BNP Paribas hinted that the worst of the pandemic impact could be over even as an increase in provisions for potentially bad loans lowered fourth-quarter profits at France’s largest lender.
“The bank has turned the page of 2020. 2021 is going to be a year of transition and the start of the rebound of the economy,” said chief executive Jean-Laurent Bonnafé on Friday.
BNP reported that net income fell 13.9 per cent in the quarter to €1.6bn, but it still beat expectations of closer to €1.2bn.
Adjusted pre-tax profit of €2.07bn was 11 per cent above consensus of €1.88bn, according to Flora Bocahut, an analyst at Jefferies. Revenues slid 4.5 per cent to €10.8bn, roughly in line with expectations.
The bank’s quarterly cost of risk, which reflects provisions for potential defaults, rose by two-thirds over the same period last year to hit €1.6bn, ahead of expectations. That increase brought the total for the year to €5.7bn, a 79 per cent jump over 2019.
The overall results were driven by domestic retail and investment banking. Although fixed income and equity trading revenues came in below expectations, the investment bank still beat consensus, partly due to cost discipline.
“Continued revenue growth in corporate and investment banking activities and materially reduced operating expenses across all divisions did not fully offset revenue pressures in domestic and international retail markets and a surge in provisioning charges,” said Olivier Panis, an analyst at Moody’s.
BNP’s share price rose 2 per cent in early trading, having rallied 45 per cent since late October.
However, the bank warned that the jump in fixed-income activity experienced by the sector in 2020 — and which increased by 22 per cent for the French bank in the fourth quarter — would probably not carry over into this year.
BNP said that low interest rates would “continue to impact heavily interest income at retail banks” and that its debt trading division was “unlikely to experience the same magnitude of revenues that it generated in 2020 on the back of exceptionally intense client activity”.
The bank was more upbeat about the rest of the year, saying that “a gradual rebound in economic activity is expected from the second half of 2021”. It also hinted that provisions may have peaked. The bank expects its cost of risk to decline back towards average levels during the year.
BNP said revenues were “likely to trend upward next year” and costs to be flat, which disappointed analysts who had expected a small fall.
The bank’s common equity tier 1 ratio — a key indicator of balance sheet strength — stood at 12.8 per cent at the end of the year, well above the European Central Bank’s guidance.
That solid capital level led BNP to say it would increase its payout to shareholders later in the year to reach its usual 50 per cent payout ratio. It said it would either use buybacks or a distribution of reserves to top up its current dividend, which is capped by regulators trying to make sure banks are well fortified during the pandemic.
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February 05, 2021 at 05:02PM
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BNP Paribas profits hit by jump in bad debt provisions - Financial Times
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