BNP defies French banks’ interest-rate malaise

LONDON, Nov 3 (Reuters Breakingviews) – France’s banks are facing the wrath of Napoleon Bonaparte. A regulated savings rate, with roots tracing back to the French Emperor’s wars of conquest, is one reason why Gallic retail lenders could miss out on an interest-rate windfall that is boosting banks elsewhere. Ironically, 60 billion euro BNP Paribas (BNPP.PA) looks set to escape the curse because of some international expansion of its own.

Rate hikes by central banks should mean fatter earnings for lenders, who tend to increase the interest they charge borrowers much faster than the interest they pay to depositors. Take Spain’s CaixaBank (CABK.MC). The yield on its loan book rose to 1.84% in the third quarter from 1.63% over the previous three months, but the cost of its customer liabilities barely budged above zero. That means its overall lending margin was much wider.

The trick is much harder in France. One-third of Gallic lenders’ deposits sit in savings vehicles with regulated interest rates, Jefferies analysts reckon. The best-known is the Livret A, introduced by King Louis XVIII in 1818 to pay off Napoleonic war debts. Finance Minister Bruno Le Maire in the summer announced that the rate would double to 2%, on the advice of the Bank of France. It will probably rise again in February 2023 according to the country’s ratesetter-in-chief, Francois Villeroy de Galhau. Combined with other interest-rate regulations and the fact that many French mortgage borrowers are on fixed rates, the upshot is that Gallic retail lending margins don’t rise as quickly as they might in Spain or Britain.

That’s more painful for some than others. Société Générale (SOGN.PA), for example, depends on French retail banking for about one-third of its revenue, according to Jefferies analysts, compared with 15% for Crédit Agricole (CAGR.PA) and roughly 10% for BNP Paribas, which reported third-quarter results on Thursday.

Chief Executive Jean-Laurent Bonnafé, who is approaching his 11-year anniversary in the role, deserves credit for helping BNP to defy the lending malaise at home. His new strategy, unveiled in February, focuses on boosting growth in racier areas like car finance, wealth management and trading. The bank has built up a large international business spanning Belgium, Italy, Poland and elsewhere. Its multiple of tangible book value is roughly 50% higher than compatriot SocGen’s, using Refinitiv Datastream figures. That valuation premium seems unlikely to change.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

BNP Paribas on Nov. 3 said its revenue was 12.3 billion euros in the third quarter, which was 8% higher than in the same period of 2021.

Net interest income in its domestic French business, called commercial and personal banking, was up 5% year-on-year.

BNP’s share price rose by 2.7% to 49.17 euros as of 0952 GMT on Nov. 3.

Editing by George Hay and Pranav Kiran

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