EuroBusiness Media (EBM): BNP Paribas, one of Europe's largest banks, reports results 2017 third quarter results. Jean-Laurent Bonnafé welcome! You are the CEO of BNP Paribas. What are the highlights of the Group’s third quarter results?
Jean-Laurent Bonnafé: In the third quarter 2017 BNP Paribas showed good business activity but faced an unfavourable context for market activities.
Revenues were slightly lower due to an adverse forex effect but were actually stable at constant scope & exchange rates. Domestic Markets revenues were slightly down due to the low rates environment despite good business development. IFS revenues were actually significantly higher on a comparable basis while CIB’s revenues were impacted by the unfavourable market context for Global Markets.
Costs were well under control thanks to the continued implementation of the operating efficiency measures. CIB’s costs were down, benefitting from the launch of the CIB transformation plan at the beginning of 2016. 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 with however a decrease on average for the three main Retail networks.
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 derived from the continued decrease at BNL combined with write-backs in some businesses.
One-off items of the quarter included the 326 million euros capital gain on the sale of a 4% stake in SBI Life in India. However, overall they were negligible in the third quarter.
In Q3 2017 the Group delivered a good level of net income which stood at 2 billion euros, up 8.3% compared to last year. Excluding one-offs, it was 6.7% below last year’s penalised by the adverse exchange rate effect I mentioned.
If we take the first 9 months of the year, the Group has already generated a solid 6.3 billion euros of net result on the back of a good operating performance.
In annualised terms, this equates to a Return on Equity of 9.8% and a Return on Tangible Equity of 11.6%.
In terms of financial structure, the sound profitability of the third 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 11.8% at the end of September.
To sum up, the Group delivered a good level of income this quarter and a good operating performance in the first 9 months of the year.
EBM: Eurozone countries are showing a robust pace of growth and the outlook remains good. How have your Domestic Markets fared in this environment?
Jean-Laurent Bonnafé: Domestic Markets showed good business drive in the third quarter on the back of robust economic growth as you said. We saw good loan growth in all the networks and in the specialised businesses as well as a continued increase in deposits in all countries.
The assets under management of our Private banking confirmed a good trend marking a 5.8% increase compared to last year.
And Hello bank! has continued to attract new clients especially in France where they were up 18% compared to last year and in Italy, up 17% year-on-year.
In terms of P&L, third quarter revenues were almost flat at 3.9 billion euros. As I mentioned, we saw good business drive in our domestic markets but we continued to be impacted by the low interest rate environment. Commission income marked an increase in all the networks.
Operating costs were moderately higher due to business development investments in our specialised businesses. Taking just the 3 large retail networks, costs were actually down 0.1% on average.
Given the continued reduction in cost of risk at BNL in Italy, pre-tax income stood at close to 1 billion euros, only slightly below last year’s level.
In conclusion, our Domestic Markets fared quite well in the quarter, showing good business drive while still reflecting the low interest rate environment.
EBM: Looking beyond the Eurozone to your International Retail Banking, what are the highlights of the third quarter?
Jean-Laurent Bonnafé: Starting with Europe-Med, business activity continued to show good growth with loans up in all regions and deposits also marking good progress.
The successful development of our digital banks in this area was confirmed. In fact Cepteteb in Turkey already has over 440,000 clients and BGZ Optima in Poland with its 205,000 clients is the leading digital savings bank in the country.
At constant scope & exchange rates, revenues were down 3.7% due to the impact of higher rates on deposits in Turkey which have not yet been offset by the gradual loans repricing. The other regions progressed well on the back of good volume growth. Costs increased as a result of the good business development. Overall, given a lower cost of risk, Europe-Med’s pre-tax income was up 7.3% in the third quarter of the year. At historical scope and exchange rates, it actually showed a 4% reduction due to the unfavourable forex evolution.
Moving to US retail banking, BancWest confirmed its strong business drive. Loans were up over 6% driven by both individuals and corporate lending while deposits were up 9% compared to last year.
On a comparable basis, the assets under management of our private banking marked a further progress of 13% on last year to stand at 13 billion dollars. And on the digital front, the users of BancWest’s online services already exceed 410,000.
BancWest also continued to foster cross-business co-operation with other Group businesses such as CIB, Leasing Solutions and Personal Finance.
At constant scope & exchange rates, revenues were up 6% essentially on the back of good volume growth.
