EuroBusiness Media (EBM): BNP Paribas, one of Europe’s largest banks, reports 2015 Full Year results. Jean-Laurent Bonnafé, welcome. You are the CEO of BNP Paribas. What are your comments on the Group's full year results?
Jean-Laurent Bonnafé: BNP Paribas delivered a good overall performance in 2015.
In our operating divisions, revenues progressed by 9.1% with a positive contribution from all divisions, and pre-tax income grew by 13% compared to last year.
At Group level, cost of risk remained moderate at 54 basis points and stayed essentially stable.
All in all, BNP Paribas posted a good net result of 6.7 billion euros for the year which, net of one-offs, stands at 7.3 billion euros. On a comparable basis this equates to a 7.3% improvement on last year. Hence, the ROE for 2015 excluding one-offs reaches 9.2%, equivalent to 11.1% in terms of Return on Tangible Equity.
This strong profitability translated into improving regulatory ratios with our Common Equity Tier 1 ratio reaching 10.9% and our leverage ratio at 4% at year-end.
We continued to create value for our shareholders, as our book value per share reached 70.9 euros at the end of the year, that is a 6.5% annual growth since 2008! And we have proposed a dividend payment of 2.31 euros per share, in line with our stated 45% pay-out target.
These results confirm that we are making good progress with the implementation of our Business Plan. In addition, we have started work on our next plan for 2017-2020 that we intend to present to the market next year.
EBM: Cost of risk appears to be currently well under control, but could the outlook for cost of risk change, given the economic slowdown in Asia and the lower price of oil?
Jean-Laurent Bonnafé: As I just said, our cost of risk remained moderate in 2015. Moreover, given our strong diversification, cost of risk has actually remained moderate over the past years. In fact since 2012 our cost of risk has remained in a very narrow range comprised between 59 and 54 basis points.
We are obviously closely monitoring evolutions in Asia and oil related activities but currently we have no reason to expect a material deterioration of our cost of risk. For 2015, if I take CIB - Corporate Banking, which is the area that could be impacted by what you mention, cost of risk was unchanged at 12 basis points compared to the previous year.
One should keep in mind that only a limited part of the value chain in the oil sector is specifically impacted by the drop in oil price. I remind you also that we sold our Reserve Based Lending activity in the US in 2012 and that we’ve considerably reduced our Energy & Commodity activity since 2013.
Beyond that, at Group level, please also also keep in mind that we have geographies like Italy where we have significant scope for improvement in terms of cost of risk on the back of the proactive balance sheet de-risking we have implemented and the improving economic backdrop.
EBM: European rates remain low. How have your Domestic Markets performed in 2015 in such an environment?
Jean-Laurent Bonnafé: Our Domestic Markets have been quite successful in offsetting pressure from the low rate environment. In a context of economic recovery across Europe, Domestic Markets’ loans progressed by 1.6% thanks to improving demand and deposits confirmed a healthy pace of growth in all businesses.
Domestic Markets’ revenues increased 1.6% to stand at 15.9 billion euros. This good performance was driven by our Belgian retail and by our specialised businesses: Arval, Leasing Solutions and Personal Investors. But of course the low rate environment weighed on net interest income, especially in France and Italy.
Costs were affected by one-offs in BNL mostly related to the rescue plan of 4 small Italian banks. Net of this and on a comparable basis, good overall cost control was confirmed.
Given a lower cost of risk, due in particular to the improvement in Italy, pre-tax income progressed by 6.4% to 3.6 billion euros.
So, I would say a good overall performance of our Domestic Markets in 2015.
EBM: In retail banking, there's a lot of talk about the digital banking trend. What does this imply for you?
Jean-Laurent Bonnafé: BNP Paribas is actively developing its digital offer throughout the Group. In retail banking, as you know, we have launched Hello bank!, a fully digital mobile bank, which is successfully developing in 5 Eurozone countries and has already 2.4 million clients. And in our International Retail Banking we have digital offers in Poland with BGZ Optima and in Turkey with Cepteteb.
At the same time, we’re also adapting our retail networks on an ongoing basis. In our Domestic Markets for example we have been optimising the networks and differentiating branch formats for some time.
