EuroBusiness Media (EBM): BNP Paribas, one of the Europe's largest banks, reports 2016 Full Year results. Jean-Laurent Bonnafé welcome! You are the CEO of BNP Paribas. What are the highlights of the Group's full year results?
Jean-Laurent Bonnafé: BNP Paribas delivered a good performance in 2016 confirming strong profitability and capital generation thanks to its integrated and diversified business model.
Revenues were up 1.1% despite the low rate environment and lacklustre markets in the course of the year. Domestic Markets were slightly lower due to the low rates, the IFS division was up and CIB marked a good recovery after a particularly difficult context in the first quarter.
Costs progressed at a lesser pace than revenues, reflecting good cost control, but were impacted by the increased taxes and regulatory costs.
Cost of risk at Group level was significantly lower standing at 46 basis points driven in particular by the continued decrease at BNL and the reduction in our consumer finance business.
The Group’s net result progressed by 15% to stand at 7.7 billion euros. Excluding one-offs it was up 6.3%. This translated into a Return on Equity of 9.4% excluding one-offs. The Return on Tangible Equity reached 11.2% net of one-offs. The Group’s Earnings per share progressed to 6 euros per share.
I’d like to highlight the strong performance of the Group in the fourth quarter of the year. In fact, revenues increased by 2% while costs progressed by just 0.5% implying positive jaws. Cost of risk continued to evolve favourably resulting in a net income improvement of 14% excluding one-off items.
In terms of financial structure, as I mentioned, the Group’s solid and recurrent capital generation was confirmed throughout the year with an annual improvement of 60 basis points of the fully loaded Common Equity Tier 1 ratio which reached 11.5% at year-end.
And, lastly, for the full year 2016 we have proposed a dividend payment of 2.7 euros per share, in line with the 45% pay-out target of our 2014-2016 plan. On top of that, we continued to create value for our shareholders, as our book value per share increased by a further 3 euros to stand at 73.9 euros per share at year-end.
EBM: Interest rates in the Eurozone remain low. How has your domestic retail banking fared in this context?
Jean-Laurent Bonnafé: Domestic Markets showed better business drive in 2016 with loan growth picking up in all the networks and significant deposit growth in all businesses. This good drive was confirmed also in Private Banking whose managed assets increased by 5.4% compared to last year.
In 2016 Domestic Markets continued to evolve its digital offer by proposing new customer journeys and new services. A good example of this is the combination of Wa! and Fivory, which was developed by Crédit Mutuel, in order to launch later this year a common mobile multi-service payment solution combining payments, loyalty programmes and coupons.
Hello bank! continued to develop well with an increase of 200,000 clients in the year. The total number of clients now stands at 2.5 million and Hello bank! generated close to 10% of individuals’ revenues excluding private banking.
In terms of P&L, revenues stood at 15.7 billion euros, a tad lower than last year. The low rates of course continued to weigh and there was also a decline of financial fees due to the unfavourable market context during the year. However, the good performance of our specialised businesses and Belgian Retail offset most of these headwinds.
Operating costs were moderately higher on a comparable basis while cost of risk decreased significantly, especially in Italy. On the back of this, pre-tax income reached 3.4 billion euros marking a 1.4% improvement on last year.
To sum up, our domestic retail banking fared quite well despite headwinds, showing higher income on the back of lower cost of risk.
EBM: In your International Retail Banking, how have your emerging retail markets performed in 2016? When do you expect your US retail banking to start benefitting from the tighter monetary environment?
Jean-Laurent Bonnafé: Starting with Europe-Med, which pools our emerging retail markets, business activity progressed well in all regions in 2016 both in terms of loans and deposits. Our digital banks in this area continued to increase their client base: Cepteteb in Turkey has reached 350,000 clients while BGZ Optima in Poland has topped 200,000.
At constant scope & exchange rates, revenues progressed by 6% on the back of volume growth and higher margins. Costs were up 3.7% net of the rise of taxes and contributions in Poland, confirming 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 566 million euros, up nearly 20% like-for-like.
Moving to the US, BancWest confirmed a very good business drive in a favourable market context. Loans increased by 8.5% and deposits by 7.9% year on year. Private Banking confirmed a dynamic trend with assets under management increasing by 19% to just over 12 billion US dollars.
At constant scope & exchange rates, revenues were 5.5% higher on the back of strong volume growth which was however mitigated by lower rates in the US in 2016 compared to the year before.
The higher US rates is a relatively recent phenomenon which will contribute favourably to BancWest’s revenue evolution starting from 2017.
Costs were higher due to increased regulatory costs, charges related to First Hawaiian’s IPO and investments to strengthen the commercial set-up.
On the back of a very low cost of risk, BancWest’s pre-tax income stood at 862 million euros, slightly down on last year.
EBM: Your consumer finance business is continuing to grow. What are the highlights for Personal Finance in 2016?
