EuroBusiness Media (EBM): Jean-Laurent Bonnafé welcome!
Jean-Laurent Bonnafé: Thank you!
EBM: You've just reported Q1 numbers; can you give us the highlights?
Jean-Laurent Bonnafé: The first quarter saw some difficult market conditions, especially in Europe. In this context, BNP Paribas confirmed a solid income generation thanks to its diversified and integrated business model.
Revenues were 2% lower on the back of good resilience in our Retail Banking & Services businesses while CIB - Global Markets was impacted by very unfavourable markets.
Expenses decreased by 2.3% showing good cost control.
The Group’s cost of risk was significantly lower this quarter, coming in at just 43 basis points on the back of a decrease in most businesses.
All in all, BNP Paribas posted a net result of 1.8 billion euros in Q1, up 10% on last year. Excluding some positive one-offs of the quarter, the Group’s annualised Return on Equity stood at 9.4% or 11.2% in terms of Return on Tangible Equity. When calculated coherently with the underpinnings of the 2014-2016 plan, the quarter generated a 10.1% Return on Equity, in line with the plan’s target.
And despite tough conditions, the Group proved once more its strong and recurrent capital generation as its Common Equity Tier 1 ratio progressed 10 bips to 11%.
EBM: Q1 results of the big US banks have been impacted by higher provisions in the energy sector. Could you give us some colour on the evolution of the Group’s cost of risk in the first quarter?
Jean-Laurent Bonnafé: As I said, the Group’s cost of risk was significantly lower this quarter. On the whole, it benefitted from the good origination policy of the Group and the low interest rate environment which contributes to a reduction in the cost of risk.
This resulted in the reduction of the cost of risk in our consumer finance business - Personal Finance - where the product mix is gradually evolving towards products with a better risk profile.
This was also the case in our domestic networks where the most significant reduction came, as expected, from BNL in Italy where we actually saw a first reduction of NPL stocks. The other networks confirmed quite low levels of cost of risk.
CIB’s cost of risk is also low this quarter. We saw of course some additional provisions in our Oil & Gas and Mining portfolios but this was more than offset by lower provisions elsewhere. In Oil & Gas I remind you that most of our exposure is towards oil Majors and National Oil Companies.
EBM: The new round of Quantitative Easing by the ECB two months ago has ensured low interest rates. How are your domestic networks faring in such an environment?
Jean-Laurent Bonnafé: Well, as you know, low rates weigh on interest income in retail banking although, as I just said, they tend to create a more supportive environment in terms of cost of risk. Globally, Domestic Markets proved quite resilient in the first quarter of this year. A moderate growth in loan balances was observed, notably in Belgian Retail, while deposit growth continued in all businesses.
Alongside this, our digital bank Hello bank! continued its successful development by attracting over 100,000 new clients this quarter.
Moreover our fleet management business, Arval, is proceeding with the integration of GE Fleet Services in Europe that it acquired in November of last year.
On the back of this, revenues reached close to 4 billion euros, slightly down on last year, due to the combination of low rates as mentioned and a drop in financial fees this quarter due to the unfavourable market context. Overall, the specialised businesses and Belgian Retail had a good performance in the quarter.
Costs were marginally higher on a comparable basis, owing in particular to increasing costs in the growing specialised businesses such as Arval and Leasing Solutions.
Cost of risk, as I said before, was lower in all our networks, especially at BNL. Given this, Domestic Markets ended the quarter with a higher pre-tax income at 0.7 billion euros.
To sum up, our Domestic Markets managed to generate improving bottom line in a low interest rate environment.
EBM: Looking beyond the Eurozone, what has been the performance of your international Retail businesses in the first part of the year?
Jean-Laurent Bonnafé: Beyond the Eurozone, our International Retail Banking comprises Europe Med and BancWest. Both have shown a good commercial drive in Q1.
Focusing on Europe Med first, volume growth continued at a good pace in particular in Turkey and in Poland.
In Turkey we are continuing to successfully develop our digital bank Cepteteb which, one year after launch, has already attracted close to 250,000 clients.
In Poland we are effectively developing our cross-selling as for example in consumer lending activities where credit outstandings were up 9%.
Revenues progressed roughly at the same pace as volumes while effective cost control led to positive jaws. In Poland we are proceeding with the implementation of cost synergies following the integration of BGZ. Over the past year, this has led to a significant rationalisation of the network where we have closed 118 branches.
