How the retail bank found colors in France

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The 2018 earnings season is not over for French banks – Crédit Mutuel and La Banque Postale have not yet published them – that a trend is already emerging: for the first time in a long time, the French banking retail (BDDF) – yet in full transformation – has been a base of stability, rather than a source of concern.

"Pinching margins"

In the last quarter of 2018, between controlled expenses and stabilized revenues, " we had a positive chisel effect in each of the core businesses [accueillant la banque de détail France, NDLR] Thierry Laborde, deputy managing director of BNP Paribas, said recently. " We have reached the point where the pinching of margins is offset by volumes and the good performance of commissions ", Jérôme Grivet, Crédit Agricole SA's Chief Financial Officer, commented on the mutual banking activities of the mutual group.

Spending banks

Everyday banking has worked well in France in 2018 in the face of market activities whose revenues have stalled, even if the pressure on costs remains strong. The four groups that have already published (BNP Paribas, Société Générale, Crédit Agricole Group, BPCE) thus accumulated 13.5 billion euros in gross operating income (-1.5% year-on-year) in retail banking France .

Similarly, the activity is maintained, with a limited decline in net banking income (GNP) between 0.6% and 2% depending on the players. However, it is rising in the Banque Populaire network.

At the same time, the French groups attacked their charges. These remain rather heavy, because of the large number of agencies (1.800 inhabitants per agency, according to S & P Global), and heavy IT investments.

Problems to solve

Management fees thus decreased in 2018, slightly at BNP Paribas and LCL (formerly Crédit Lyonnais), and more strongly at Société Générale. The 39 Crédit Agricole Regional Banks saw their operating expenses (excluding the contribution to the European Bank Relief Fund) increase from 170 million euros to 8.6 billion euros.

Still, these figures do not solve all the problems. In the event of economic deterioration, the cost of risk – exceptionally low – could quickly rise again. Above all, these actors are not as effective as they would like. The profitability level promised to investors in 2015-2016 by 2020 proved to be out of reach.

Review the claims

Even Crédit Agricole – which has reached one year in advance its main financial targets of 2019 – penalty on the front of the coefficient of exploitation (ratio between costs and revenues). Promised below the 60% mark, it is 64% at the end of 2018.

For LCL, the plan provided for a "CoEX" of about 65%, it is around 70%. Societe Generale is not doing much better, just like BNP Paribas whose French networks have a ratio of 73%, above the 70% target set by the 2020 plan.

As a logical consequence, some claims have been lowered and new savings announced.

Unexpected hierarchy

This retail banking market is central even for the most internationalized French players. For BNP Paribas, retail banking in France (BDDF) accounts for 15% of total turnover. At Société Générale, this proportion increases to 31%. This share is much larger among mutual groups.

The French actors defend their positions dearly, and the hierarchy is not always that which one believes: European giant, BNP Paribas displays a "BDDF" smaller than that of Societe Generale by the income. These two names are in turn distanced by BPCE and even more by the Crédit Agricole group.

How the retail bank found colors in France

Edouard Lederer