Jean-Laurent Bonnafé: Personal Finance showed very good business drive in 2016 with outstanding loans increasing by nearly 9% on a comparable basis, driven by higher demand in all countries and the positive effect of new partnerships. Car loans business also continued to develop well with outstandings progressing by over 16% year on year.
In addition, the digitalisation of the business is continuing well as illustrated, for example, by the number of electronic signatures which increased by roughly 80% to 3.1 million files in 2016.
Revenues were up 2% on a comparable basis on the back of volume growth combined with the gradual shift towards products with a better risk profile. Good evolution was observed in particular in the German, Spanish and Italian markets.
Costs remained well under control and cost of risk marked a significant reduction. The lower cost of risk in 2016 was essentially due to the gradual shift towards better risk products and the low interest rate environment; in addition, in 2016 we also benefitted from write-backs for 50 million euros resulting from sales of doubtful loans.
All this resulted in a sizeable increase of pre-tax income which stood at 1.4 billion euros, marking an 18% increase at constant scope & exchange rates.
In conclusion, in 2016 Personal Finance confirmed good business growth and an increased contribution to the Group’s results.
EBM: How have your Savings and Insurance businesses evolved in the course of the year?
Jean-Laurent Bonnafé: We closed the year with a record level of total assets under management which stood at 1,010 billion euros thanks in particular to strong asset inflows in all our businesses and a positive performance effect.
Here as well we have pressed on with the development of our digital offer. For example, in Wealth Management we have released new digital services such as “myAdvisory” - which provides investments management and financial advice via smartphone, and “myBioPass” which is a unique biometric key to access digital banking services.
Looking at the P&L, and starting with the Insurance business which saw good net inflows into unit-linked policies in 2016, Insurance revenues were up 2.7% on the back of higher protection insurance revenues in Europe and in Latin America.
Costs progressed as a result of the development of the business coupled with higher regulatory costs. Furthermore, given an improved contribution from associated companies, Insurance pre-tax income marked a 3% improvement to stand at 1.4 billion euros in 2016.
Turning to Wealth & Asset Management, revenues showed a good overall resistance in a lacklustre context while costs progressed mostly on the back of business development investments in Wealth Management, resulting in a lower pre-tax income in 2016 which stood at 685 million euros.
To wrap up, income growth in our Insurance business and good resistance in an unfavourable context in our Wealth & Asset Management.
EBM: Could you tell us how the different businesses of your Corporate & Institutional Banking fared in 2016?
Jean-Laurent Bonnafé: In 2016 our Corporate & Institutional Banking division showed good recovery of business activity and results after a particularly unfavourable context in the first quarter. Moreover, 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 11.5 billion euros for the year, marking a 1.2% increase on last year like-for-like with a positive contribution from all three business lines.
Let’s take these one at the time and considering results at constant scope and exchange rates.
Starting with Global Markets, revenues progressed overall by 1.6% thanks to a significant pick-up in activity in the second part of the year with a strong commercial drive and market share gains after very difficult market conditions in the first quarter.
Fixed Income was the main driver with a good performance particularly in rates and credit. BNP Paribas confirmed its top ranking on all bond issues in euros and number 9 position for international bond issues.
Equities were lower compared to a high comparison basis last year.
Securities Services revenues increased by 2.2% on the back of growing outstandings.
In Corporate Banking, revenues progressed slightly, marking a good recovery after a lacklustre context in the first quarter. We successfully strengthened our positions in areas such as trade finance and continued to gain new clients. BNP Paribas confirmed its top spot for syndicated loans in Europe.
Turning to total CIB costs, they were essentially stable implying positive jaws in our CIB. In 2016 we booked the first benefits of the CIB cost savings measures, which generated 350 million euros compared to 2015, but on the other hand we faced the rise in banking taxes as well as regulatory costs.
So, globally, solid growth of the business lines in their respective markets with a good pick-up in revenues after a difficult start to the year.
EBM: BNP Paribas' last strategic plan ran for three years, from 2014-2016. Was it a success?
Jean-Laurent Bonnafé: The good performance of the Group that I’ve just talked about clearly illustrates the success of our 2014-2016 business development plan.
Over the period, the Group made good progress on all the strategic priorities identified in the plan.
As an example, the preparation of the retail banking of tomorrow is evidenced by the successful launch of Hello bank! with its 2.5 million clients and the development of the digital banks in International Retail Banking. In conjunction with this, the Group has continued to adapt its branch networks while continuing to grow its private banking.
We have also strengthened our market positioning with corporate and institutional clients as demonstrated by our market share gains in all businesses and the good progress of our transaction banking.
In terms of the adaptation of specific businesses to the new operating environment this is shown, for example, by BNL’s repositioning on the better corporate clients with already tangible benefits on the cost of risk, and in CIB with the successful creation of Global Markets.
I can mention also the successful implementation of our regional plans, such as Asia-Pacific and CIB-North America, as well as the good development of our specialised businesses.
EBM: And have you been successful in meeting your financial targets?
