Bnp Paribas Ord

Good afternoon, ladies and gentlemen, and welcome to the presentation of BNP Paribas second quarter 2020 results. For your information, this conference call is being recorded. Supporting slides are available on BNP Paribas IR website, invest.bnpparibas.com. During today's presentation, you will be able to ask your question by pressing 01 on your telephone keypad. If you would like to ask a question, please make sure to be in a quiet area to maximize audio quality. I would like now to hand the call over to Lars Maschnil, Group Chief Financial Officer. Please go ahead, sir. Thank you.

Good afternoon, fine ladies and gentlemen. Trust you are doing well and welcome to BNP Paribas second quarter 2020 results presentation. Welcome from a sun-drenched Paris where temperatures has reached 40 degrees. or above 100 for those using body temperature as the yardstick. In the usual way, I'll take you through the first three chapters of the slides, which I assume you have under your eyes, and this before handing it back to you for Q&A. In a nutshell, the second quarter 2020 has seen certain activities being impacted by lockdown measures, especially in April, as far as Europe is concerned. with June showing a rebound in such impacted activities, in most cases to pre-crisis levels. BNP Paribas is financially very sound and has a diversified platform, allowing it to fully serve the economy, as you can see from our revenues being up 4%, from staying very close to customers existing and new. As such, the second quarter confirms our overall guidance. Before looking at slide 3, introducing the second quarter results, I want to take this opportunity to thank all the teams of the Bank that have mobilized resources and expertise. Together with our diversified banking model, our effectiveness to support clients and the economy across Europe and beyond, in front of this unprecedented health crisis has been proven. And this ability to broadly finance the economy is the result of long-term work undertaken by the Group to serve its individual, corporate and institutional clients. It is a reflection of its financial soundness, the diversification and integration of its businesses, its close relationship with its clients its prudent risk management, and the execution power of its platforms. This platform has been bearing fruits in raising for its clients globally in excess of 250 billion euros in financing during the first half 2020, out of which 166 billion euros for European clients, over 45 billion euros for sovereign issuers, over 90 billion euros in syndicated loans, and over 150 billion euros in bonds. Besides, since mid-March, BNP Paribas has participated in 70% of syndicated loans and 53% of bond issues in Europe, Middle East and Africa. On the other hand, the group has also contributed very proactively to the successful rollout of governmental support measures, including state guaranteed loans. As such, Close to 90,000 state-guaranteed loans have been granted in the group retail networks as at June 30th. If with this we can move to slide 4, we see that the group revenues reflected the strength of the group diversified and integrated model that I talked about, with revenues at 11.7 billion euros up 4% on the same quarter a year ago. Costs, moreover, were down 1.3% year-on-year, thus mechanically boosting gross operating income by 14.5%. Our cost of risk rose to 65 basis points over outstanding, out of which 15 basis points, 1.5 basis points, consist in ex-ante provisioning for expected losses on the back of updated macroeconomic anticipations. So this is the element of IFRS 9 forward-looking. Our net income for the second quarter came in at 2.3 billion euros, down 6.8% year-on-year in line with the group's 2020 objectives. Finally, our common equity T1 ratio stood at 12.4%, confirming the strength of our balance sheet. While on ratios, the return on tangible equity clocked in at 8.7%. If it is, you follow me and we go on to slide 5, which provides more detail on the impact of public health measures on the activities. In a nutshell, lockdown measures impacted negatively transaction flows as well as new loan production, especially for households. Thus, corresponding volumes reached a low point in April-May and bounced back from such low point in the latter part of the quarter following the easing of the lockdown measures and the stronger than anticipated rebound in the economic activity as evidenced by the PMI composite index evolution on this slide. Conversely, certain businesses have witnessed exceptionally high levels of activity, in particular in corporate banking, but also global markets and our retail banking networks on the back of the specific needs of the economy during this unprecedented crisis. If with this, you can swipe, because I suppose you are on digital format, to slide 10 for the revenues of the operating divisions. As said in the introduction, BNP Paribas remains fully open for business. Nevertheless, retail activities at large have been impacted by the lockdown with respect to new business origination, while on the corporate and institutional side, clients have quickly and actively managed their liquidity and balance sheet in anticipation of the effect of the health crisis. In this context, both domestic markets and international financial services, so in total our retail activities, the revenues showed resilience in a context negatively impacted by the effect of the lockdown measures on new business origination and persistent low interest rate environment. On the other hand, Revenues in corporate and institutional banking were sharply up 33% as a result of the very high level of activity from all client segments. If we now switch to slide 11 to see how the cost accompanied the evolution in the operating divisions. First, domestic markets delivered a 2.8% reduction in cost, and particularly in the networks, with a drop of 3.6%. IFS, or International Financial Services, saw a 5.7% drop in operating expenses, or 4.2% on a like-for-like basis, thanks to the effect of its cost-saving measures. On the other hand, CIB operated with very positive jaws, I don't have another word for it, while its cost rose by 11% year-on-year due to the very high level of activities. If we now move to a slide, we're starting at slide 12, where we talk about the cost of risk. So first, our updating of macroeconomic anticipations led to an uptick in ex-ante provisioning of expected losses, clocking in this uptick at 329 million euros this quarter. And this is equivalent to 15 basis points of outstanding customer loans. Our central scenario has taken into account several factors, including the longer than originally expected duration of lockdowns, the implementation of specific public health measures in certain sectors, and the impact of updated measures undertaken by authorities to support the economy. On a macro level, as you can see from the illustration on the slide, the scenario assumes a gradual recovery with a return to a level of GDP comparable to 2019, not before mid-2022. This, of course, as I mentioned also before, bearing any new crisis. Last but not least, the level of ex-ante provisioning reflects also the quality of BNP Paribas portfolio, as well as its prudent and proactive risk management. If we now take the slides one after the other, and we start with corporate banking on slide 13. Cost of risk was up from low levels in the last few years on the back of right backs and it clocked in at 366 million euros due to 52 million euros in ex-ante provisioning of expected losses. If we now turn to the other businesses, which you can see as of slide 14, cost of risk remained low in French retail saw its downward trend at B&L in Italy interrupted by the ex-ante provisioning of expected losses, and there is a moderate increase in Belgian retail with the impact of a specific file. In other retail businesses, personal finance saw an increase year-on-year on the back of a 17 basis points ex-ante provisioning for expected losses, as well as a low cost of risk in the second quarter 2019 due to some provision write-backs. Lastly, cost of risk increased in Europe met by 49 basis points and Bankwest by 88 basis points, in both cases mainly on the back of the ex-ante provisioning of expected losses. If with this we synthesize and we leave the P&L and we go into the financial structure, which you see on slide 16, you can see that the common equity T1 ratio is up 30 basis points and clocks in at 12.4%. mainly due to the combined effects of the organic capital generation during the quarter. Of course, after taking into account a 50-5-0 percent dividend payout ratio and the effect of regulatory amendments usually referred to as the CRR quick fix. The Group's immediately available liquidity reserve rose sharply to a massive 425 billion euros and the group's Basel III leverage ratio clocked in at 4.0%. If we now go to the last part of the balance sheet on slide 17, you can see that our net book value per share was up 2 euros and stands at 81 euros at the end of June. And it stands at 71.8 euros when we look at our tangible net book value per share, which has grown at an annual rate of 7.3% since 2008, highlighting our continued value creation through the cycle. Finally, I remind you of the recent announcements by the ECB with regard to the extension of the temporary and exceptional recommendation not to pay any cash dividends until the end of this year. You will find on slide 18 some key points on the continuous