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BPCE sees no retail revenue pickup until 2020, as low rates continue to bite

Groupe BPCE, the parent of French regional banks Banque Populaire and Caisse d'Epargne and of investment bank Natixis, is not expecting a upturn in revenues at its retail banking units until 2020 as low interest rates continue to eat into margins, executives said Aug. 1.

"On the basis of future interest rates that the market is predicting today … it is likely that retail banking revenues will continue to come under pressure in 2018 and 2019," BPCE Chairman François Pérol told journalists following the publication of the bank's first-half results.

He said the net interest margin had come under pressure due to a high level of loan and mortgage renegotiations and early repayments. Practically all French mortgages are at fixed rates — something that has led to a high level of negotiations by borrowers seeking to take advantage of the low-rate environment.

During the first half, net banking income at BPCE's retail operations were almost flat, falling 0.4% year over year to €8.19 billion. Income before tax, excluding exceptional items, came to €2.16 billion over the same period, down 1.5% from a year ago.

Because certain savings products in France have rates regulated by the government, such as the Livret A savings account which currently has an interest rate of 0.75%, he said the bank was financing savings at rates that were "disconnected" from market rates, which remain negative. The three-month Euro Interbank Offered Rate stood at negative 0.33% on July 31, according to S&P Global Market Intelligence data.

Pérol said the group was pursuing its strategy of simplifying its group structure by merging its regional groups. Banque Populaire de l'Ouest will tie up with Banque Populaire Atlantique to create a large regional banking group in the west of France, while Caisse d'Épargne d'Alsace will merge with the Caisse d'Épargne Lorraine Champagne-Ardenne in early 2018, giving the group a total of 27 regional banks in 2018, down from 37 at its creation in 2009.

BPCE reported second-quarter net income after IFRIC 21 restatement of €883 million, down from €1.77 billion a year earlier. The group's second-quarter net banking income increased year over year to €6.11 billion from €5.84 billion. The underlying cost of risk declined 12.0% over the same period to €325 million.

Natixis reported second-quarter net income group share of €487 million, up 28% compared to a year earlier. Net revenues for the quarter increased 9% on a yearly basis to €2.41 billion.

Pérol said the investment bank had gained significant share in investment banking and planned to continue doing so in the coming years.

"We were a very small player in those markets just three years ago and we are now becoming an influential player," he said. "That is our ambition and we are going to continue to deliver that successfully."