Banking giant, BNP Paribas, mitigates profit decline through increased income from interest rates trading and improved retail performance.
BNP Paribas, one of Europe's largest banks, has announced a positive outlook for the second half of 2021, particularly for its Commercial & Personal Banking (C&PB) segment. The expected revenue acceleration is driven by several key factors.
Retail Banking Recovery and Interest Rate Tailwinds
The recovery in retail banking is expected to drive revenue and profit growth, benefiting from higher interest rates which positively impact the retail and consumer business.
Net Interest Revenue Growth and Fee Income Performance
BNP Paribas reported an impressive +7.6% year-on-year increase in net interest revenue growth, indicating improved lending and deposit margin dynamics. The bank also saw strong fee income performance in France, Europe-Mediterranean, and Luxembourg, with stability in Italy after adjusting for prior base effects from specialized financing.
Asset Management Expansion and Digital Banking Customer Growth
The bank's ongoing growth in private banking assets under management (+3.3% year-over-year) contributes positively to fee generation. Additionally, BNP Paribas continues to expand its digital and retail customer base through platforms like Hello bank!, reporting a 3.8 million customer base, a 3.7% increase year-over-year.
Operational Efficiencies and Cost Control Measures
Operational efficiencies and cost control measures are enhancing profit margins alongside revenue growth, further supporting the expected acceleration of revenue in BNP Paribas' C&PB.
Resilience and Broad-Based Growth
A temporary drag on certain specialized business revenues was offset by good performance in core C&PB activities, indicating resilience and broad-based growth within the segment.
CEO's Optimistic Outlook
BNP Paribas' CEO, Jean-Laurent Bonnafe, has expressed a very encouraging outlook for the second half of the year, reflecting confidence in these drivers supporting faster revenue and profit growth in C&PB relative to the first half of the year.
Other Financial Highlights
In the April-to-June period, BNP Paribas' revenue rose by 2.5% to €12.6 billion. The bank's investment banking revenue was up 4% year-on-year in the second quarter. However, pre-tax income from global banking fell in the second quarter. BNP's shares have underperformed rivals, with this year's 22% gain trailing the wider European banking sector.
Despite the drop in pre-tax income from global banking, BNP Paribas reported a smaller-than-expected drop in second-quarter net income. The bank expects to surpass €12.2 billion in net income this year, in line with its 2024-2026 targets.
BNP Paribas' retail and consumer division saw a 4.3% rise in net interest income (NII) in France. Fixed income, currency, and commodity trading revenues at BNP Paribas soared by 27% due to market volatility.
The bank's average tax rate for the quarter was nearly six percentage points higher than a year ago, due to changes to US tax rules on financing expenses.
BNP Paribas is among the first of the big European banks to publish second-quarter results. Jefferies stated that revenue performance in European retail was strong and set up well for H2 2021 acceleration.
In conclusion, the combination of retail banking recovery, interest rate tailwinds, fee growth, asset management expansion, digital banking customer growth, and cost efficiencies underpins the expected acceleration of revenue in BNP Paribas' Commercial & Personal Banking for the second half of 2021.
Investing in BNP Paribas' Commercial & Personal Banking (C&PB) segment could potentially yield high returns due to the expected recovery in retail banking, positive impact of higher interest rates on the retail and consumer business, and the bank's ongoing growth in private banking assets under management.
The bank's focus on operational efficiencies and cost control measures, coupled with the growth in digital and retail customer base, further supports the anticipated revenue acceleration in the C&PB segment for the second half of 2021.