reinforcements of the group's internal control and compliance system. And if we go to slide 20, where you see a reflection on our ambitious policy of engagement in society. And here I would like to draw your attention to our strengthened commitment to withdraw completely from thermal coal financing by 2030 in the EU and the OECD, and by 2040 in the rest of the world. The effect is that the group does no longer finance actors that develop additional thermal coal capacity or those that do not have coal exit plans consistent with our target exit dates. The group strategy in corporate social responsibility, CSR, has been consistently recognized and BNP Paribas has once again won the Western Europe's best bank for corporate responsibility in 2020 as awarded by the euro money. I will now walk you through the results of each operating division. And let's start with domestic markets on slide 23. Activity was up, in particular with a very strong mobilization towards supporting clients during the health crisis. You can see, for instance, that close to 70,000 state guaranteed loans were granted, while close to 250,000 clients benefited from a moratorium. In addition, after a low point in April on the back of lockdown measures, the production of new loans to households, volume of payments by cards, as well as new businesses, Arval and Leasing Solutions, bounced back later in the second quarter. As a result, domestic markets showed a solid loan growth, in particular in the French and Belgian retail networks and in the specialized businesses. It also showed a steady rise in deposits in all retail networks. The strength of our digital platforms is evidenced in particular by a steady increase in the number of customers active on mobile apps, as well as in the number of daily connections during and after the respective lockdowns. If we focus now on the P&L, revenues showed resilience. but were down 5.2% on last year. This was due to the negative impact of the slower new business origination during lockdown, especially on fees, as well as the persistent low rate environment, which were only partially offset by higher loan volumes and a stronger activity in specialized business, in particular if you look at Consorzbank in Germany. As mentioned earlier, we have seen a pickup in new origination in June, in most cases back to pre-crisis level, which paved the way for healthier volumes, margins, and fees going forward. Operating costs were down 2.8% year-on-year, with cost savings in the networks reaching 3.6%. Pre-tax income was down 21% year-on-year, on the back of higher cost of risk, due in particular to the effects of the ex-ante provisioning of expected losses. If we now browse through the different business lines in slides 24 to 27, I'd like to highlight the following points. On French retail banking, was very active and mobilized in providing support to the economy with close to 57,000 state guaranteed loans amounting in aggregate to circa 15 billion euros granted to customers. The equity investment envelope was doubled to 4 billion euros to support the development of French small and mid-sized companies between now and 2024. As said, after a low point in April, French retail banking witnessed a rebound in card payments as well as an acceleration in new loan production to households in the latter part of the quarter. Nevertheless, revenues were down given lower activity during lockdown, on top of the low rate environment, which was only partially offset by enhanced credit margins. As I said earlier, transactions fell during lockdown, but most came back strongly to pre-crisis levels in June. Costs were down 2.5% with the ongoing impact of cost optimization measures. Pre-tax income down 43% on the same quarter a year ago. If we now go south, if we go to BNL, we see which granted moratoria to close to 29,000 clients and saw a pickup in the number of state-guaranteed loans in June, with close to 12,000 loans granted at the end of June. Card payments bound back after a low point in April, such that monthly volume in June exceeded pre-lockdown levels. Revenues were down 5% due to the impact of the low interest rate environment, as well as the positioning on clients with a better risk profile on that interest rate. and the impact of lower volumes on fees. Costs down 2.5% with the continued effect of cost savings and adaptation measures. With cost of risk impacted by ex-ante precisioning of expected losses, pre-tax income was down 28% compared to a year ago. If we now go to the north and we go to the Belgian retail banking, which granted moratoria to close to 40,000 clients and stepped up the frequency of its contacts with its clients, with 94% of its corporate clients having been contacted to assess their needs in response of the crisis. Activity bounced back during the quarter, as evidenced by the evolution of card payments and the rebound in new mortgage loan production. Revenues were down 4.9% year on year due to the impact of low interest rates the weaker contribution from specialized subsidiaries only partially offset by higher volumes on net interest income. Fees were up slightly on last year, thanks in particular to good resilience in financial fees. Costs were down 6.8% due to cost reduction measures, including the continuing branch network optimization. Thus, Belgian retail banking operated with positive jewels this quarter. Pre-tax income down 25% due to increase in cost of risk. Finally, the last part of domestic markets are the specialized businesses. They showed very good drive and confirmed the swift recovery in activity after a low point in April. For instance, the finance fleet in Arval rose by 7.2% year-on-year and by 2.5% on a year-to-date basis. Besides, June showed a strong pickup in vehicle orders. Similarly, leasing solutions showed financing outstanding up 1.1% on last year and a strong rebound in new lease production in June, driven by information technology and logistics equipment financing. With market volatility, personal investors saw a sharp rise in orders and increase in assets under management, in particular at Consorzbank in Germany. As a result, revenues were up 8.2% on last year with positive jaws effect thanks to moderate increase in cost to accompany this business activity. Pre-tax income rose sharply by 15.8%. To wrap up, in the second quarter, domestic markets was fully mobilized to support the economy, proved resilient in a context strongly impacted by the health crisis, and saw a rebound to pre-crisis level in the latter part of the quarter in those activities most affected by lockdown measures. If with this, you turn to slide 28, you will see that our International Financial Services Division recovered its momentum in business activity in the latter part of the quarter. Thus, outstanding loans in the international retail networks were up on last year, with a rebound in new loan production in May and June. Personal finance saw a decrease in activity due to the temporary closure of its partners' points of sale during respective lockdowns, while the unit saw a gradual recovery in new loan production since the low point in April. In IFS asset-gathering units, net asset inflow proved resilient, while assets under management remained affected by the decline in stock market valuations. Lastly, the real estate service business, which was affected by the slowdown in property transactions and moreover impacted by the suspension of construction work, saw a gradual recovery following the easing of lockdown measures. When we now look at the P&L, and we start at the top of the P&L with the revenues, they were down 5.5% year-on-year. As the good resilience of international retail networks and the positive impact of the second quarter rebound on insurance revenues only offset partially the drop in revenues in personal finance and real estate services that I talked about. Costs were down 5.7% year-on-year on the back of continued cost savings and gains in operating efficiency. With the increase in the cost of risk driven mainly by the impact of ex-ante provisioning of expected losses, IFS pre-tax income was down 33% year-on-year. If we now look through the different businesses that you can find on the slides 29 to 34, I'd like to highlight the following. If we start with personal finance, so they recorded a slight decrease in outstanding loans this quarter due to the temporary closure of its partners' points of sale. New loan production is gradually recovering with the reopening of such point of sale in auto loans in particular. the new loan production in June returned to the level seen in March. To support customers in the health crisis, personal finance increased by 50% its resources allocated to after-sale and collection and granted close to 470,000 moratoria to its clients as of June 30th, with a satisfactory level of return to payment for those first loans that benefited from such payment deferral. Looking at personal finance risk profile, it benefits from the portfolio mix in terms of products and geographies. For instance, the portfolio of personal finance is mainly focused on continental Europe to the tune of 89% of outstandings and has no US exposure. Revenues were down 9.6% on the back of an unfavorable Forex impact and a drop in new business activity due to the effects of the respective lockdown measures I talked about. Costs improved by 8.6% thanks to the sustained cost adaptation efforts. Pre-tax income was down 53.7% year-on-year due to the increase in cost of risk, while on a like-for-like