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BNP Paribas has delayed a profitability target even as the eurozone’s biggest lender insisted it was well placed to continue growing in a gloomier economic environment.
The French bank blamed levies on banks in Belgium, as well as a fall in the interest paid by the European Central Bank to lenders on their reserves, for pushing back its goal of reaching a 12 per cent return on tangible equity. The new objective is to hit the target in 2026, instead of next year. The return stood at 10.7 per cent at the end of 2023.
Diminished returns in its real estate arm and a restructuring of its personal finance division, where it is pulling back from some countries, also weighed on profitability, BNP added.
Although it missed analyst forecasts on some counts, the bank reported higher revenues and profits for 2023.
It confirmed it would distribute 60 per cent of its earnings in dividends for the second consecutive year, mostly in cash and through a €1bn share buyback.
Long seen as one of Europe’s steadiest and most diversified banks, BNP also signalled that its cost of risk, a measure of expected losses, would remain low, shrugging off concerns that slowing economic growth in the region would cause defaults to rise.
But like its peers, the French bank will have to navigate potential cuts in interest rates this year after a period of historically rapid rises, which had helped improve earnings from loans.
Under chief executive Jean-Laurent Bonnafé, BNP has been trying to boost the bank’s share price, which has been flat in 2024.
“BNP Paribas will continue to grow faster than its underlying economy and to gain market shares, thus offsetting a deterioration in the economic environment,” the bank said.
On a reported basis, BNP’s revenues for 2023 rose nearly 1 per cent to €45.9bn, missing expectations in a Refinitiv poll of analysts. Net profit was up more than 11 per cent to nearly €11bn, beating expectations. Comparisons were made tougher by BNP’s restatement of its profits to strip out one-off items.
Flush with a $16.3bn windfall from the sale of its US retail bank, BNP has been investing in technology for its businesses and plans to make small acquisitions. It has also built up operations in its investment bank.
The strategy has paid off in some areas. In the fourth quarter of 2023, its equities trading division, which it had expanded, posted a 69 per cent jump in revenues, a bigger leap than some Wall Street rivals.
Overall, however, BNP struck a less bullish tone than a year ago. As well as the return on its equity target, the bank said it expected about 8 per cent in net income growth annually to 2025 compared with a previous target of more than 9 per cent.
In July the ECB said it would stop paying banks for the funds they had deposited, a measure that will be felt keenly by lenders with big balance sheets. BNP is present with Fortis in Belgium, where it said it had been penalised by new banking levies.
