The banks have once again just unveiled record profits, or almost. But how do they manage to achieve such performance in an economic climate jostled by inflation and fears of recession? And what will be the consequences for their customers?
Hot results. Despite an uncertain context dominated by inflation and fears of recession, French banks have just revealed profits as good, or even better, than in 2021, which was already a record year.
Everything seems to be in good shape, the image of the leading European bank BNP Paribas, which for the first time in its history exceeds the bar of 10 billion euros in net profit year on year, up 7.5% year on year. Revenues from all its business lines are at their zenith: up 15.7% for the part dedicated to companies and large institutions, 9.3% for commercial banks and specialized trades and 3% for investment and savings businesses.
Record revenues in retail banking
Another illustration with Crédit Agricole SA, the side entity of the mutual group which excludes the regional funds. It collected more than 5 billion euros in profit, its second historic performance. Ditto with the 4 billion euros collected by BPCE, very close to the 2021 record, or the 3.5 billion euros raised by the Crdit Mutuel Alliance Fdrale, an entity which brings together 14 of the 18 regional federations of the Crdit Mutuel group.
A performance driven in particular by the retail banking networks of Crdit Mutuel and CIC, whose revenues reached 8.5 billion euros for the first time (+6.6%), according to Daniel Baal, the general manager of the Strasbourg base sign. On the one hand, thanks to the increase in the interest margin linked to the increase in income on loans and, on the other hand, thanks to the strong increase in commissions.
And what about the 66% increase in the net profit in 2022 of the Banque Postale, 1.06 billion euros, thanks to the 100% integration of CNP Assurances. Business growth was mainly driven by the dynamism of retail banking and insurance in France, which represent 70% of the public banking group’s turnover. Outstanding loans thus increased by 8%, as did those of home loans, despite the rise in interest rates last year.
For its part, Crdit Mutuel Arka, which brings together the Bretagne and Sud-Ouest federations and various subsidiaries of the Crdit Mutuel group, succeeded in winning 120,000 new individual and professional customers during the year (+2.4%) and generated record loan production, 20.2 billion euros, up 15.2% compared to 2021.
One year two speeds
2022 has been a very good year for French banks. The results were excellent during the first half, reflecting the image of French economic activity, and in line with the profits recorded in 2021. Corporate and investment banking activities were there, as were for retail banking, which benefited from the booming economic activity in the first half, particularly with real estate investment, which supported the credit business. The surplus savings accumulated during the Covid crisis by households was also profitable for the banks, analyzes Guillaume Larmaraud, partner at Colombus consulting.
However, the banks are not immune to the deterioration of the economic situation, with the sharp rise in inflation which was felt in the fourth quarter marked by a sharp drop in the activity of real estate credit.
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And for good reason. While there were more than 1.1 million real estate transactions last year, just behind the 2021 record, the market has slowed significantly with the sharp rise in interest rates. While it was possible to borrow less than 1% at the start of 2022, the average rate for a mortgage rose to more than 2% at the end of 2022, to approach 3% at present, following successive increases in interest rates. directors of the European Central Bank (ECB) to curb inflation.
A rise in rates which has a scissor effect on French banks, explains Guillaume Larmaraud. They cannot, in fact, pass it on in the fixed rate loans already granted to individuals and companies at sometimes very low levels. But banks have to refinance much higher rates today. Unlike other countries where loans are granted at variable rates, French banks will be the last to benefit from the rise in rates, explains Guillaume Larmaraud.
The cost of the Livret A
This analyst notes another impact on the results of the banks: theregulated savings which cost more and more to banking institutions. In fact, they keep around 40% of the Livrets A, LDDS or LEP deposits, the rest being transferred to the Caisse de Dpts et Consignations (CDC) to finance, in particular, social housing.
Cash that must be remunerated at an increasingly high rate. The Livret A savings account has thus seen its rate go from 0.5% in January 2022 to 2% in August, and even 3% since February 1, 2023. The rise weighs heavily on the revenues of the BPCE networks, for example, due to the historically large market share of the Caisses d’Epargne, which until 2009 were the only ones to distribute the Livret A, along with La Banque Postale and Crdit Mutuel. With a rate of 3%, the full-year remuneration of savers would thus represent nearly 2 billion euros for the mutual bank.
The banks could have had even higher results this year, but they also chose to strengthen their provisions against default risks companies with the slowdown in economic activity, notes Guillaume Larmaraud. This is the case of BPCE, in particular, which has thus provisioned 2 billion euros in 2022, more than a third of which in the fourth quarter for the risk of default by its customers.
The banks’ plan for 2023
In the current more uncertain economic context, still marked by the war in Ukraine a year later, 2023 promises to be a year of transition for French banks, which will endeavor to control their costs. BNP Paribas thus plans to cut 921 jobs out of the 5,142 in its subsidiary dedicated to consumer credit to stimulate growth and profitability, and guarantee the sustainability of its model.
Institutions that are not going to relax their efforts to strengthen the digitalization of their retail banking activities. This is, for example,intensify the dematerialization of consumer and real estate loan applications. Banks seek to find the right balance between the quality of service provided to their customers and maintaining their operating ratio, continues Guillaume Larmaraud. This involves continued experimentation, the image of BNP Paribas, which tested and then generalized a 12-euro-per-month formula to afford a designated bank adviser.
And the banks will also continue to diversify their sources of income, the image of car leasing. BNP, for example, recently presented a 10-year lease with purchase option for those who need to change cars to access low-emission zones (ZFE).
Are you looking for a car? Contact your bank. She will buy it, offer it to you for long-term rental and after three years, she will conclude a contract with another customer looking for a second-hand model. Purchase, marketing, financing; banks can already do everything. What is new is that they are getting organized to widen their field of intervention to all mobility services, and want to become essential, recently abounded an article in the World. And to note the remarkable presence of BNP Paribas and Crédit Agricole at the last Paris Motor Show.
Banks that are innovating, therefore, and that are looking for new cash inflows to maintain their profitability in a deteriorating economic environment. However, in this more uncertain context, individuals should not expect lower bank charges whose increase has already been limited to 2% in 2023, despite inflation which is now at 6%. Banks need to retain their leeway, notes Guillaume Larmaraud.
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