Jean-Laurent Bonnafé: In terms of revenues, globally we grew them at a compounded annual rate of 4% despite the fact that we faced stronger headwinds than anticipated with very low interest rates and the downsizing of our E&C business. Revenue growth was sustained by the good development of the business lines, the success of our regional plans and the positive contribution of targeted bolt-on acquisitions.
On the cost front, we delivered on our Simple & Efficient plan which generated 3.3 billion euros of recurrent cost savings. Nevertheless, the cost base was affected by significant new taxes and regulations. Net of these, operating costs evolved at a lesser pace than revenues, leading to positive underlying jaws and increasing on average by just 0.7% per year on a comparable basis.
Overall, we successfully grew our bottom line by 29% net of one-off items over the horizon of the plan. The Group achieved or exceeded its main targets, delivering a Return on Equity calculated on the metrics of the plan of 10.3% excluding one-offs. In terms of earnings per share, on a comparable basis they were boosted from 4.7 euros per share in 2013 to 6 euros per share in 2016.
Finally, we delivered on our dividend payment objective with a pay-out of 45%.
EBM: Regarding your new plan targeting 2020, what can you tell us about it?
Jean-Laurent Bonnafé: Our new plan confirms the integrated and diversified business model of the Group with its 3 operating divisions centred on client needs.
We have built it on prudent macroeconomic assumptions and we have also taken into account the anticipated impacts of regulatory evolutions until 2020 which will continue to grow over the plan horizon.
Leveraging our balanced model that has shown its strength, the new plan is designed to build the bank of tomorrow by continuing to develop our operating divisions through differentiated development strategies and by implementing an ambitious programme of new client experience, digital transformation and operating efficiency across all the business lines.
All this, while complying with an ambitious Corporate Social Responsibility policy.
EBM: And how do you plan to achieve that?
Jean-Laurent Bonnafé: Our far-reaching programme in all the divisions will leverage the success of the numerous initiatives already launched in our business lines in terms of new products, applications, digital platforms and incubators.
At Group level we plan to invest 3 billion euros between 2017 and 2019 to achieve this programme which will generate 3.4 billion euros of cumulated cost savings over the same period, and 2.7 billion of recurrent cost savings from 2020.
We have identified 5 levers to be implemented across the different divisions to achieve our programme. These are:
1) rolling out new customer journeys with new services and digital experience
2) evolving the operating model by optimising processes, simplifying the organisation and developing shared platforms,
3) upgrading IT systems by integrating new technologies,
4) improving data usage, and then
5) developing more digital, cooperative and agile working methods.
If we now move to the 3 operating divisions, they will implement specific development strategies.
Starting with Domestic Markets, which will face an interest rate environment that will only gradually improve and changing client expectations influenced by digital usage, it will focus on strengthening the commercial approach through new client experiences, improving the product offer and making available new services. The division will also further improve its operating efficiency by continuing to optimise the branch network, transforming the operating model and increasing its digitalisation. Given a favourable risk backdrop, Domestic Markets will continue to reduce cost of risk in Italy.
The combination of these actions will lead to over 0.5% average revenue growth per year until 2020, a 3-point improvement in the cost/income ratio and a pre-tax return in excess of 17.5% in 2020.
Looking at International Financial Services, which is a growth engine for the Group, the division will strengthen its positions by stepping up the development through new offers, new partnerships and access to new countries for the specialised businesses. It will also consolidate its leading positions as well as continue to grow retail banking beyond the Eurozone. It will improve its operating efficiency especially through an acceleration of the digital transformation and processes rationalisation.
As a whole, IFS expects to deliver over 5% average revenue growth per year until 2020, a 5-point improvement in the cost/income ratio and a pre-tax return in excess of 20% in 2020.
Finally, CIB will capitalise on the promising start of its transformation plan in 2016 which resulted in resources optimisation, cost savings and revenue growth. The main drivers identified last year will be extended to 2020 with an acceleration of the operating and digital transformation. CIB will strengthen its corporate and institutional client base, further develop fee-generating activities such as advisory and cash management, and leverage its strong regional franchise to further develop international services. It will also accelerate the development of its customer base in Europe.
Hence, CIB targets over 4.5% average revenue growth per year until 2020, an 8-point improvement in the cost/income ratio and a pre-tax return in excess of 19% in 2020.
EBM: Finally, what are the main financial targets at Group level of your 2020 business development plan?
Jean-Laurent Bonnafé: Overall, if we come back at Group level, the main targets of the new plan consist of achieving an average increase in net income in excess of 6.5% per annum over the period, a 12% Common equity Tier 1 ratio and a Return on Equity of 10% in 2020. In addition the dividend pay-out ratio will be increased to 50% for the duration of the plan.
Globally, you can see that our plan is an ambitious mix of business development, digital transformation and operating efficiency.
As I told you, our goal is to leverage on the strength of our integrated and diversified business model to build the bank of tomorrow by accelerating the digital transformation.
EBM: Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!
