Crédit Agricole cost of risk could stay at record low levels into 2022, says CFO

Record low cost of risk levels at French banking giant Crédit Agricole SA could continue into 2022 due to the strength of governmental and central bank responses to the COVID-19 pandemic, CFO and Deputy General Manager Jérôme Grivet said.

Crédit Agricole SA, or CASA, the publicly listed part of the Crédit Agricole Group, reported an underlying cost of risk — capital set aside to cover potential losses — of €266 million for the third quarter, €12 million higher than the previous quarter. The figure represents a "stabilization of cost of risk at a record low level," the bank said in its earnings presentation.

CASA and other banks were forced to record massive increases in cost of risk in 2020 as the COVID-19 pandemic unleashed a wave of economic uncertainty in France and around the world.

Responding to an analyst's question during its earnings call if it would be surprising if the cost of risk in 2022 was the same as in 2021, Grivet said "not necessarily," due to government and central bank measures to support economies in response to the COVID-19 pandemic.

"It's not a forecast, it's not an assumption, it's not a guidance, but it's perfectly possible [that the cost of risk will remain at current levels] because the difference between the present crisis and the previous ones is the efficiency and the solidity of the public answers," Grivet said. "And, for the time being, the public answers continue to be accurate."

CASA's underlying cost of risk for the first nine months stood at €904 million. It hit €2.61 billion in 2020 when the bank moved to protect itself from potential loan losses.

The lender's full-year cost of risk reached €1.08 billion in 2018, its lowest level since 2006, just before the global financial crisis hit, according to S&P Global Market Intelligence data.

Grivet contrasted Crédit Agricole's approach to cost of risk and loan loss provisioning to other global banks, emphasizing the lender's continued caution despite an improved macroeconomic climate.

"[W]e have a very prudent approach," Grivet said. "And this is why up to this third quarter of 2021, we've continued to complement our stage 1 and stage 2 provisions, contrary to some of our peers [in the U.S. and Europe who] started already one or two quarters ago to write back stage 1 and stage 2 provisioning."

Crédit Agricole could have written back some of its provisions as the macroeconomic model used to determine its provisioning used much more conservative economic forecasts than what has since materialized, Grivet said.

"[The macroeconomic scenario used] continues to bet on GDP growth for 2021 in France [of] below 6%," Grivet said. "And we perfectly know that it's going to be significantly above 6%."

Crédit Agricole will update this element of its macroeconomic scenario in the fourth quarter, Grivet added.