French lenders hopeful of lending income recovery after 2023 slump

France's largest listed lenders expect group net interest income (NII) to grow in 2024 as headwinds in their home market ease.

Aggregate group NII — the difference between interest revenues and interest expenses — at BNP Paribas SA, Crédit Agricole SA and Société Générale SA fell by 6.9% year over year in 2023 to €43.61 billion, according to S&P Global Market Intelligence data.

Domestic regulations forcing banks to pass on higher interest rates to depositors and restricting the pace at which they can pass higher rates onto some borrowers were among the factors weighing on French lenders' NII in 2023.

"For 2024, we expect revenues to increase by more than 5%, largely thanks to the strong rebound in NII in France," SocGen CFO Claire Dumas said during the bank's full-year earnings call.

French disconnection

The contraction in the banks' main source of income came in a year when other European lenders enjoyed huge increases in NII. The three French lenders reported similarly strong NII growth in the variety of other European markets in which they operate, somewhat offsetting their weaker domestic NII performance.

SocGen suffered the largest annual decrease in group NII of the three listed French banks at almost 20% to €10.31 billion. The lender is more reliant on its domestic banking business for group revenues than its two peers.

Credit Agricole, or CASA, was the only one of the three lenders to avoid a contraction in group NII in 2023. CASA's NII grew by more than 9% to €14.24 billion in 2023.

CASA is also the only bank of the three to enjoy steady group NII growth since 2019, increasing almost 25% in the last five years.

Direction of rates

The direction of interest rates in the coming quarters will determine the extent to which CASA's domestic NII grows in 2024, CFO Jérôme Grivet said.

"When we say that we expect a pickup in the NII at [our French retail bank] somewhere in 2024, this is under a certain number of assumptions regarding the evolution of rates, mainly the fact that rates would not start to decrease too rapidly," said Grivet.

BNP Paribas, the eurozone's largest bank, recorded an almost 9% annual fall in group NII in 2023 to €19.06 billion. The result was the lowest group NII the bank has recorded in the last five years. BNP suffered the largest fall in group NII of the three banks since 2019 at almost 11%.

BNP expects group NII growth in 2024 to be lower than previously expected due to the European Central Bank's decision in July to end its remuneration of banks' minimum reserves, CFO Lars Machenil said. The Belgian government's issue of a €21.9 billion retail bond in September, which has drawn billions of euros in deposits away from BNP and other lenders, will also have an impact.

"With the impact of the environment that I talked about [and decisions taken in] Frankfurt and Brussels, this is leading to a review [of the expected revenues from our commercial, personal banking and services division]," said Machenil.