EuroBusiness Media (EBM): BNP Paribas, one of Europe's largest banks, reports 2015 second quarter results. Jean-Laurent Bonnafé welcome! You are the CEO of BNP Paribas. Can you give us the highlights of your Q2, in terms of results and from a capital perspective?
Jean-Laurent Bonnafé: I’m very pleased with the strong set of results delivered by the Group this quarter. Our net result reached nearly 2.6 billion euros following the strong performance already seen in the first quarter. Overall, this equates to an annualised Return on Equity of 10.1% in the first half excluding one-offs. This is a very strong performance indeed.
This strong set of results in Q2 was on the back of revenue growth in all our operating divisions. At Group level, revenue growth stood at close to 16% with a continued increase in Domestic Markets and a strong rise in CIB and International Financial Services. It also benefitted from the bolt-on acquisitions made last year.
Costs progressed at a lesser pace than revenues, which yielded a positive jaws effect and contributed to a 24.8% increase in gross operating income.
The Group’s cost/income ratio improved by 2.6 points in Q2 to stand at 63.9%.
Cost of risk improved slightly excluding the effect of the acquisitions closed in 2014 and as a ratio of customer loans it improved to 51 basis points.
All in all, as I told you, BNP Paribas posted a very good net result of nearly 2.6 billion euros for the second quarter.
This solid capital generation, in conjunction with our capacity to manage the balance sheet, translated into higher solvency and leverage ratios. Our fully loaded common equity Tier 1 ratio increased to 10.6% and our leverage ratio reached 3.7%, each time of course taking into account a 45% dividend pay-out for our computations.
Finally, we continued to create value for our shareholders, as our book value per share reached close to 69 euros at the end of the second quarter.
EBM: How about signs of recovery in the Eurozone in general in terms of asset quality and loan growth? What “green shoots” are you seeing in your Domestic Markets?
Jean-Laurent Bonnafé: In our Domestic Markets “green shoots” of economic recovery are confirmed as shown by the 1.5% increase in outstanding loans in the second quarter. Loan growth was visible in Belgium and France while in Italy the trend is improving but it remains in negative territory as we complete the de-risking process of BNL’s loan book.
Given these signs of recovery, Domestic Markets revenues reached 4 billion euros in Q2, improving by 2.7%. This good performance was driven by Belgian retail and by our specialised businesses: Arval, Personal Investors and Leasing Solutions. However, interest income continued to be penalised by the very low level of interest rates.
Thanks to continuing cost control and the reduction in cost of risk in Q2, pre-tax income progressed by nearly 14% to 1.1 billion euros.
Cost of risk remained low in France and was very low in Belgium while in Italy it continued to show a moderate improvement. We see in Italy a progressive improvement in the quality of BNL’s credit portfolio with a strong drop in new NPLs.
Globally, I would say that there are definitely signs of economic recovery in our Domestic Markets as shown by our improving results, even though headwinds such as low interest rates persist.
EBM: And beyond the Eurozone, how have your international retail banking activities fared in the second quarter of the year?
Jean-Laurent Bonnafé: Our International Retail Banking which consists of Europe Med and BancWest has maintained good business growth in Q2.
Looking first at Europe Med, business drive has remained strong with double digit growth in both loans and deposits thanks in particular to the performance in Turkey and Poland. We are also continuing the integration of BGZ in Poland.
Revenues progressed mostly on the back of volume growth while effective cost control led to a significant improvement in gross operating income. Given a moderate cost of risk this quarter, pre-tax income increased over 40% to 179 million euros.
In the US, BancWest leveraged the favourable economic backdrop by continuing to grow deposits and loans while maintaining a strong increase of private banking’s assets under management.
At constant scope & exchange rates, in Q2 revenues progressed by over 9% with costs being impacted by higher regulatory costs. Net of this effect, costs were up 5.8% in the second quarter. The favourable context meant that cost of risk remained low which translated into a 6.7% increase in pre-tax income to 246 million euros. The improvement in pre-tax income actually stands at +34% in Euro terms thanks to the strong appreciation of the US dollar.
So, all in all, our international retail banking delivered a very good set of numbers this quarter.
EBM: Turning to Personal Finance, what can you say about the performance of your consumer finance business in Q2?