Given the changing customer behaviours and expectations as well as the evolving landscape on the back of digital transformation, our Domestic Markets have developed new medium-term ambitions to be implemented in the coming years. We actually intend to capitalise on our differentiating capabilities. I’m thinking of our integrated multi-channel distribution model, of the networks optimisation I just talked about and of Hello bank!, as well as our technological experimentation capabilities as illustrated by L’Atelier which is BNP Paribas’ technology and innovation tracking unit active in 3 continents.
Our ambitions revolve around our ability to create digitalised and differentiated service models, reinvent customer journeys to meet all customer potential needs and develop comprehensive service offers such as our recently launched Arval Active Link which allows clients to optimize their corporate car fleet management.
In a nutshell, we intend to focus in our Domestic Markets on more digitalisation combined with more customisation for all customer segments.
And of course Domestic Markets and International Retail Banking will share their experience in a cross fertilization approach to strengthen their digital offering.
EBM: In your International Retail Banking, how have your emerging retail markets fared in 2015? How’s the integration of Bank BGZ progressing in Poland? And has the rate hike in the US provided a boost to your US retail?
Jean-Laurent Bonnafé: Our Europe Mediterranean perimeter has actually maintained a good business drive in 2015 in all geographies.
In Poland we are well on track with the integration of Bank BGZ which has effectively created a reference bank in the country, ranking number 7 with a 4% market share. As part of this integration, we expect to generate 94 million euros of additional synergies by 2017.
Globally, in Europe Med we continued to see good volume growth - both in terms of loans and deposits.
On a comparable basis, revenues progressed by 10%, in line with volume growth. Costs evolved at a lesser pace than revenues leading to double-digit growth in gross operating income. Cost of risk was essentially stable, leading to an 8.2% improvement in pre-tax income on a comparable basis which came to 483 million euros in 2015.
In the US, BancWest has not yet benefitted from the rate hike as it came at the end of the year and was obviously limited. Nevertheless, BancWest continued to show good business drive in a favourable economic context as it continued to grow deposits and loans. In private banking we maintained a favourable evolution as assets under management topped 10 billion dollars.
At constant scope & exchange rates, in 2015 revenues progressed by more than 6% on the back of volume growth. Costs continued to bear the brunt of higher regulatory costs. Net of this effect, they were up 5.3% for the year. The favourable economic backdrop meant that cost of risk remained very low and pre-tax income came in at a slightly higher 910 million euros. However, in Euro terms pre-tax income actually improved by over 24% thanks to the US dollar appreciation over the period.
EBM: Your Personal Finance is the leader in personal financing in Europe through its consumer credit: how has it performed in 2015?
Jean-Laurent Bonnafé: In 2015 Personal Finance continued to perform well as outstandings increased by 15% including LaSer and by 4.3% on a like-for-like basis on the back of improving demand in the Eurozone.
Personal Finance continued to expand its reach thanks to new partnerships in the car loan business, in the energy sector and with banking partners such as CajaMar in Spain and Poste Italiane in Italy.
Revenues exceeded 4.7 billion euros driven by strong performances in Germany, Belgium, Italy and Spain. Like-for-like, costs progressed at a lesser pace than revenues and cost of risk marked a slight reduction.
As a result, Personal Finance delivered double digit pre-tax income growth to 1.35 billion euros.
Globally, 2015 was another good year for Personal finance which consolidated its leading position in Europe.
EBM: How did your savings and insurance businesses evolve during the course of the year?
Jean-Laurent Bonnafé: In 2015 our savings and insurance businesses showed good net inflows in all our businesses. This contributed to the near 7% increase in total assets under management which stood at 954 billion euros at year-end.
Looking at the Insurance business first, it continued to successfully develop its activities with gross written premiums increasing to 28 billion by year-end. On the back of this, revenues progressed by 5.7% to 2.3 billion euros while costs reflected continued business development.
Overall, our Insurance business generated a strong pre-tax income of 1.3 billion euros, up 6.8% on the previous year.
Turning to Wealth & Asset Management, revenues grew in all the businesses and topped 3 billion euros in 2015. Good cost control entailed positive jaws leading to a 4% improvement in pre-tax income to 740 million euros.
To sum up, in 2015 all these businesses showed a good performance increasing their contribution to the Group’s results.
EBM: Many of your peers have already started deleveraging their CIB businesses. Are you going to follow suit or are you going to adopt a different approach?
Jean-Laurent Bonnafé: First, let me start with the performance of our CIB in 2015 which will help you to understand where we currently stand.
