Société Générale SA has enough capital to manage the economic impact of the coronavirus should it need to dip into its reserves, the bank's CEO said.
While the lender has no plans to change its capital management at the current time, "we have a lot of margin of maneuver, we entered this crisis with a good buffer beyond our 12% target," Frédéric Oudéa told investors through a webcast of a Morgan Stanley conference March 17. The bank's common equity Tier 1 ratio — a key measure of financial strength — stood at 12.7% at the end of 2019.
The current crisis might be "much shorter in terms of impact" than the 2008 financial crisis, and the bank's ratios across the board, be it capital or liquidity, were strong enough to meet any difficulties, Oudéa said.
"We are very well armed to manage these issues."
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Oudéa welcomed French government plans to open a €300 billion credit guarantee scheme for companies, which he said represented more than the total of small and medium-sized business loans in France. The loans will likely be guaranteed up to 90%, he said.
Large corporates had started to draw on credit lines, but there was no real need for them to do that, he said.
"We have also seen large corporates drawing on their credit lines trying to secure liquidity even with no real need, but I would say to gain more confidence, but in a relatively irrational way," he said.
Lockdown
France recorded 175 deaths due to COVID-19, the disease caused by the coronavirus, as of March 18, with more than 7,700 cases.
The country went into lockdown for at least two weeks starting March 17, following similar moves in Italy and Spain to quarantine their population to halt the spread of the coronavirus. The government closed cafés, restaurants and other nonessential businesses March 15 and shut schools from March 16. From March 17, citizens could only leave the house for health or professional reasons, or to buy food, bringing the economy to an effective standstill.
"The impact of the crisis at the end of the day will be manageable because it might be a short-term strong negative impact," Oudéa said, with sectors recovering afterward, but banks would have to draw lessons from the crisis as governments will have spent a lot of money propping up the economy.
At the current time, "there are no operational or financial elements that would justify any specific communication from our group," Oudéa said.
State-guaranteed loans would limit the cost in terms of risk weighted assets, which determine the amount of capital a bank can hold, but on the other hand, there will be less loan production as people will not be able to visit branches to arrange a mortgage, he said.
In terms of capital, CFO William Kadouch-Chassaing said ECB plans to allow banks to temporarily fall below required capital levels would give the lender a buffer of 380 basis points above capital requirements, compared with 270 basis points at the end of December. French central bank plans to release a countercyclical buffer will also have an impact, he said.