basis, gross operating income remained stable in the first half 2020 compared to a year ago. If we now go to Euromed, which saw a 4.5% rise in loans at constant scope and exchange rate. As you know, Euromed is mainly, although it has Europe in its name, but it's mainly outside the Eurozone. So understanding the intrinsic flow, you have to do it at constant scope and exchange rate. And so 4.5% raise in loans with a notable increase in the corporate segment, mainly in Turkey. New loan production and card payments picked up in the latter part of the quarter, in tune with the easing of lockdown measures. Moreover, digitalization facilitated the implementation of support measures by public authorities, with, for example, 100% of related requests made online in Poland. Overall, on a comparable basis, revenues were down 2.4%, while costs evolved by 0.8%, due, amongst others, to wage drifts. Pre-tax income on a like-for-like basis was down 44% due to the increase in the cost of risk. If we now pass the ocean, well, two oceans, well, depending on where you are, but we go to Bankwest on the Californian side, saw a strong business drive with loans up 4.3% and deposits 19%. In each case, on a comparable basis. Bankwest was very actively involved in the implementation of the PPP, the federal support program aimed at SMEs, and granted in total close to 18,000 loans for a total amount of $3 billion at the end of June. Revenues were up 3.2% year-on-year on a like-for-like basis, while costs were down 2.4%, therefore generating positive jobs. However, with cost of risk up 165 million on the second quarter due to ex-ante provisioning of expected losses, pre-tax income fell by 86% on a comparable basis. If we now turn to insurance, which saw a gradual recovery in savings in Asia and in protection and savings in Europe during the quarter, while more than 20 partnerships were signed in 10 different countries. Besides, the business has no exposure to business interruption risk in France, while exposure outside France is negligible. Revenues were up 6% year on year, thanks in particular to the positive accounting impact of the rebound in financial markets in the second quarter, which was partially offset by the effect of claims. Costs have been improving by 6% compared to a year ago, due to good cost containment, and pre-tax income at €548 million up 18.9% compared to a year ago. If we now do the last part of IFS, which is called wealth and asset management, they showed good business resilience. Wealth management benefited from good net asset inflows from large clients in Europe and in Asia. Asset management business saw strong inflows into money market vehicles of 3 billion euros, mainly in Europe in the second quarter, as well as strong momentum in thematic and socially responsible funds since the beginning of the year. Real estate saw a sharp drop in activity due to the slowdown in property transactions, as I mentioned before. However, business recovered gradually following the lifting of lockdown measures. In sum, revenues were down 14.6% due to the impact of the low rate environment on net interest income in wealth management, the unfavorable market valuation effect on asset management, and the impacts of the lockdown on real estate. Costs were down 5% on the second quarter last year due to the sharp decrease in costs in real estate services and the effect of the transformation plan measures, in particular, at asset management. And pre-tax income was down 42% year on year. And so this completes the overview of our retail banking and services. And so, if I can now draw your attention to slide 35 on corporate and institutional banking. This corporate and institutional banking, called CIB, had a very sustained level of activities in all its client segments in the second quarter, by being available and ready to support the specific needs of corporate and institutional clients during the health crisis. For instance, CIB raised over 160 billion euros in the second quarter in the global syndicated loan, bond and equity markets for its clients, an increase of 91.91% compared to the second quarter a year ago. The division has thus played a driving role in financing the economy by contributing to the smooth functioning of syndicated credit, bond and equity markets. And earlier in the quarter, it led several operations that reopened primary markets that had closed at the peak of the crisis. The platform ensured liquidity on secondary markets by bridging the needs of corporates and sovereigns, borrowing clients and those of investors, institutions and asset managers. That is the key role that the platform does. It brings together all these aspects. The level of activity of the division's businesses and its exceptional mobilization capacity at the service of the economy at the height of the crisis, validate the strategic choices made in recent years to enhance the effectiveness of this integrated model and cooperation between business lines. One example of this is the capital market financing platform that was created late 2018. This CIB platform is also benefiting from the greater number of client interactions made possible by the development of digital platforms in the various business lines, as well as from operating efficiency gains that have facilitated rapid adaptation of the setup during the health crisis. If we now look at the P&L, start at the top, revenues, up 33% on the back of growth in all three businesses. with a very good performance in corporate banking, up 15%, global markets, up 63%, and in security services, 3.6%. Costs accompanied this, but to the tune of 11%, so on the back of the high level of activity, so generating, I don't know what the word is, let's call it very positive jaws. Overall, after taking into account the higher cost of risk in the second quarter, CIB's pre-tax income was up 50%, 5-0. If we now turn to the next three slides, that's 36 to 38, let's go into more detail of each of the three businesses. If we start with corporate banking, 36, page 36. Revenues were up 15%, as I said, and this on the back of a 35% rise in fees compared to a year ago in connection with intense origination activities. Revenues rose in all regions with a very strong development in Europe and a very good performance in Asia. Transactions activities were down 6% on the same quarter a year ago on the back of a decline in trade finance due to the lockdown measures and a good resilience in cash management. Thanks to an enhanced strategic dialogue with clients combined with best-in-class execution capabilities, the business continued to be the leading player in the European investment grade corporate bond market as well as in syndicated loans in EMEA. This combined with a top five equity capital markets ranking in EMEA made the business line the number one European player in EMEA investment banking. If we now swipe to the next slide, 37, global markets, showed a very strong business activity. with very high client volumes and revenues up 63% compared to a year ago. If we now zoom in first on fixed income, so fixed revenues were sharply up with very strong growth in all activities, primary and credit markets, rates, forex, emerging markets, all geographies. The activity benefited from exceptional levels of bond issues in the second quarter, together with higher volumes of interest rate forex and commodity hedging, including, for instance, over 60 significant deals for corporate clients. Also, portfolio reallocations pushed secondary bond volumes higher, while electronic platforms saw spikes in volumes at 2 to 5 times the average daily volume seen in 2019. Equity and prime services So the other part saw a gradual return to normal in a still challenging market with a residual impact of dividend restrictions in Europe and weaker volumes in prime services, however, picking up in the latter part of the quarter. Finally, glancing at slide 38, security services continue to support a very good business momentum with slightly lower asset volumes due to overall drop in market values, but with increased transaction volumes. Revenues were down 6% year-on-year, but up 3.6% when excluding the effect of a specific transaction a year ago that we mentioned at that time. Besides, the business continued to win new mandates, as with AXA in Belgium and Eurasio. Let's now look at slide 29, which will conclude today's presentation. and will give us the opportunity to share the outlook for 2020. And so, the slide summarizes in five points. So first, the group has been exceptionally mobilized towards financing the economy and supporting its clients in this unprecedented crisis. Two, standing by our clients to limit the economic and social impact of the crisis will further enhance relationships and will serve as a foundation for further market share gains and stronger positions. Three, the rise in revenues in the second quarter further validates our diversified and integrated model. Four, the rebound in commercial activity witnessed in those businesses most impacted by lockdown measures in the latter part of the quarter paves the way for improved revenue trends in such impacted businesses. And five, the common equity T1 ratio at 12.4 confirms the group's financial solidity. Based on this, Our outlook for 2020 remains unchanged, and net income for 2020 should be about 15 to 20% lower compared to a year ago. This concludes today's presentation. Ladies and gentlemen, I thank you for your attention, and I'll be pleased to take your questions.