CIB’s revenues increased by 13% with a positive contribution from all its businesses on the back of good customer activity.
If I take them one at the time, Global Markets saw strong results in Equity derivatives and in Fixed Income with increased client activity and market share gains. BNP Paribas ranked number 1 for all Bonds in Euros and number 9 for all International Bonds.
Securities Services confirmed a strong growth trend with a sizeable increase in assets under custody and transaction numbers, confirming its leadership in Europe and number 5 global position.
And Corporate Banking continued its good commercial development. Net of the downsizing of the Energy & Commodity business that is now almost completed, revenues progressed by 11% with a good performance in export and media telecom financing as well as advisory in Europe. BNP Paribas confirmed its number 1 position for syndicated loans in Europe as well as its leadership in Cash Management in Europe and number 4 global position.
So, we have a CIB that is profitable and well positioned as of today. With a customer oriented business model serving its two client franchises, that is corporates and institutionals, CIB is gaining market shares as some competitors retrench. Well integrated and right-sized within the Group, CIB has grown organically leveraging cross-selling potential with other Group businesses. Unlike many of our competitors, we have already deleveraged our CIB back in 2011-2012 when we swiftly adjusted to Basel 3. In a framework of constant adaptation, in 2015 CIB has successfully reduced its leverage exposure by 15.6% compared to 2014. Since 2013 it has also been implementing the Energy & Commodity downsizing I just referred to.
A swift adaptation of our CIB is however needed today to prepare for upcoming headwinds. Some of these are already incurred by the Group but not yet allocated to the businesses like the Single Resolution Fund contribution or the increased capital requirements. Others are headwinds from upcoming regulatory reviews that we cannot yet precisely quantify. Therefore, CIB is implementing a transformation plan with the aim of generating 8 points of pre-tax ROE from here to 2019. This target shall be fine-tuned and extended to 2020 within the preparation of the new Business Plan 2017-2020 that we’ll present next year.
This transformation will use 3 main levers across all regions and businesses of our CIB.
First, “Focus” which consists in freeing-up capital and balance sheet to fuel targeted redeployment. It entails winding down less productive Risk-Weighted Assets and right-sizing low return activities while reinvesting part of the Risk-Weighted Asset reduction in existing businesses.
The second lever is “Improve” and aims at optimising CIB’s operating model through some 200 efficiency projects expected to yield almost 1 billion euros of savings by 2019.
The third lever is “Grow” and centres on specific strategic growth initiatives. This intends to develop less capital intensive businesses such as processing and advisory activities; to leverage our competitive edge in derivatives; and to develop digital platforms in all businesses.
This transformation path will be adapted to our regional positioning with the aim of further consolidating our European leadership, take advantage of the long-term growth in Asia-Pacific and better align the platform in the Americas with the Group’s strategy and franchises.
To conclude, based on our original customer oriented business model, our approach aims at creating sustainable value through:
- enhancing operating efficiency and freeing-up resources to support selective growth; and
- growing less capital-intensive businesses and fee-generating activities such as processing.
Excluding headwinds, we expect this to contribute 1.6 billion of additional pre-tax income by 2019 on the back of 4% annual revenue growth and an 8 point improvement in the cost/income ratio.
EBM: You recently communicated on your SREP capital requirement. Could you update us on how you intend to reach your regulatory requirements and what could be your new capital targets?
Jean-Laurent Bonnafé: Our SREP Common Equity Tier 1 ratio requirement for 2016 has been set at 10% and we are well above this level.
The anticipated requirement for 2019, including the fully-loaded G-SIFI buffer which stands at 2% for BNP Paribas, is 11.5%.
We intend to reach this level as soon as mid-2017 through the combination of two levers:
First, thanks to organic capital generation and active capital management which are expected to contribute some 35 basis points of ratio per year; and
Second, through the disposal or the IPO of First Hawaiian Bank which could strengthen the ratio by approximately 40 basis points.
Beyond this, our target is a fully-loaded Common Equity Tier 1 ratio of 12% as of 2018. This takes into account a management buffer of 50 basis points, coherently with the solid and recurrent organic capital generation of the Group through the cycle.
In terms of Total Capital ratio the requirement stands at 12.5% in 2019. Our target at Group level is to exceed 15%, providing a buffer of at least 2.5%. This will mean that our Total Capital will exceed 100 billion euros and it will hence assure a high quality for BNP Paribas’ debt.
EBM: Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!