Costs were kept well under control and BancWest generated a largely positive jaws effect in the quarter. On the whole, BancWest’s pre-tax income increased by 9.5% on last year, confirming a strong operating performance in the third quarter. It was up 3.4% at historical scope and exchange rates due to the unfavourable FX evolution.
EBM: Personal Finance is a leader in personal financing in France and Europe. How has this business performed in a context of growth across European countries?
Jean-Laurent Bonnafé: Personal Finance delivered another quarter marked by very good business drive. Outstanding loans were up 8.8% thanks to higher demand in the Eurozone on the back of the favourable economic backdrop and the positive effect of new partnerships.
In Q3 Personal Finance signed new commercial agreements as for example with the telecom operator Masmovil in Spain and with Mediaworld in Italy, a multimedia & home appliances firm. It also forged ahead with its digital development, as shown for example by the fact that in Spain e-signatures already represent more than 70% of the agreements whereas in Belgium Personal Finance has just released the
e-signature “Quick Sign”.
In terms of results, revenues were up 3.9% on the back of volume growth combined with the shift towards products offering a better risk profile. Revenues progressed particularly well in Italy and in Spain.
Costs progressed on the back of the increased level of activity.
Cost of risk was at a low level and pre-tax income reached 420 million euros, up 2.2% on last year.
In conclusion, in a context of solid growth in Europe, Personal Finance continued to show a very dynamic business drive in the third quarter of the year.
EBM: How have your assets under management evolved in the third quarter of the year and how have your savings businesses progressed? Also what can you tell us about the recent IPO of SBI Life in India which drew strong demand and was the biggest in the country in seven years?
Jean-Laurent Bonnafé: The Group’s total assets under management stood at 1,041 billion euros at the end of September, thanks to good net asset inflows in all our businesses and a positive performance effect which was only partly offset by an unfavourable foreign exchange effect. In fact, over the past 11 quarters our assets under management have increased by 147 billion euros with nearly two thirds coming from net asset inflows.
Taking the Insurance business first, it continued to show solid business development with good net inflows especially in unit-linked policies.
As you mentioned, noteworthy this quarter was the successful IPO of SBI Life in India. Through our Insurance subsidiary Cardif, we had a 26% stake in the company and we took the opportunity to sell a 4% stake which generated a 326 million euros capital gain in the third quarter accounts.
Insurance revenues were a tad lower but in the comparison one must consider the high level of capital gains booked in Q3 of last year. The business marked a good performance in protection activity as well as in savings activity in France and in Asia.
Costs were up due to the continued development of the business and, overall, after accounting for the SBI Life capital gain, pre-tax income marked a strong increase to stand at 740 million euros in the third quarter.
Turning to Wealth & Asset Management, it also showed good business activity in all its business lines. As part of the Group’s ambitious programme of new customer experience and digital transformation, the Asset Management business has acquired a majority stake in Gambit Financial Solutions. This leading European provider of robo-advisory investment solutions will in fact help us transform client journeys with investment advisory solutions and digitalisation of customers’ interfaces.
In terms of P&L, Wealth & Asset Management revenues progressed by 4.9% despite an adverse forex effect. At constant scope & exchange rates, revenues were up 8.3% with a positive contribution from all the business lines. Costs marked a slight reduction, leading to a largely positive jaws effect. As a result, pre-tax income marked a near 30% improvement to stand at 208 million euros in the third quarter.
To wrap up, strong income growth in our Insurance business on the back of the capital gain on the sale of a 4% stake in SBI Life and a very good overall performance in our Wealth & Asset Management in Q3.
EBM: The lacklustre market activity during the summer does not bode well for CIB’s revenues in the third quarter. How have your CIB business lines fared in this context?
Jean-Laurent Bonnafé: Our CIB confirmed good commercial dynamics this quarter but was impacted by the lacklustre market context as you say.
Revenues stood at 2.7 billion euros, down 8.5% compared to a high comparison base in Q3 of last year and impacted by an unfavourable foreign exchange effect. At constant scope & exchange rates they were down 5.9%.
Taking the business lines one at the time, Global Markets’ revenues were lower marking a 14.6% contraction at constant scope & exchange rates as FICC activity was affected by the challenging market conditions.
Indeed FICC saw lower client activity across the board in Q3, in contrast with the favourable market context of the corresponding period of last year, resulting in a 23.6% decrease in revenues. 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 good growth of +9.4% on the back of a sound performance of Prime Services and equity derivatives.
