The outlook for retail banking over the coming months is challenging because there is a greater chance of an interest rate cut within the eurozone, Crédit Agricole SA CFO Jérôme Grivet said Aug. 2.
There are increasing expectations that the ECB will cut interest rates amid concerns of sluggish economic growth in the eurozone. The central bank said July 25 that interest rates will remain the same or at lower levels through the first half of 2020. Lenders had previously counted on an interest rate rise in the second half of 2019.
"For retail banking activities on the one hand and for life insurance in euro on the other hand, this rate environment is going to be more challenging than the one we had in mind only two or three months ago," Grivet told analysts following publication of the bank's second quarter earnings.
But he said it is difficult to estimate exactly how low rates would impact the bank's revenues and profits.
Appetite for loans
"The decrease in the rate curve is triggering a growing appetite for loans," he said. There is a link between rates and loans, and between rates and the cost of risk, so all the pieces of the puzzle have to be assessed, he said.
But he said Crédit Agricole was not simply waiting in the wings to see the impact on the bank's profits, and was restructuring its life insurance products to ease the impact of lower rates.
The bank is also planning to adapt all its businesses to take the lower-interest-rate environment into account, he said.
Grivet said the low-rate environment had not yet resulted in a renewed wave of mortgage renegotiations, which accounted for €400 million in the second quarter at retail bank unit LCL, out of an outstanding mortgage book of €80 billion.
Renegotiations at LCL totaled €2.1 billion in January 2017 at the peak of a renegotiation wave, as borrowers took advantage of more advantageous mortgage rates.
'Sluggish' market conditions
His comments come as the lender's second-quarter net profit fell 14.9% to €1.22 billion, while revenues were down 0.4% to €5.15 billion, hit by poor performance at its corporate and investment banking division.
On an underlying basis, the CIB unit reported a 16.3% decline in net income for the period to €417 million amid "sluggish" market conditions. French peers such as Société Générale SA and BNP Paribas SA have suffered from downturns at their investment banking operations, leading them to restructure their businesses.
The bank's common equity Tier 1 ratio — a key measure of a bank's financial strength — reached 11.6%, above its 2022 target of 11%. It said it would begin to unwind in 2020 a mechanism designed to strengthen its capital. Grivet said it would add 60 basis points to the bank's capital before 2022.
Between now and 2020, he said, the bank expects an additional capital hit of 30 basis points from new regulations such as ECB's targeted review of banks' internal models. It will need an extra 60 basis points in 2022 to account for new post-crisis rules from the Basel Committee on Banking Supervision, known as Basel IV.