French retail banking is characterised by weaker interest margins and a slowdown in new loan generation, according to a recent report from Scope Ratings.
The characteristics of the national market had led to French banks’ “subdued” domestic retail banking revenues already at the end of 2022, as reported previously. The four biggest French lenders had seen a decrease in pre-tax profits at the end of last year.
This year, the banks’ half-year numbers demonstrated a very mixed bottom-line performance. Core operating income declined for all banks except Crédit Agricole, says the rating agency.
The decline in revenues will continue into 2024 because large fixed-rate mortgage portfolios are repricing very slowly. “Modelling balance-sheet repricing in French retail banking to optimise interest revenue is this year’s challenge,” says Nicolas Hardy, deputy head of Scope’s financial institutions team, in the report. Thankfully, French lenders will manage to retain an “acceptable” net income this year, due to the low cost of risk, solid contributions from other business lines and limited growth in expenses.
The banks that are more diversified, either geographically or in terms of business lines, will manage to retain revenue growth.
BNP Paribas and Crédit Agricole, for example, have a strong presence in the Italian market, where lending dynamics are more favourable. Well-integrated bancassurance business models, strong corporate and investment banking revenue also constitute good diversification areas.