Ladies and gentlemen, if you would like to ask a question, please press 01 on your telephone keypad. Please lift your handset and show that the mute function on your telephone is switched off and that you are in a quiet area to maximize audio quality. We will take questions in the order received and we will take as many as time permits. If you find that your question has been answered, you may remove yourself from the queue by pressing O2. Please again press 01. Please press 01 to ask a question.

No question. Everything must be clear.

The first question comes from Jean-Francois Nez from . Sir, please, go ahead.

Hi, good afternoon, and I just wanted to ask two or three quick questions. The first one is on the cost base. So you have a few divisions, in particular the domestic market, where the decline in the cost growth, or rather the speed of cost reduction is accelerating, and it's obvious with the branch reduction, etc., But the speed of such acceleration is also quite high in other divisions where we are not so used to have cost declines and where, in general, we have a lot of cost growth. Like insurance is generally 4% or 5% cost growth. This quarter, I think, is 6% decline. Personal finance, minus 8%. Security services, also a steep decline. So you get a number of these things. Or even in the other domestic markets, where it's generally 5-6% growth is now zero. And what I'm trying to understand is whether this new cost base of now is a new base, so to speak, or whether you stopped some things or accessed furlough schemes or any of these things which may make The base for assessing going forward, for example, 2021, using 2019, a more relevant benchmark, for example. So I'm just trying to understand what's the relevant, what's the new high watermark, if you want, for the costs. And my second question on the retail part is, for example, in France, but also in other countries, you have a very steep contraction. of the net interest margins. For example, in France, I think minus 13 net interest income versus plus 9 loan growth. I just wanted you to share an outlook here on this particular domestic market net interest margins if you can. So that's for the operational side. Then on the dividend side, we all seen the dividend recommendation by the ECB earlier this week. I just wanted to know whether come 2021 and obviously if this is re-allowed. you'd be willing to pay, for example, two dividends or a bigger dividend in the year or how you view your capital return policy from here, whether you need to adapt or change to a capital benchmark or anything that you feel is more relevant to give visibility to your investor base. Thanks a lot.

Thank you for your questions. You do know that we only have one hour for the answers, so I'll do my best. So if I'll take one at a time. If I take your first question on the cost base, there are several axes. If you start with domestic markets, So domestic markets, we have already in the plan ramping up to this year, we have a review of interacting with customers using less branches, using more digital and the likes. So that is something which is underway, and that we have basically accelerated. So that is why you see the cost going down, because we have accelerated those aspects. Then the second thing is you look at some of the aspects more on the international side. in the national financial services side what you see is that several points or part of the costs are related to the point in sale so on pf or in insurance when you have a point in sale you have a related point in sale cost and so there also if there is no point in sale those cuts are going down nevertheless also on the international financial services there is an overall reduction effort which was underway which has been amplified And this amplification, as we mentioned, will be further stepped up because if I say, quote unquote, what we have been able to observe during this lockdown period is that we can take the aspects of digitalization a step further. In the past, like for example, saying we have an interaction with a corporate client once a month during two hours in a remote location, which takes overall six hours, basically what it has meant during the confinement period is that it was half an hour per week by videoconference. Do the math. You see that it is actually very efficient on all fronts. And so that is something that we will now crystallize also going forward. So an acceleration of the cost, some point-in-sale costs which are reducing, and then stepping up materially the efforts related to that we have learned from the digital. So that's on the cost side. If I then take your second question on the net interest income. So the net interest income, and particularly on our domestic markets, has of course been impacted by some of the activities that have been lower and that are typically also generating income. So as I said, the drop in things like credit cards, overdrafts, and the likes, and those are returning. Secondly, as you have seen, there are a lot of deposits that occurred And those deposits, normally we have to guide our clients into different products and therefore also improving the yield. And then there is all the lending that has occurred in the second quarter. This lending will have a full quarter effect going forward. So that is basically what we see. And then there is the effects of the financing that is happening. So these are all the reasons why we consider what we have seen in domestic markets in the second quarter as basically being a temporary drop because the activities return, the effects of what we have underwritten and what we have attracted will yield and will yield fully. And there is the financing effects coming in. So that is why we feel confident on that front on domestic markets. When it comes to dividends, indeed, the supervisory authorities have extended their recommendation not to pay dividends till end of the year. And of course, we will comply. One assumes that when the environment does not further deteriorate, this recommendation will not be extended. At that moment, there is a return to normal, meaning the supervisory rules, as they were applicable pre-COVID, will again apply. And this implies that solid banks should then be able to return to their planned dividend policy. In this case, BNP Paribas anticipates returning to its concept of the 50% dividend. payout ratio. So, Jean-Francois, that would be my three answers.

Thank you. But the 50 of in the past, this one's gone forever now. The one that might have been paid as a special in the fourth quarter that was discussed in the first quarter.

Listen, the recommendation by the supervisory authorities is that it is extended until the end of this year. So, the end of this year, nothing will happen. After that, one has to assume that we will fall back to this kind of rhythm that we saw in the past. But let's wait until the situation crystallizes and we'll take it from there.

Okay, thank you.

The next question comes from Jacques-Henri Golar from Le Cherchevreux. Sir, please go ahead.

Yes, good afternoon. So many questions, but I'll leave it myself to three and we'll make it quick. First of all, Lars, I'm surprised. If I look at your CT1, which is 12.4, which is really good, It seems to me, if I understand the footnote properly, that you've included the transitional arrangement from IFRS 9, which is strange because you're in really good shape, and it doesn't seem to have represented that much anyway. So how much was it within the 20 basis points of a temporary arrangement, and why did you decide to include it? That would be the first question. The second, you have good information on moratoria on slide 41, I think. if I look at your annual report or your half-year report that you give at the same time, it seems, you know, making a back-of-the-envelope calculation, that the amount of moratoria is about $35 billion in volumes. Is it okay? Is it the appropriate number? And if it was possible to have separately what the government-guaranteed loans in total in volumes have been, that would be super helpful. That's the second question. And the third one, TLTRO take-up in June, just to have an idea of how much you took, if you took any. Thank you very much.

Thank you. On your question on the common equity tier one. So on the common equity tier one, there is, of course, the evolution which is stemming from our result generation. And as I said, the result generation, we put aside 50% for dividend, and so it's the remaining part that contributes to the common equity tier one. And then, as there have been several efforts that have been done by the supervisor to basically address a bit of elements which were not necessarily supportive on the European side, like SME supporting factors and the likes, of course we have applied those. And in the French, as there has been an effort, and there is an orientation of Europe to say we support the environment to help the economy, we basically apply them all. And so also on the IFRS, because let's be fair, the fact that you do not, that you have an impact in the P&L and in the capital, is a little bit pushing the concepts we thought. So therefore, we also took that phasing. And that's, on your question, it's around five basis points of it. On your question with respect to what we have on the moratoria, what we have is 54 billion. That is the amount. And when it comes to the, yeah, and let's not forget that the moratoria, the big chunk of it, two-thirds, is basically corporate clients and one-third is individuals. And on the TLTRO, there are so many. We optimize our overall liquidity. And so we look at and so we consider TLTRO as part of the options and funding. And as always, we don't go to the TLTRO because there is no other option. We don't go to the TLTRO because we want to do carry trade. We consider it just as an overall way of optimizing our liquidity costs. So I'll leave it to that.

Sorry, Lars, one more thing. Just on the 54 billion in the moratorium, that's clear. Are you communicating on the government guarantees in volume?

The government guarantees, no, we're not covering those volumes. Okay. Thank you.

Thank you.

The next question comes from Delphine Lee from CP Morgan. Madam, please go ahead.

Good afternoon, Lars, and thanks for taking my questions. So three on my side, if I may. The first one is to come back on capital. Just wondering, in terms of the trends for the second half of this year, what should we expect? I mean, is there still a lag effect from state-guaranteed loans which haven't benefited from the 0% risk rate that could reduce a bit RWAs or not? or do you expect any ratings migration or any other impacts we should be aware of? Also, if you could just clarify again, just remind us of the software benefits. The second question on provisions, I mean, if we look at your first half cost of risk, which is around 65, 66 basis points, Would you expect now that you've taken most of the IFRS 9 impact in terms of macro updates, macro assumptions, should we expect the second half to be lower or is there going to be an increase towards year end? And related to that, I mean, would you have any guidance for next year in terms of cost of risk, whether you would expect similar type of levels this year or lower? And my third question is on fixed income. If I can ask on, you know, sort of the runway we should expect really for the second half, because I guess the $2 billion is not sustainable. If you could, you know, maybe give us some qualitative comments on how July has been going. Thanks a lot.

