EuroBusiness Media: BNP Paribas, one of Europe’s largest banks is reporting is third quarter results for 2015. Jean-Laurent Bonnafé welcome! Can you give us the highlights of your Q3 results?
Jean-Laurent Bonnafé: BNP Paribas delivered a good overall performance this quarter resulting in solid bottom line progress.
In a context of improving demand for credit in Europe, the outstanding loans of our Retail Banking & Services grew by 7% in Q3.
Revenues progressed in all our operating divisions, benefitting also from the bolt-on acquisitions of last year. At Group level, revenue growth stood at 8.5%.
Costs were impacted by investments related to new regulations but continued to benefit from the implementation of Simple & Efficient.
Given this, the Group’s gross operating income in the third quarter improved by nearly 11%.
Cost of risk remained moderate at 50 basis points. Taken at constant scope and bearing in mind that in Q3 last year we had net write-backs in our CIB, the underlying trend was essentially stable.
All in all, BNP Paribas posted a good net result of more than 1.8 billion euros for the third quarter of the year. This, combined with the strong performance already seen in the first half of the year, and excluding one-offs, equates to an annualised Return on Equity of 9.6% or 11.7% Return on Tangible Equity for the first 9 months of 2015.
EBM: We've been seeing signs of recovery in the Eurozone lately - is that trend continuing? What are you seeing in your Domestic Markets?
Jean-Laurent Bonnafé: The recovery of the Eurozone is confirmed by recent data. Lending in the Eurozone has picked-up in recent months and confidence indicators are in expansion territory. The non-conventional measures introduced by the ECB, combined with lower oil prices and the lower euro, are starting to have the desired effect on the Eurozone economy.
If we look at our Domestic Markets, loan growth is progressively picking up. Its total outstanding loans grew by 1.7% in the third quarter compared to a slightly negative evolution a year ago. Growth was particularly good in Belgium and we saw some progress also in France and in Italy.
Given the recovery underway in the Eurozone and the improvement in loan demand, Domestic Markets revenues increased by 0.8% in Q3 to stand at 4 billion euros. Yet again, we saw a good performance of our Belgian retail and of our specialised businesses: Arval, Personal Investors and Leasing Solutions. BNL’s revenues in Italy were penalised by the repositioning on the better corporate clients. In addition, low interest rates continued to weigh on net interest income as we are seeing in France, for example.
Cost control continued and, combined with a lower cost of risk especially in our Italian retail, pre-tax income progressed by 4.5% to 1 billion euros.
Globally, I would say that the economic recovery of the Eurozone is supporting the performance of our Domestic Markets, even though headwinds such as low interest rates remain.
If I can stay on Domestic Markets a little longer, I would just like to mention that we are continuing to develop our digital offer as illustrated by the launch of Arval Active Link which is the first integrated telematics offer in Europe designed to optimise car fleet management. In Germany we have strengthened our foothold in digital banking as we are finalising the merger of DAB Bank and Consorsbank!. Together, they position us as the number 1 online broker and the number 3 digital bank in Germany with a client base of 1.5 million.
EBM: How would you describe the performance of your international retail banking sector?
Jean-Laurent Bonnafé: Our Retail Banking beyond the Eurozone - which comprises Europe Med and BancWest - has maintained a good business drive in Q3.
Looking first at Europe Med, we continued to see double digit volume growth both in terms of loans and deposits. We are also continuing to develop our digital banking offer. For example, in Turkey with CEPTETEB and in Poland with BGZ Optima, we are successfully growing our client base which already stands at some 130,000 clients in both cases.
Revenues continued to progress though the context was somewhat less favourable this quarter. Costs evolved in line with revenues if we exclude a small one-off restructuring cost, leading to a slight improvement in gross operating income. Cost of risk remained moderate in the quarter although it was higher than the previous year. This in turn meant that pre-tax income came in lower at 138 million euros.
In the US, BancWest showed good business drive in a favourable economic context as it continued to grow deposits and loans. The momentum was maintained for private banking’s assets under management which reached nearly 10 billion dollars. We are developing our digital offer also in the US where the online app “Quick Balance”, for example, has topped half a million monthly connections.
At constant scope & exchange rates, in Q3, revenues progressed on the back of volume growth despite the low rate environment. Costs continued to be impacted by higher regulatory costs. Net of this effect, they were up 5.1% in the third quarter. The favourable economic backdrop meant that cost of risk remained very low and pre-tax income came in at a lower 238 million euros. However, in Euro terms pre-tax income actually improved by over 15% thanks to the strong appreciation of the US dollar over the period.