Cost of risk marked a reduction this quarter, compared to a high level last year.
All this led to a marked improvement in pre-tax income which came in almost 3 times as high as last year.
As far as BancWest is concerned, loans and deposits continued to mark a positive evolution and Private Banking’s assets under management further increased to 10.4 billion dollars.
At constant scope & exchange rates, revenue growth was very strong in conjunction with volumes expansion and benefitting also from non-recurring sales of securities. Costs continued to be impacted by higher regulatory costs and also from some costs related to the disposal process of First Hawaiian Bank.
Given a low level of cost of risk, pre-tax income marked good progress increasing by nearly 23%.
So, in conclusion, a good performance from our International Retail Banking this quarter.
EBM: Your Personal Finance is the leader in consumer finance in Europe. How has this business evolved in the first quarter?
Jean-Laurent Bonnafé: In Q1 Personal Finance’s outstandings increased significantly driven by higher demand in the Eurozone as the business continued to enlarge its partnership agreements.
Revenues were impacted by a foreign exchange effect this quarter. On a like for like basis, they progressed on the back of volume growth and a gradual shift towards products offering a better risk profile. Main growth areas in Q1 were Germany, Italy and Spain. Generally, our consumer finance business has been gaining market share on the main European markets.
Costs remained under control while cost of risk benefitted from the move towards products with better risk profile as well as the low rates environment but also from some material write-backs from loan sales.
As a result, Personal Finance delivered a strong pre-tax income growth, confirming the contribution of this dynamic business to the Group’s results.
EBM: Moving now to your savings and insurance businesses, how have they performed in the difficult context of Q1?
Jean-Laurent Bonnafé: The unfavourable market environment had of course an impact on Assets under management which decreased by 10 billion to 944 billion euros, mainly due to the negative performance effect. However, overall we had net inflows of 2.2 billion euros in our Wealth and Asset Management and our Insurance businesses.
Looking at the Insurance business first, gross written premiums increased moderately on a comparable basis. However, revenues were impacted this quarter by the fall of financial markets vis-à-vis the strong increase of the first quarter of last year. As a reminder, part of the revenues of the Insurance business are marked to market.
Costs reflected continued business development and higher regulatory costs.
Overall, a continued good commercial performance for Insurance but a significantly lower pre-tax income this quarter on the back of the adverse stock markets.
Moving to Wealth & Asset Management, revenues proved resilient in a difficult market context. Effective cost control translated into a moderate improvement of the pre-tax income this quarter.
To sum up, a spot impact from the fall of financial markets in our Insurance business and a good resilience from our Wealth & Asset Management.
EBM: Financial markets have been quite challenging in the first part of the year. How did you cope with this tough market environment in your Corporate & Institutional Banking?
Jean-Laurent Bonnafé: As you say, the market context was particularly tough in Q1, especially in Europe, whereas it had been particularly strong in Q1 of last year. This had a direct impact on our Global Markets revenues.
In Corporate Banking revenues were moderately down while Securities Services actually booked a slight improvement.
Taking these three businesses one at the time, Global Markets were negatively affected by the risk-off approach by our clients in the first two months of the year. Client activity actually recovered well towards the end of the period.
Fixed Income suffered from low levels of activity in forex and commodities but resisted well in terms of bond issues where we confirmed our leadership in euro issues. Rates and credit also had a good quarter.
Equities were down sharply vis-à-vis a high comparison base in 1Q15 and on the back of weak demand for structured products in a lower market across Europe.
Securities Services continued to gain new mandates although the market trend weighed slightly on its assets under custody. However, in terms of number of transactions, it still recorded double-digit growth compared to 1Q15.
In Corporate Banking, excluding the impact of the downsizing of our Energy & Commodities activities in Europe and Asia, now almost completed, revenues were down just 3.6% in Q1. Fees were down due to few significant deals being booked this quarter. In terms of transaction banking we saw however a good performance especially from our cash management business which continues to gain market shares in Europe.
Costs were meaningfully lower in Q1 in conjunction with the lower level of activity and despite higher banking taxes and contributions. They also reflected continuing benefits from our Simple & Efficient plan as well as first savings from the implementation of the Transformation Plan we announced at the beginning of the year.
To sum up, our Global Markets activities were the most affected by the very tough market environment although we saw a good recovery towards the end of the period. Corporate Banking proved resilient, as did our Securities Services.
EBM: Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!