Sure, Daphne. Thank you for your question. So if I'll take the first one on capital. So, yes, so we are at 12.4%. So what do we see about the levers rolling in the second half of the year? So there are several effects related to the regulatory environment that are basically still to come. So there is this thing where you have in France the so-called PGE, which for the first two months basically weigh on your risk-weighted assets, which are included. And so those at that period will be behind us. That will lead to an improvement of the common equity T1. Secondly, there is the software. So the software which has, the concept has been voted that it is applicable as soon as the EBA has crystallized what it means. So that is also something to come. And then the last one is there is the contribution of the bottom line with the 50% dividend, but nevertheless. So these are the three levers that will lead to the further improvement and that will more than offset whatever kind of evolution one could see on the risk-weighted side. So that's on capital. The second question is on your provisioning. So the thing is, how does that work? If you look at the provisions in the first half, so yes, they have been stepped up compared to a year ago, but if you break it down under IFRS 9, you basically take the the the cost of risk which is incurred so a company that went broke or that has been forborne whatever you really take those costs in effect the second thing is you have to take a forward-looking view so you have a forward-looking view so you look at a scenario and in that scenario you run the numbers and you see what your cost of risk would be and you take it up front and so when we publish the q1 results which we basically closed the books during April. In April, and when we also aligned a bit what the European entity said, we expected ending of the lockdown basically by the end of April. So that is what we took into account. What we saw when we closed the books in Q2 is that actually the lockdown didn't end in April, but it ended in May. So it basically extended this somewhat, and so we had to add another step in that cost of risk. So let's assume now, and I don't have the crystal ball, but let's assume that the situation is like it is, so there is not a step up, then normally you would expect that there would be no further kind of forward-looking kind of cost of risk. So in that situation, your cost of risk in the second half would be below that one of the first half here. But that is that situation. Nevertheless, so it could be that there is still a bit of a take-up, but as you can see, given our diversified approach, given the strength and the rebound of the revenue side, overall, that doesn't impact our overall outlook for the 2020 period. Then, on your third question, with respect to fixed income. So, indeed, the revenue that was generated in the second quarter is basically... of course on the back of the platform that we have the platform that is able to serve all of the needs of all of the customers and of course there was a pickup a strong pickup in volume pickup in volume because given the crisis the outlook on the crisis people wanted to position themselves and the likes so it is indeed likely that the volumes will taper off a bit in the second half of the year. Nevertheless, there is still this uncertainty, so I would say taper off a bit. Secondly, as I said, given the fact that the platform has shown that it is able to be very close to the customers with all the services needed, our market share has stepped up, and that is what we anticipate to remain. So, Delphine, that would be my three answers.

Just on cost of risk, any guidance for 2021?

2021, again, if we stay in a situation that we are now, then normally the cost of risk should be below the cost of risk of this year.

Great. Thanks so much.

The next question comes from Lauren from UBS. Madam, please go ahead.

Hi, good afternoon, Martha. Thank you for taking my question. I have a few, actually. So the first one is regarding corporate financing. I'd like to understand what is the share of income you have this quarter, so that would be helpful. Another question would be on the equity business. Could you perhaps quantify for us the impact coming from additional dividend cancellation in Q2 and any other like one-off impact. And also just to understand a little bit, you know, your hedging strategy within H2. Is it fair to say that you would want to, you know, remain well hedged into the second half of this year? And last question on the Brexit issue. the slide you have on Brexit. So I just wanted to, you know, understand the reason why you have this slide. Do you expect further market share gains effectively or is it just for us to understand that you are ready for whatever scenario comes up? Thank you.

Thank you, Lorraine. On corporate finance, I will have to dig up and we will reach back to you. On the question of the impact on equity and prime services in the second quarter, so as I said, there's two things to that. On the prime side, basically the demand at the beginning of the quarter overall was a bit subdued and it ramped up to normal levels. So that is something where you would expect going forward to be at a normal run rate for the rest of the year. And then when we look at equity derivatives, so the market was a bit shaken by the late decision in March with respect to the dividend restriction. And so that had still a bit of uncertainty at the beginning of April because then there were some decisions taken and then some other corporations also evolved on that. And given that uncertainty, we managed that position in a very conservative way. And so that is... that degree of certainty ramped up towards the end of the quarter, and towards the end of the quarter, let's say, we are back to a normal run rate. So if you take those two elements and look into the rest of the year, we anticipate that the run rate will be back to the normal run rate that you would have seen. And on the Brexit, the Brexit is that we wanted to clarify... we wanted to provide some comfort as there is uncertainty about what would happen what we wanted to say that for us BNP Paribas the concern is that if there would be a Brexit that some activities services cannot be provided from outside Europe outside continental Europe and so it basically means that is the 400 kind of positions that we talked about And so for us to continue servicing, we will have to repatriate those 400 functions. And so that is what we're doing. We're basically halfway there. And so we have to do the other half by the end of the year. So we just wanted to clarify that for us, as we are a diversified bank serving our clients from within continental Europe, and there was this concern limited to this kind of 400 positions, and so that it is very manageable, and it will be managed before Brexit takes form.

Thank you.

Thank you.

The next question comes from Jean-Pierre Lambert from KW. Sir, please go ahead.

Yes, good afternoon, Lars. Three questions. The first one, it's regarding provisions. If I look at the first half, the cost of risk was dominated by Stage 3, which accounted for 75% of the cost of risk. Now, the courts were in lockdown as other activities. So can we expect the Stage 3 to increase in the second half of the year as more bankruptcies come to reality? The second question is regarding the credit risk with deficits, which declined quarter on quarter, and the total loans declined by 7.4%. If we add up financial instruments at fair value and loans and advances to customers, does this imply a 7% risk with asset inflation due to credit migration? And then the third question is the ex-ante provisions. Bankwest accounts for close to 40% of the ex-ante provisions. Does this imply that the GDP adjustments were more material for the U.S.? Thank you very much.

Yes, on your cost of risk. The thing is, if I had a crystal ball to tell you how the stage three would go, I would be probably playing on the lottery and not be here. So I have no clue. What you do know is that we have, as we are in the metropolitan areas, so we have the opportunity to focus on the good counterparty. On top of that, as we are a risk-averse bank, we focus massively on collateral. So we don't do credit cards, but we basically do car financing or home improvement and the likes. So from that point of view, if you look at the overall stance, and if the evolutions are a bit as we anticipate, so a return back to normal, the overall cost of risk, as I said, should be below what we have seen in the first half. to have explicitly what it means on S3. And therefore, if there is a pickup in S3, how is it going back from S2? Honestly, I have no clue. But this is the overall elements why I feel confident of the cost of risk remaining well in that control. When we look at the cost of risk and when you look at the volumes evolution, if you look at it on the risk-created assets, if you look at the pure evolution, so the credit side, on the risk-created assets is going down. And it is somewhat compensated by two effects. There is the Forex effect, which basically ups it. And then secondly, there is also the market risk, which ups it. And the market risk ups it. Why? Because you look at the VAR, and the VAR is looking at the historic trailing. So the VAR that we used in the Q1 was not reflecting entirely because it was only one month out of the quarter. the pickup in the environment, which we now have for three months. So that's a bit on the risk-weighted assets. And on your question of the ex ante, I'm not sure I fully, can you repeat your third question just to make sure I understood it correctly?

Yes, sure. If you look at the Bankwest ex ante provisions, they account for 40% of the total ex ante provisions. So quite a large share. And I was wondering if that was due to higher GDP adjustments for the U.S. than for the geographical regions.

Yes, if you look at the sensitivity of the models that we have in Europe and that we have in the U.S., in the U.S., they are more sensitive, particularly to the unemployment. And so that is a bit why there is this step up in the anticipation. But again, these elements can evolve. If you look at, for example, personal finance, in personal finance in the first quarter, we had a step-up in the ex-ante provisioning because we were uncertain about how repayments would start, for example, on the moratoria. And what we saw is that those payments basically step up very well. Therefore, the cost of risk in that anticipation goes down. Here at Banquest, we basically took the impact as the models foresee. We'll have to wait how the post-summer evolves.

