French banks optimistic on loan repayments, revenue growth

France's biggest banks are increasingly confident about borrower repayments and revenue growth as the global economy recovers from the impact of the coronavirus pandemic.

BNP Paribas SA, Crédit Agricole SA and Société Générale SA all lowered full-year forecasts for cost of risk, a key loan loss metric, while announcing their second-quarter results. The lenders also increased their revenue forecasts for the full year 2021 after posting higher revenues in the second quarter.

In the second quarter of 2021, BNP Paribas' cost of risk narrowed on a yearly basis to €813 million from €1.45 billion, as did Crédit Agricole's, to €279 million from €842 million. BNP Paribas CFO Lars Machenil said the group's cost of risk is expected to be at a low level for full year 2021, below the previous guidance range of 45 basis points to 55 bps.

SocGen's cost of risk amounted to €142 million in the quarter, a significant improvement from the year-ago €1.28 billion. The group revised downward its 2021 guidance for cost of risk, which it now anticipates to be between 20 bps and 25 bps, compared to its previous expectation of 30 bps to 35 bps, amid an uncertain environment but improving economic outlook.

"We have been very prudent in our provisioning policy, which is a guarantee for the cost of risk going forward and even beyond 2021," SocGen CEO Frédéric Oudéa said during the bank's second-quarter earnings call.

The second quarter has confirmed French banks' continued recovery, with DBRS Morningstar, a ratings agency, expecting profitability in 2021 to revert to 2019 levels, owing to lower levels of cost of risk and revenue growth. This, however, is dependent on the pace of economic recovery amid the low interest rate environment, it said in an Aug. 9 commentary.

Positive outlook on revenues

Revenues are expected to improve as operating conditions normalize and as the French economy recovers, increasing their capacity to absorb losses, according to analysts at Scope Ratings, another ratings agency.

BNP Paribas reported "sustained growth" in group revenues, which ticked up to €11.78 billion in the quarter from €11.68 billion a year earlier, bolstered by the "very good performance" of its domestic markets division and French retail banking strongly contributing to revenues. The group anticipates stronger-than-expected revenue growth in 2021.

At Crédit Agricole, revenues rose to €5.82 billion in the quarter from €4.90 billion a year before, with its French retail banking business reporting a year-over-year rise in revenues. The lender attributed the strong revenue growth to sustained activity in all business lines and a positive market effect. It also pointed to the diversity of its universal banking model, which has provided growing underlying revenues over the past five years.

Meanwhile, SocGen's French retail banking business contributed €1.91 billion to the group's revenues, which rose on a yearly basis to €6.26 billion from €5.30 billion. It also said an increase in revenues is expected in all its businesses for full year 2021.

The banks' "solid" results in the second quarter are supported by lower provisions and strong revenue growth driven by all business lines, mainly due to their high degree of revenue diversification, DBRS Morningstar said.

The agency mainly attributed the banks' French retail banking businesses' strong performance in terms of revenues to a continued rebound in banking fees, volume growth and a favorable funding environment, which offset the negative impact of low rates.