French banks
France’s banks are in a quandary because of increased interest rates. Your dilemma is likely to continue in 2024.
By Gesche Wüpper
It was a year in which the wheat was separated from the chaff. While the more restrictive monetary policy benefited many competitors from other eurozone countries, French banks were no longer in quite as good a position as before. In contrast to their competitors from Italy, Spain and Germany, they do not benefit fully from the rise in interest rates.
Your dilemma has long been known. The fixed-interest loans common in France prevent them from being able to fully pass on the increased financing costs for them. French banks are trapped in property loans with low fixed interest rates and long maturities that they made before the ECB ended its easy monetary policy and raised interest rates.
French banks can now only benefit from the increased interest rates by granting new loans. But the rise in interest rates, combined with the sharp rise in real estate prices in recent years, has led to fewer housing loans being granted. According to the Observatoire CSA/Crédit Logement, the total amount of real estate loans granted in France fell by 41.7% last year and the number of loans by 39.5%.
But that’s not all, because at the same time French banks are expensive for savings products based on the legally regulated Livret A, as savers receive relatively high interest rates for them compared to other countries. Given the fixed-interest loans and expensive savings products, France’s banks find themselves in a quandary.
Despite these constraints and increased costs, the five major French institutions BNP Paribas, BPCE, Crédit Agricole, Crédit Mutuel and Société Générale did relatively well overall in 2023. Together they recorded a cumulative net result of 28.6 billion euros, almost 8% more than last year. BNP Paribas, Crédit Agricole and Crédit Mutuel were even able to report new record results. They also have their corporate and investment banking divisions to thank for this, which have helped, at least in part, to offset the deteriorating interest margins on loans for households and small businesses.
The picture looks different at BPCE and Société Générale. BPCE’s net income fell by 25% and revenues by 7%, while Société Générale’s revenues fell by almost 8%. The broader and more international the business model, the better things will go for France’s banks, as their home market for retail banking does not currently offer very promising growth prospects.
The fact that the environment is currently more favorable for Italian and Spanish banks, which can fully benefit from the rise in interest rates, is also reflected in the return on equity. If Santander has more than 15%, French banks report lower values. BNP’s return on equity is just under 11%, Crédit Agricole’s is 12.6% and Société Générale’s is only 4.2%.
Spoiled by high interest surpluses from competitors from neighboring countries in the eurozone, investors are now judging the results of French banks much more strictly. Every disappointment, no matter how small, is punished, even if the institution in question is otherwise in a very solid position. BNP and Crédit Agricole can tell you a thing or two about it. Despite new record results, their stock market prices collapsed on the day the balance sheet was published.
There are currently increasing signs that the ECB will not cut interest rates as quickly as some market participants expected. The French banks’ dilemma is likely to continue this year. It does not yet appear that the environment for them will improve significantly in 2024.
2024-02-09 18:15:17
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