Great. Thank you very much, Lars.

The next question comes from from Bank of America. Sir, please go ahead.

Hi, everyone. Just a couple of quick questions, please. First, on the ECB comments on consolidation that we had this week, why do you think ECB is now focusing on this topic again and the timing of it? And from BNP perspective, how do you see your role playing within that? And secondly is on the CAB and made on the corporate banking side. Can you discuss, please, in terms of pipelines, in terms of deals and volumes, and what's been seen as delay to second half that didn't happen in first half in terms of business? Thank you.

Tarek, thank you for your questions. When it comes to the ECB, so what we have seen, and which is a bit of a frequent situation, that when the situations get dire, Europe basically steps up things that it does. And so they stepped up in, like, for example, the 750 billion funding, and also the ECB stepped up by clarifying some of the rules. It's not that they invented new things, but they clarified rules. So they clarified some elements. If there would be banks grooming together, what would it mean? So at least it clarified this. But intrinsically, it doesn't change. So for us, our stance remains that the current consolidation rules, they are basically applicable and support in-country consolidation. However, the cross-border consolidation at this stage is still hampered by Can the liquidity flow around? Are the contracts comparable and the likes? And so for us, it remains at the point that at this stage, we remain growing in the way we do. So we have a presence in the countries, in many countries in Europe, and we basically continue to build on that platform and on that franchise to grow. And we do that by investing in the digital, and that's the way for us to grow. And so that's basically on that aspect. This could, just as a mark, this could eventually evolve if at some point in time there is this deposit guarantee scheme which takes form, which can at least support liquidity to be flowing around. So that's on the consolidation question. On the corporate side, there is no specific things going on. There has been a solid demand, and that if you look in June, which has been continuing, and that basically there was no event that things got locked up or got postponed, so the rhythm remains good, and that rhythm should continue. So Tarek, that would be my answers.

Thank you.

The next question comes from Julia Muto from Morgan's Day. Madam, can you hear me? Madam, please go ahead.

Can you hear me? Can you hear me?

Yes, I can hear you loud and clear.

Okay, fantastic. Okay, so thank you for the call. A couple of questions from me. So I want to go back to the loans in moratoria. It is $54 billion as of the end of June. So how has that evolved since June? I assume they have come down by how much, if you can share that. And what sort of provisions have you taken here? So this would be my first question. Then on costs, can I ask you, so I hear that you want to build on what you learned on digitalization and hence some efficiencies that have been proven possible by COVID, but in the previous quarter you pointed to 300 to 500 million of cost saved. Does this still hold or how should we think about the cost line from here? And then a third one on cost of risk. You mentioned that you factored in the measures that have been taken by authorities in your estimates. So can you help us think this through. So for example, how do you factor in the guarantee from the French or other states? Do you assume 50% of the loss relative to normality, or how are you thinking about that?

Thank you. Yes. So thank you for your questions. When we look at the loans, the moratoria, so on general, the duration is basically, let's say, 70% of that is very short maturity. And so that basically means we start to see the first parts of it, let's say like 10% or so, which is coming due recently. And what we see is basically that those return to payment. So from that point of view, that confirms that we have selected the moratoria, the extensions, based on our criteria. And so we see that evolving rapidly. positively. So that's on the moratoria. On the digitalization, yes, so we announced that on the back of our 2020 plan, which is basically culminating this year, we would have a reduction of $1 billion in costs. And we basically said that what we are learning from the confinement period, that would go up like to $1.3 billion. And so we confirmed that And that's based on what? That's on elements that we have learned where we see that the interactions, that some interactions where, for example, clients in the end still wanted to come to a branch and that people still wanted to come to an office, we basically see that this can now be done differently. So we can have a different way of transacting, which means less travel and entertainment kind of costs. It can also be, instead of one bulk meeting, it can be several kind of phase meetings, which means the interaction can be much closer to the concerns at hand. And so that's basically what we see that is a step, and that is what we are crystallizing. That's why we basically said, you know, we typically make multi-year planning, and we end one plan, and we start another multi-year one. And this one, we basically said, we're going to take a break to ensure that we can crystallize, take away, and crystallize all the learnings that we saw. Those learnings which will already lead to 1.3 billion costs this year, that will become the full year effect with another wave the year thereafter. So that's really, let's say, all the aspects that we had in things like reduction of branches and operating differently, to some extent got a boost in acceleration in that confinement period. And so that is why we feel confident to confirm the cost reduction and also look at it a bit for the base going forward. And then your last question, can you rephrase your last question on the guarantees? Yes.

Well, what's the impact on your cost of rates coming from the guarantees, the positive impact on the guarantees?

Oh, yes. But the thing is, as I said earlier, and it's a bit like what we see on the loan moratoria, is that we take that we have our clients, which were, when we extended the moratoria, we wanted to make sure that they are in good shape. And so this basically means that they were impacted. If they are impacted, they are impacted by the COVID period. And so that is basically what we said we can give that guarantee. And that is basically the stance that we take. And yes, as always, some sectors might be getting into some kind of headwinds. Others will have some tailwinds. And so that's basically the elements that in our modeling we have included that. And it's not like just the effects of the guarantees. It is much more looking at some sectors. So some sectors will be impacted and other sectors will actually be doing better. And that's the elements, and that's more the kind of the sectorial kind of approach, more than in particularly the guarantees. And that is included in our cost of risk outlook.

Thank you.

The next question comes from Pierre Chedeville from TIC. Sir, please go ahead.

Hi, good afternoon, Lars. One question regarding Aval, I was quite surprised by the fact that the fleet management was increasing by more than 7% and in this context it's quite it's quite strange I would say and I wanted to know if there has been any extraordinary contract or if there was a specific geography for instance where this business works and And I also wanted to know what was the impact of used card valuation in your revenues in this business, if you can give us some color on that. Regarding the insurance business, you said that you were not exposed to business interruption, but you also mentioned that your combined ratio has suffered. So I wanted to know if that degradation comes from... credit insurance, creditor insurance products, or any other product. Because for cars, for instance, car motor insurance, theoretically, a combined ratio has improved during the confinement. And my last question is regarding BNP relay state. I wanted to know if, I would say from a structural point of view, you were worried concerning the evolution of company organization, specifically regarding remote work that could lead to less transactions in this business. What is your view regarding the future of BNP Paribas real estate according to this topic? Thank you.