Jean-Laurent Bonnafé: In Q2 Personal Finance outstandings increased by over 24% including LaSer. On a comparable basis, total outstandings increased by 3.5% spurred by recovery of demand.
In parallel, Personal Finance continued to make steady progress in the implementation of new partnerships such as the banking ones recently signed in Spain and Italy. The car loan business also continued to develop well as demonstrated by the 8% increase in outstandings.
The performance of this business remained strong and included the additional contribution of LaSer.
On a like-for-like basis, revenues progressed well in Germany, Italy and Spain while we continued to invest in the development of our consumer finance business.
In Q2 Personal Finance delivered strong results with a pre-tax income of 339 million euros, up 12,5% on last year on a comparable basis.
Globally, a very sound performance from a growing business.
EBM: How have your savings and insurance businesses evolved in the second quarter of the year?
Jean-Laurent Bonnafé: Our savings and insurance businesses showed positive net inflows in Q2 driven by Wealth Management and Insurance. Total assets under management stood at 949 billion euros at the end of June, up 55 billion compared to year-end 2014.
Looking at the Insurance business first, it continued to successfully develop its activities as revenues increased by over 4% in Q2 while costs reflected continued business development.
Overall, our Insurance business generated a very strong pre-tax income of 336 million euros in Q2.
Turning to Wealth & Asset Management, revenues grew primarily on the back of a good performance of our Wealth Management in the Domestic Markets and in Asia. In addition, Asset Management grew in our Domestic Markets. Here as well, we continued to invest in business development.
Globally, our savings businesses produced 186 million of pre-tax income in the second quarter.
I would say therefore that these businesses had a good overall performance in Q2.
EBM: Could you elaborate on the performance of your Corporate and Institutional Banking (CIB) Division given the context of rising volatility?
Jean-Laurent Bonnafé: Our CIB continued to deliver strong results with revenues topping 3 billion euros and all 3 businesses contributing to this growth.
Taking them one by one, Global Markets performed strongly in equities while the increase of fixed income was limited by the context of rising uncertainty you’ve mentioned.
Securities Services confirmed a strong growth trend with a double digit increase in assets under custody and number of transactions.
And Corporate Banking showed growing loan balances driven by good growth in the Americas. The Energy & Commodities sector continued to slowdown in Europe and in Asia while the other businesses further developed. We for example performed well in project finance, export finance as well as in media telecom.
Despite higher regulatory costs, operating expenses progressed at a lesser pace than revenues. In fact if we exclude the appreciation of the US dollar and look at costs on a like-for-like basis, they progressed by 3% in Q2.
In a favourable economic backdrop, cost of risk showed net write-backs in the quarter, contributing to the marked improvement in pre-tax income which exceeded 1 billion euros in Q2, confirming the very good performance of this quarter.
EBM: Looking at your activities in the US, how are your US assets performing?
Jean-Laurent Bonnafé: As you’ve probably gathered from my replies, this was a very good quarter for our US activities. BancWest on one side and our CIB platform on the other delivered good performances which were further enhanced by the significant US dollar appreciation over the period.
So, all in all we are very pleased with the performance of our US assets in this first part of the year.
EBM: Greece has been a major concern recently. Has the Greek situation affected your results? Do you have any remaining exposure to the country?
Jean-Laurent Bonnafé: I remind you that we’ve decided to close our branch in Greece back in 2011 and that we have no sovereign exposure. We have only a negligible exposure to corporate clients.
As you can see from the strength of our Q2 results, though the Greek situation added some volatility to the market, it had no real effect on the performance of BNP Paribas.
EBM: Banks’ solvency and leverage ratios have been one of the areas of attention in recent months. How are you looking at these ratios for BNP Paribas?
Jean-Laurent Bonnafé: As I said at the beginning, both ratios have significantly increased this quarter. The common equity Tier 1 ratio increased 30 basis points to 10.6% and the leverage ratio progressed by the same magnitude to stand at 3.7%.
This shows we have a strong capital generation. Combined with our capacity to manage the balance sheet, it means that we can swiftly adapt to regulatory changes as we have repeatedly shown in the past.
I remind you also that we remain committed to deliver a 45% dividend pay-out to our shareholders and this has been consistently set aside in the course of the year.
EBM: Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: Jean-Laurent Bonnafé: You’re welcome!