EBM: Turning to Personal Finance now, what can you say about the performance of your consumer finance business in Q3?
Jean-Laurent Bonnafé: In Q3 Personal Finance outstandings increased by 10% including LaSer and by 5.5% on a like-for-like basis thanks to improving demand in the Eurozone.
Personal Finance completed the merger with LaSer on September 1st and is now well positioned to improve its market share in France over the coming years.
The car loan business also continued to expand its reach through new partnerships such as with KIA in Mexico and with Volvo in France.
Revenues progressed in line with volume growth and were driven by strong performances in Germany, Belgium, Italy and Spain. Like-for-like, costs progressed at a lesser pace than revenues as cost of risk continued to tick down.
As a result, Personal Finance delivered double digit pre-tax income growth to 377 million euros.
In a nutshell: a very good performance from a growing business.
EBM: How have your savings and insurance businesses evolved in the third quarter?
Jean-Laurent Bonnafé: In the first 9 months of the year, our savings and insurance businesses showed good net inflows in all our businesses. Q3 saw good inflows especially in Asset Management but was impacted by adverse market conditions. Total assets under management stood at 919 billion euros at the end of September, up 3% compared to year-end 2014.
Looking at the Insurance business first, it continued to successfully develop its activities with gross written premiums increasing 3.9% to 21.9 billion and technical reserves marking a 6.7% improvement. On the back of this, revenues increased by 7% in Q3 while costs reflected continued business development.
Overall, our Insurance business generated a strong pre-tax income of 325 million euros in Q3, up 5.5% on the previous year.
Turning to Wealth & Asset Management, revenues grew in all the businesses with a rise in Asset Management and Real Estate and a good performance of our Wealth Management in the Domestic Markets. Good cost control entailed sizeable positive jaws leading to a 23% improvement in pre-tax income to 195 million.
To sum up, I would say that these businesses had a very good overall performance in Q3.
EBM: Could you tell us how your Corporate & Institutional Banking fared in a quarter that has seen generally weaker results from your competitors?
Jean-Laurent Bonnafé: Our CIB showed growing revenues despite the less favourable context of Q3.
If I take the different businesses one at the time, Global Markets performed strongly in Equities - on the back of sustained client activity - while Fixed Income was mildly positive on the back of a good performance on credit offset by lesser activity on rates and forex.
Securities Services produced another strong quarter driven by double digit growth of assets under custody and number of transactions.
And Corporate Banking revenues were hampered by the downsizing of the Energy & Commodities activity which we have been pursuing for several quarters and that is now to a large extent completed. Net of this, revenues were moderately higher with a good performance in aircraft financing and media telecom. Fees were rather low this quarter due to a more pronounced seasonality.
Higher regulatory costs continued to impact operating expenses, leading to a moderate reduction of the gross operating income in Q3.
Cost of risk remained at a low level. Comparison is not really meaningful with the previous year as it had actually shown a net write-back. Hence, pre-tax income came in lower at 624 million euros.
All in all, CIB’s activity continued to progress this quarter which was reflected in higher revenues despite a less favourable backdrop.
EBM: Growth in Asia has been under the spotlight in recent months. How have you performed there?
Jean-Laurent Bonnafé: The pace of economic growth in Asia has been slowing down in recent months although it remains high on a global scale.
Having said this, we have been making very good progress with our Asian plan since launch and we have continued to see growing revenues in the first 9 months of the year, although at a lesser pace, with positive net inflows in our Wealth Management and Insurance businesses and further development of our Global Markets and Corporate Banking businesses.
Hence, we are confident that we’ll achieve our plan in this region and we continue to consider Asia an important part for the continued development of the Group.
EBM: Finally, could you update us on your solvency and leverage ratios at the end of September?
We further strengthened our regulatory ratios this quarter.
More specifically, our fully loaded common equity Tier 1 ratio increased by 10 basis points to stand at 10.7% thanks to the Q3 result. And our leverage ratio reached 3.8%, again progressing by 10 basis points in the quarter.
In both instances, of course, our computations take into account a 45% dividend pay-out.
This shows that we have strong capital generation capabilities. Combined with our proven ability to manage the balance sheet, it means that we can rapidly adapt to regulatory changes.
In conclusion, I would like to emphasise our continued value creation for our shareholders, as shown by our book value per share which progressed to nearly 70 euros at the end of September.
EuroBusiness Media (EBM): Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!