Pierre, thank you for your questions. If we take them one by one, if we look at Arval first, So indeed, I mean, Arval or that business or car business in general, it went to a roller coaster in the second quarter, right? So it is a thing that basically slowed down, grounded to a halt in April and then recuperated in the end very fast. And that is what you see in the volumes, yeah? So it's not that there is like one specific contract. It is really a pickup in volume. And when we look at the second-hand car, so as a reminder... the second car sales price is part of the valuation of what you see in the top line at Arval. And also here, given that the production also of new cars is like somewhat limited, given all the impacts of the pandemic, if you look at the second-hand car price, they are finally holding up very well. So if you look at the price in April, it's of course a different thing. But if you look at, and it's basically fair value, if you look in June, the second-hand cars have been doing well. So that's Arval. When we look at insurance, in insurance, and as a reminder, and Pierre, you know, but just as a quick one, if you look at the top line, the top line of insurance is in our revenue line. So if you have the claims, for example, that are falling, they are into that line. And indeed, if you look at the top line of insurance, it's, of course, rebounding insurance. due to the fact that the markets rebounded. As you remember, there's a part of the assets that we have in insurance that are in mark-to-market because they contain very mild structuring options and the likes. And so that one has partially rebounded in the second quarter, which is lifting the top line. But then at the same time, as you always have, as I said, claims are reflected in the net banking income. And they have slightly migrated up And that is in some of the things, some of the elements which are in there. Yes, it's not motor insurance in France, but as you know, in insurance we are active, we have a global kind of reach, and so it's not in all areas where the cars were blocked and therefore there is no claims falling from that. And it's a myriad of activities outside of France, basically. which is happening. So there is limited impact in France, but it's a bit the outer networks that are having that impact. And then when it comes to real estate, which is a bit of switching forward in the strategy, well, if we take a picture, of course, real estate, those activities, they're grounded to a halt in April, but it is ramping back up. And then on your question on saying, hey, are you guys going to operate differently? And well, not you, but everyone going to operate differently. And so that basically means that the real estate, there is a need for it, but it might be in a different form and shape. And so that is the kind of things, if you look at what our real estate is organized at, they should be able to fully play a role in the promotion and the changes that are going on. So from that point of view, the accents that are put on the strategy might evolve, but our real estate is well positioned to handle that. So that would be my three answers.

Thank you.

The next question comes from from Jeffrey. Madam, please go ahead.

Yes, thank you. Good afternoon. I have three questions as well, please. The first is on the dividend. I'd like to please come back to this question that was raised earlier, just to make sure that your comments don't get misinterpreted. should we simply forget about the full year 19 dividend, so we assume it will remain zero, and you are going to apply a 50% payout from the full year 20 EPS onward, provided obviously you get the approval from the ECB, or is it still possible that we see at some point in 21, provided there's a new crisis, provided the ECB approves that and does not renew the ban, would you then consider paying a special to try and offset the missed payment for the full year 19. So that's the first question. The second question is on the capital ratio. Just can you please clarify the target common equity to human ratio, whether you still target to be at 12% or if you're thinking rather in terms of MDA buffer above the new 9.2% level. And the last question is regarding personal finance and more specifically the cost of risk there. Obviously, this is a business that tends to be more at risk in a crisis from a provision point of view. You've provided in the slide pack some details on the product mix, the geographic mix. Can we say that you feel more comfortable on the cost of risk on that business because the mix is now more geared towards auto loans and less towards personal loans and credit cards? And could you also just elaborate on why, if I'm not mistaken, there were some write-backs in France in that business? Thank you.

Thank you, Flora. So on the dividend, the one thing, so it's all very, we have to see. So first of all, the ban has to be lifted and which basically means one can return to normal. And so the normal means that you can return to your dividend policy because a dividend policy, applying a dividend policy is typically reviewed in what is called the supervisory review process. So as a bank, we are supervised by authorities, which have a process, it's called, in our lingo or their lingo, it's called the SHREP, the supervisory review process, in which they basically look at the overall outlook of the bank and what dividend payments in that sector matter. And so typically, in the normal run of the mill, everything being good, that's for us, for example, the 50% payout is part of that. And so the thing is, when we said that there will be no further deterioration of the environment. It will all depend on that. If there is no environment that deteriorates, is there one that improves? So just to see what the outlook would be, therefore what the impact will be on the SREP, and therefore what kind of would make sense as a payout ratio. So that's basically all I can say at this time. And as you have seen, we continue to set aside the 50% on the 2020 results. So we'll have to follow it up, but that's basically what we read. Then your second question is on the capital ratios. So don't get me wrong, because we are at 12.4%, this is not the new normal. So we said that under Basel III, we're basically at the 12% ratio. That's basically what our objective is. and not the 12.4. But the 12.4 puts us in a position to be comfortable even if there would be events that we can fully continue to serve the economy. So that's basically where we stand. So don't see this that we are hanging on to this. We go for 12, and that's it. And then when we look at the cost of risk of personal finance, the way it works, indeed, we have been focusing ourselves in the past on the collateralized kind of products. So no car business, but cars that people typically need for their jobs or their home improvement that they need for their home. That's the kind of things that we do. So it is collateralized and a collateral that basically matters to those persons. So that's basically what we do. But then again, of course, the question is, what will indeed be the tendency of the customers to protect that kind of collateral? What I mean by that is in the first quarter in personal finance, we took a stance of all of the elements where the customer would run into dire straits, what would be the fraction that he would see and that we would end and write down on the auto loans. And what we basically saw come May and June is that the amounts were better than what we had anticipated. And that is why we updated our modeling and our anticipation, and that's basically why we reviewed slightly the cost of risk in that area. So, Flora, that would be my three answers.

Thank you. The next question comes from Omar . So, please go ahead.

Hi, Lars.

Sorry, can you hear me? Yes, there is a little bit of wind, but I can hear you.

Oh, brilliant. Okay. So, three questions for me. So, just lastly, just coming back to the moratoria, please. So, on the $54 billion, exactly how much of that meets the criteria defined by the EBA that it shouldn't automatically transfer to Stage 2? Is it basically all of it? And then I didn't hear the answers on whether that number was higher after the quarter. and also how much provision there is against that. I know you highlighted what you had in the slides about the short-term duration, but if you could address those two points, that would be helpful. Secondly, then on the rebound in activity at the end of the quarter in retail and consumer credit, some banks are saying that things like the jump in activity is more of a catch-up on transactions that would have happened were it not for the lockdown and that underlying activity is still lower than pre-lockdown effectively. That doesn't seem to be what you're guiding. So for retail businesses specifically, are you saying that volume growth should return to pre-lockdown levels as early as next quarter? Is that what you're saying? And then the third question, maybe just a slightly longer term one, but the Banque de France in its latest report highlighted a key risk being the leverage and indebtedness in the SME sector in France relative to European peers, both going into the crisis and how that's increased because of this crisis. Clearly, given your provisioning, you don't seem to share that as being as much of a key risk. So maybe qualitatively, could you address your thoughts on the health of the smaller corporate sector in France? Is it just as simple as interest rates are low, so the leverage doesn't really matter? Thanks.

Thank you for your question. First of all, to make it simple, on the moratorium, the $54 billion debt we've done, we don't want to have a gazillion amounts of ways of presenting things. So this is the EBA kind of format that we have. And then if you see the effect, and that is what we mentioned, it's basically tapering off, right? Its duration is short, and so that's basically what we see happening. If you take that two-thirds, it's like three months, you can assume that a part of that is already tapering off. So that's basically what we said. When it comes to the rebound, what we see is that intrinsically we see elements of the activities rebounding. And as I said, on average, this rebound stems from some activities rebounding quite strong, stronger than before, and some others will flow. And it can be even in a sector. If you take the clothing sector, kids' clothing are just much above what we saw before. Men's clothing is not. So that's the kind of trend that we see on average. What we said is that we expect it to be at the 100% rate that we saw before, as that in a given month would be, let's say, by year end. We put it in our modeling by year end, and so we see that that is a trend that is evolving. And as I said, the overall GDP level, we would see that by mid-2020. So whatever we see in the tapering up, we see that totally coherent trend. with those assumptions. So that's on the rebound. And when it comes to leverage, as you know, there is, if you look at the leverage that is also being taken by the states, for example, so it is indeed somewhat stepping up. We see that some companies took it and are now basically restructuring themselves around it. There is a bit of, and as I said, there is a bit of the step up that you see, for example, in the countries And indeed, in this current low-rate environment, intrinsically, that should be addressed at some point in time. But that is what we have ahead of us. So, Omar, that would be my three answers.

Thank you. Just as a very cheeky follow-up, just on the dividend, could you just make clear that mechanically, you could still pay the 2019 dividend as long as you're allowed some time in the first half of 2021.

