performance from all three business lines. Taking them one at the time, starting with Global Markets which performed strongly in the third quarter, with revenues progressing by close to 20%.
Fixed Income was the main driver of the quarter delivering a very good performance in all business activities as compared with a lacklustre quarter last year in rates and forex. We confirmed our top position on all bond issues in euros and ranked number 9 for international issues. Equities were lower compared to a high base last year. Securities Services increased by roughly 3% on the back of asset growth both in terms of assets under custody and assets under management. In Corporate Banking, revenue growth exceeded 9% and was driven by higher volumes in all regions and a good contribution from commission income. Transaction banking activities such as cash management and trade finance progressed well in the quarter.
Costs increased as a result of the higher level of activity but showed a good overall control, benefitting from cost saving measures. So, globally, a very good quarter for our Corporate & Institutional Banking division which continues to show a good business development.
EBM: have you already received the communication from the ECB concerning your SREP requirement?
Jean-Laurent Bonnafé: Yes, we have received the SREP communication from the ECB. BNP Paribas has been set a Common Equity Tier 1 ratio requirement for next year of 8% on a phased-in basis which includes a G-SIB buffer of 1%, a Conservation buffer of 1.25% and a Pillar 2 Requirement of 1.25%. This doesn’t include the Pillar 2 Guidance which remains confidential between the bank and the Supervisor. Today, with a phased-in Common Equity Tier 1 ratio of 11.6%, BNP Paribas is very significantly above this minimum requirement. Accordingly, the anticipated level of fully loaded Common Equity Tier 1 ratio requirement for 2019 stands at 10.25%, based on the progressive phasing-in of the Conservation buffer to 2.5% and a G-SIB buffer hypothesis of 2%. As I said before, the Pillar 2 Guidance is not included. This Common Equity Tier 1 level represents the binding constraint from 2019 in terms of Maximum Distributable Amount restrictions.
BNP Paribas maintains its fully loaded Common Equity Tier 1 ratio target of 12%.
EBM: Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!
