SocGen sees French retail banking income stalling until 2025 amid margin squeeze

Société Générale SA does not expect growth in French retail banking revenues before 2025 due to pressure on lending margins even as other European banks are already seeing profits surge from higher interest rates.

SocGen anticipates revenues from French retail banking falling in 2023 due to higher deposit costs and limits on home loan rate rises continuing to squeeze net interest income. The bank also expects a €300 million hole in French NII in 2023 thanks to the end of a European Central Bank ultra-cheap funding program that subsidized banks' income.

The flat outlook for French retail banking revenues comes as other European lenders forecast massive increases in NII for 2023 and beyond due rapidly rising interest rates.

CFO Claire Dumas said 2023 will be a "year of transition" as revenues follow a negative trend even as commission momentum remains strong.

"After an expected drop in revenue in 2023, we anticipate the first rebound in 2024 with revenues at least at the level of 2022 and then a complementary rise in 2025," Dumas said on an earnings conference cal

SocGen did not provide a specific forecast for how much French retail banking revenues would decline this year. The bank aims to offer clearer guidance at the end of the first quarter and throughout the year, Sebastien Proto, deputy general manager, said on the call.

French banks face pressure on interest margins at both ends. Increases in the rate offered by regulated savings schemes such as the Livret A are making deposits more expensive, while France's "usury rate" caps the rates banks can charge for new home loans.

SocGen's French retail banking NII fell 1.6% year over year in the fourth quarter of 2022 to €1.08 billion. Sequentially, however, it notched a 6.1% rise. French retail banking generated €8.84 billion for SocGen in 2022, almost a third of the bank's total revenues of more than €28 billion.

SocGen relies more heavily on domestic retail banking for its revenues and profits than its French peers. Domestic banking accounted for 16% of operating income and a little less than 14% of profit before tax for Credit Agricole in 2021, the last full year for which data is available, and just 13.5% of operating income and 8.4% of pretax profits for BNP Paribas, according to company filings.

International relief

SocGen's international retail banking businesses fared better in 2022 as higher interest rates fed through more quickly to their loan books. NII grew by 9% across SocGen's international retail banking divisions driven by higher rates in the Czech Republic and Romania.

The outlook for SocGen's domestic retail banking revenues should improve in 2024, partly fueled by a positive impact from the maturing of net interest margin hedges the bank took out "in previous uncertain times," said Dumas.

SocGen also expects the growth of its online bank Boursorama and the completion of the merger between its Société Générale and Crédit du Nord branch networks in France to help revenues recover in 2024 and 2025, CEO Frédéric Oudéa said.