As I said, so for the moment, there is this recommendation. As I said, assume that at some point in time, that recommendation will not be reconducted. And that basically means that you fall back to the normal territory. And in the normal territory, If you talk to the supervisor, they say normal territory doesn't mean you can do whatever you want. You can do something which is in line with your overall trajectory that is a conservative stance. And so that kind of what you can do will depend on how the environment looks and depending on that. So that's all I can say, guys. You should talk to the regulator if you want to have more. The only thing I say, what I understand... is that if it's lifted, it is back to normal. Normal means you can pay the dividend payout ratio which is in line with your overall risk profile.

Got it. Perfect. Thanks a lot, Lars.

The next question comes from Stefan Stallman from Autonomous Research. Sir, please go ahead.

Good afternoon, Lars. I wanted to ask on two things, please. The first one on your IFRS 9 scenarios that you use for estimating expected credit losses. Thanks for the granularity on that. It looks a bit surprising that you actually assign a higher weight to the favorable outcome than to the adverse outcome. And that actually has become even more likely since the end of 2019. So I was wondering if you could talk a little bit about the rationale there. And also relate to this, you provide this very helpful sensitivity, which says that there would only be 100 million provision difference from moving from your current mix of adverse versus favorable to a 25-25 equally weighted position. I'm surprised that the difference is so small. Maybe you could add a bit of color on why that is. And the second question goes back to liquidity. You have more than 100 billion extra liquidity reserves built up year to date. What would you say has been the cost of holding this extra liquidity in the first half of the year, if any? Thank you.

Stefan, thank you for your question. When we look at IFRS 9, the scenarios and the scenario way. So indeed, under IFRS 9, you have to take into account a central scenario and then an adverse and a positive scenario. And the reason why they do this is because if you only have to take a very adverse scenario, at some point in time, when you are in a downturn, you will become a downturn from doom, which will become very, very low. And so that is why as long as you believe that the economy works in cycles, if you are at the low point of the cycle, it is more likely that you will turn into a positive scenario than in a further negative scenario. And so that is basically what we do. So we have our central scenario has a weighing of 50% and then the adverse or the positive one depends on where you are in the cycle. So if you would be on the positive side of the cycle, your adverse scenario would weigh more because it would be more realistic that the cycle would turn. And here it's a bit the same thing. As you are at the bottom, you assume that there is more chance that it will improve than it will deteriorate. And so that's a bit the concept. The concept of IFRS 9 is not to have a scenario of doom, but to have a scenario which is as realistic as possible and therefore the weighing of the other scenarios as I just said. So that's a bit the way that it is being done. And yes, for information, we provided if it was the two. But as I said, there is the effect. And it's not that the weighting is so much different, right? It's a couple of percentage points. And so that is what the impact does. When it comes to your question on liquidity, indeed, the liquidity buffer stepped up in the second quarter because the deposits have outgrown the credits, as you might have seen in our balance sheet. And so the question indeed is, so the cost, let's say, in the second quarter, given the fact that that is coming on average in the quarter, is relatively limited. The question is going forward. And so going forward, what are the ways to mitigate that cost? So one way is to redistribute this liquidity in credits, yeah? So there will be demands for credit, so there will be redeployment of the liquidity. The second part is that to some extent, the TLTRO3 will also overall make the overall funding costs on other instruments cheaper, and that would also come in in the second half of the year. So that is why when I look at the interest income, particularly in our domestic markets, I have a positive stance Because, as I said, there will be loan growth that will be generating and using that liquidity. And then there is also the TLTRO, which will optimize those liquidity costs. So that is a bit how we see to handle and not have a negative impact on it.

All right. Thank you very much.

The next question comes from Kiri Vijayaraja from HSP. Please go ahead.

Yes, good afternoon, Lars. A couple of questions from my side. So firstly on prime services, you mentioned weaker volumes, but then a rebound coming through at the end of the quarter, but more just sort of taking a step back. I'm just wondering how you think about the earlier ambitions, you know, before the virus when you first contemplated the Deutsche Bank Prime Services acquisition. A lot of those market share ambitions and the budgets and revenue targets you had in mind, are they still applicable given the more challenging environment we've seen since that deal was first contemplated? So really just your thoughts and update and progress there on Prime Services. And then on IFS, and particularly in some of those areas where you're seeing a recovery in the June, July origination volumes. Do you think the loan book stops shrinking in the second half of the year for IFRS? And in particular, I'm wondering where your risk appetite and where your lending criteria fit into that discussion, particularly in areas like personal finance. And would that be a potential sort of headwind for volume stabilization or volume recovery? in the second half of this year, specifically to do with IFRS. Sorry, IFS. Thank you.

Thank you for your question. Now, on prime services, so as a quick reminder, prime services, we're very pleased to onboard these activities because, as we said earlier, our equity derivatives department is really focused at this stage on equity derivatives, and so we want to have the wider set of services for the institutional clients and prime services are really an important part of that. So that is basically going well. Of course, as I said earlier, in the second quarter, and particularly at the start, the demand for prime services, the volumes was at that lower, but again, this is something that structurally should return. So we remain very pleased with this activity as part of our overall diversified platform. And then when it comes to IFS and if you look at the loan book, as I said earlier, if you look at personal finance, there was, of course, the impact in April with the lockdown of the points of sale. And so that one is returning, is basically there. But at the same time, we remain, as you know, we are a boring, prudent bank. So we basically look at making sure that when we extend lending, that the counterparty is well-reviewed and is in line with it. So we have, and as you know, we are boring and conservative, so we'll have to see. I don't know what it will be, but we will stick to FPF in a very conservative stance.

Great. Thank you, Lars.

The last question comes from Adzora Gelsi from Citigroup. Please go ahead.

Hi, good afternoon. A couple of questions on French retail. I hear you on your optimistic stance on the NII. Would you expect also feed to rebound supported by the high amount of deposit that you had in addition of a normal return to activities? And when you look at cost, given the exercise that you have done and the speed that you are showing in focusing on cost, Would you expect in 2021 the efficiency of the division to improve compared to what was pre-COVID already in 2019, 2021? And lastly on dividend, I'm not going to ask you about how much, but I'm going to ask you about how. You've always talked about payout and cash dividend. Could you consider a buyback given where the shares are trading if this would still be the case when you would be allowed to pay dividend? Thank you.

Sure, thank you. On the fees or on the outlook, so as I said, the second quarter in domestic markets has been impacted on one hand by the lockdown and on the other hand by the elements that I mentioned before. So on the interest income, there are the elements that should make it return to normal that I mentioned. So the deposits being deployed and the growth to take place and the TLT road to optimize pricing. And when you look at fees... Part of the fees that have dropped, they have basically dropped because there were less transactions happening and there were less related activities. And so there were less transactions that are being asked. So that is also something that could come back in domestic markets to the levels that we saw. So that is on that part. So that is when I say one can assume that in the second half domestic markets returns, that's basically on all elements. Then when we look at the costs, Indeed, the cost that we are having as a reduction now, it will come into play, full year effect next year. And as I said, it will be extended because we will draw the lessons from what the impacts are. So don't ask me what the cost income is. The cost, yes, the effect will be full next year, and there will be another wave of learnings that we will put in place. So the cost, we remain very focused on it. and we will continue to optimize it. And as I said, the confinement has been a lesson for that. On the dividend, listen, the thing is, it's basically here where we listen to you, right? I mean, we have investors that basically say, I'm interested in this. And then we have a set of investors that are basically interested on dividends. And so by paying dividends in cash, all options are available. So that's basically where we stand. So we listen to you. Shout if you have a preference. All right. That would be my answers. Operator, I think we're at the end of the call.

Ladies and gentlemen, this concludes the call of BNP Paribas, second quarter 2020 results. Thank you all for your participation. You may now disconnect.

Thank you all.