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Fundamental View
AS OF 13 May 2024BNP’s financial strength is based on its strong franchises across retail, commercial and investment banking, particularly in Europe, and its wide business and geographic diversification.
Profitability is sound and fairly resilient, while asset quality has held up well despite the effects of COVID-19 and the war in Ukraine. However, its operations in Italy (less than 10% of credit exposure) and consumer finance (12% of lending) are potentially riskier.
Capital ratios look sound, especially in the context of its liquid and relatively low-risk balance sheet. They have improved considerably thanks to the exit from the USA.
Business Description
AS OF 13 May 2024- BNP is one of the most diversified banking groups in Europe, having been created from a merger of the retail/commercial bank BNP and the corporate/investment bank Paribas in 2000.
- Domestic Markets (DM) comprises the Group's four retail banking networks in the eurozone and its three specialised business lines (including leasing and digital banking). The retail banks are French Retail Banking (FRB), BNL in Italy, BNP Paribas Fortis in Belgium and BGL BNP Paribas in Luxembourg.
- International Financial Services (IFS) includes consumer finance, asset management and private banking, and subsidiaries in non-eurozone countries, including TEB in Turkey and BNP Paribas Bank Polska.
- Corporate & Institutional Banking (CIB) is a global provider of financial solutions to corporate and institutional clients and includes BNP's extensive trading and investment banking businesses.
Risk & Catalysts
AS OF 13 May 2024BNP’s Polish subsidiary has taken higher provisions for legal risks in its FX mortgage portfolio – these have been absorbed readily, and should have peaked.
Pressure on margins is high in Personal Finance, and despite the change in product mix – reducing the concentration in Personal loans and credit cards and moving to Auto loans, it was still a difficult FY23.
BNP Paribas remains the subject of various claims concerning the Madoff matter; amongst other claims. The bank says it has substantial defenses in the face of these claims. Litigation provisions on the balance sheet stood at €1,005 mn on 31 December 2023.
Key Metrics
AS OF 13 May 2024mn | 1Q24 | Y23 | Y22 | Y21 | Y20 |
---|---|---|---|---|---|
Return On Equity | 10.0% | 9.0% | 8.2% | 8.2% | 6.4% |
Total Revenues Margin | 1.9% | 1.7% | 1.7% | 1.8% | 1.9% |
Cost/Income | 63.6% | 62.6% | 60.7% | 67.3% | 68.2% |
CET1 Ratio (Transitional) | 13.1% | 13.2% | 12.3% | 12.9% | 12.8% |
CET1 Ratio (Fully-Loaded) | 13.1% | 13.2% | 12.3% | 12.9% | 12.8% |
Leverage Ratio (Fully-Loaded) | 4.4% | 4.6% | 4.4% | 4.1% | 4.9% |
Liquidity Coverage Ratio | 134% | 148% | 129% | 143% | 154% |
Impaired Loans (Gross)/Total Loans | n/a | 2.9% | 2.9% | 3.3% | 3.6% |
CreditSights View
AS OF 21 Jun 2024BNP remains one of the more diversified bank names in Europe and we regard it as a core holding. Its strong business and geographic diversification has helped it maintain good profitability and asset quality. It has extensive operations in Italy via its subsidiary BNL, where asset quality is now beginning to improve. BNP weathered the COVID-19 storm relatively well. Earnings have been resilient and CIB in particular a stand-out performer. Liquidity and funding metrics look sound. Asset quality has held up well, although an outlier is the group’s personal finance business. The latter is being restructured, to focus more on auto finance rather than personal lending. BNP is no longer a capital laggard in Europe after the sale of Bank of the West in the US.
Recommendation Reviewed: June 21, 2024
Recommendation Changed: October 30, 2018
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