French Banks Lag Behind European Counterparts in Profits due to Interest Rate Rise

Quarter after quarter, French banks continue to be left behind by their European counterparts in the race for profits generated by the rise in interest rates. While Unicredit, Commerzbank and Caixabank posted fine results, boosted by the rebound in their net interest margin, the recipe is far from being so simple in France. Because the rules are not the same. Handicapped by the rate of wear and tear on assets, and a slowdown – assumed and desired for some – in the production of credit, but also by the increase in the cost of resources on the liabilities side with a passbook A rate at 3% since February, French banks continue to suffer the crushing of their margins.

Revenues are affected: the NBI of the Banque Populaire and Caisse d’Epargne networks fell by 11%, as did that of SG, the retail bank of Société Générale, while those of the regional banks of Crédit Agricole fell by 5 .3% in the second quarter. Even BNP Paribas, whose market share on the livret A is lower than the mutual banks and which is very selective on mortgages, saw the income of its retail bank in France stagnate in the second quarter (+ 0, 1%).

While all eyes are on the net interest margin, French banks are not alarmist. Société Générale promisesa sharp rebound in 2024» when its hedges, put in place during the period of low interest rates, expire. Mutual banks prefer to highlight “social guarantees» represented by the rules of the French market, which are very protective for customers. Too bad if it results in a drop “natural and temporary» of the intermediation margin.

The strength of bancassurance

French banks have other tricks up their sleeve. Without shining, they limit damage and even publish results above expectations for the past quarter. The first of these strengths lies in the integrated bancassurance model. First player in French insurance in terms of premiums, Crédit Agricole takes full advantage of it. Its insurance revenues tripled in the second quarter (and increased by 44% under IFRS 17). Turnover was driven both by property and casualty insurance (auto, home), with nearly 43% of regional mutuals equipped at the end of the quarter, and by savings, boosted by inflows in units of account.

Unlike retail banking, life insurance was driven by improving market conditions. A change of situation visible in the results of CNP Assurances, which drew those of its parent company, La Banque Postale. Thanks to a commercial offensive on the units of account, its collection greatly amplifies that of the market. A historic bank-insurer, Crédit Mutuel Alliance Fédérale is also reaping the benefits of positive net inflows both in unit-linked units and in the euro fund, on which it offers a higher return. Insurance brought the group’s income over the first six months of the year, with turnover up 13% to 7.5 billion euros.

French banks are also benefiting from their diversification into car financing businesses. Société Générale’s automobile leasing subsidiary, ALD, which has just completed the takeover of its competitor Leaseplan, posted revenue growth of 19%. A long-standing BNP Paribas lessor, Arval generated a 17% increase in NBI thanks to the growth in the fleet of financed vehicles. As for Crédit Agricole, its 100% acquisition of the former Fiat Chrysler captive in Turin, renamed CA Auto Bank, enabled it to boost its results in the second quarter. The revenues of Crédit Agricole Consumer Finance thus rose by 26%.

A CIB that is slowing down

The fate of corporate and investment banking is more mixed. Like their American counterparts, French banks are feeling the effects of the reduction in volatility, which translates into a slowdown in market activities: – 13% for Société Générale, – 11% for BNP Paribas and -4 .9% for CA CIB.

«We are evolving in a context of market stabilization after a radical change in the rate regime. The activity is still reasonably dynamic, in a still uncertain macroeconomic context in which it is difficult to give precise forecasts. In this environment, we have gone through a plateau in which volatility has fallen sharply and therefore the needs of our customers have diminished, which is reflected in our business,” explains Slawomir Krupa, the managing director of Société Générale.

Financing activities are performing better, without fully offsetting this lower performance. Crédit Agricole notably benefited from strong growth in structured finance (+20%), while BNP Paribas recorded a 17% increase in income from its financing activity and Société Générale by 4% over the quarter. The diversification of the business model of French banks is, once again, proof of its interest.