Looking at Securities Services, revenues progressed by 4.2% on the back of growing outstandings and higher transaction levels. Securities Services continued to gain significant new mandates.
Finally, Corporate Banking revenues were a tad lower due to an adverse forex effect. At constant scope & exchange rates, they progressed by 2.1% with growth in the Asia Pacific region as well as progress in the EMEA area. Transaction banking marked good growth. It consolidated its leading position in Trade Finance in Europe and was ranked amongst the top 3 in Asia for the first time.
Turning to total CIB costs, these showed again a significant reduction of -6.2% year-on-year and -3.3% on a comparable basis on the back of the cost efficiency measures that we’ve been implementing in the CIB division since 2016. On the digital front, CIB has identified 200 processes that could be automatized by the end of next year.
Cost of risk marked a small net write-back this quarter. As a result, CIB generated 778 million euros of pre-tax income, down just 4.2% compared to last year.
So, to sum up, our Corporate & Institutional Banking showed, in a lacklustre market context, a resilient performance thanks to its continuing cost reduction effort.
EBM: What progress have you made since the launch of your 2020 plan regarding new customer experience and digital transformation?
Jean-Laurent Bonnafé: All Group businesses are actively developing new customer experiences as well as digital transformation.
Starting with Domestic Markets, in France back in May we released Lyf Pay jointly with Crédit Mutuel and in partnership with leading French retail groups. This new high value-added App provides a universal mobile payment solution combining payment, loyalty programmes, coupons and discount offers. Still in France, we’ve launched a new digital corporate on-boarding App called Welcome and BNP Paribas Factor has released FINSY which is a fully digital receivables finance solution geared for SMEs and mid-sized businesses.
In Italy we’re gradually expanding the digital service of “chatbots”. These provide self-care services dealing with generic enquiries from clients and are available round-the-clock every day. We’ve also taken steps to digitalise corporate client subsidiaries’ on-boarding with the new solution called MyAccounts@OneBank.
In Belgium we’re launching with several Belgian partners the “its me” App which is a mobile, digital ID allowing for secure authentication and approval of transactions on the Internet.
Finally for Domestic Markets, I remind you that back in July we also finalised the acquisition of Compte-Nickel in France. With the addition of Compte-Nickel, we now have in our French retail banking four distinct offers that correspond to differentiated service models adapted to our clients’ different expectations and needs
Looking at International Financial Services now, I’ve already mentioned the acquisition of Gambit which will help us improve client journeys with investment robo-advisory solutions and digitalisation of customers’ interfaces.
In Personal Finance we’re going to take our Hello bank! concept one step further by launching new digital banks in Europe leveraging our Cetelem client base.
These new digital banks will slot-in alongside the existing Hello bank! that we operate in our Domestic Markets in 5 countries. The first launch is expected soon in the Czech Republic.
Turning to CIB, this division has been pressing ahead with its industrial and digital transformation as illustrated by the ongoing development of its Centric platform. This seamless on line platform, which is now available in 40 countries, provides our corporate customers with a comprehensive offer of e-banking services. Centric has been steadily gaining clients and has today already 7,700 clients.
Another example of the digital transformation we’re implementing in CIB is the preparation of the roll out of Symphony in Global Markets after we took a minority stake in this company which provides a communication & workflow automation tool to enhance digital interaction with clients.
As you can see through these examples, the Group is making good progress regarding the implementation of its new customer experience and digital transformation plan.
EBM: You have recently pledged to stop financing shale and oil sands projects, further expanding your commitments in support of global efforts to tackle climate change. What’s the thinking behind this?
Jean-Laurent Bonnafé: This represents a further step to accelerate the Group’s support of the energy transition and is part of our philosophy to be a responsible actor in the society.
As you mentioned, BNP Paribas will no longer do business with companies focused on oil & gas from shale and oil from tar sands operations; likewise, the Group will no longer finance projects that are mainly involved in the transportation and export of oil & gas from shale and oil from tar sands, as well as cease any financing of oil & gas exploration or production projects in the Arctic region.
These far-reaching measures will reinforce the actions already taken by the Group to combat climate change which include, amongst others, a target of 15 billion euros in financing for renewable energy projects by 2020.
To wrap up, we’re a long-standing partner to the energy sector and we’re determined to support the transition to a more sustainable world.
I’m convinced that a major bank financing economic development in the 21st century must, as a world citizen, act for energy transition.
EBM: Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!
