Bnp Paribas Ord

Good afternoon ladies and gentlemen and welcome to the presentation of BNP Paribas third quarter 2023 results. For your information this conference call is being recorded. Supporting slides are available on BNP Paribas IR website .bnpparibas.com. During today's presentation you will be able to ask your questions by pressing star 1 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. Now I would like to hand over the call to Mr. Lars Machinil, Group Chief Financial Officer. Please go ahead sir.

Thank you operator. Hello everyone. I trust you're all doing well and welcome to BNP Paribas third quarter results presentation. As usual at the end of the presentation I'll be pleased to take your questions. So if we look at the results driven by the strength of its unique model and positioning the group's performance is solid as reflected in its distributable results. They illustrate the intrinsic performance of the group quote unquote the new BNP Paribas after the sale of Bank of the West and after the single resolution fund ramp up. It is also the base for dividend and as such allows straightforward assessment of our performance when it comes to return to shareholders. If we take the first nine months it sounds like a birthday right? The distributable earnings per share is up .15% compared to last year further boosted by the share buyback that we've been organizing this year. So let's focus in more detail on the distributable profit and loss of the third quarter which by the way does not derive much from the reported one. So as you can see results are solid. Revenues increased by .3% -on-year. The growth which is supported by the strength of our model and the performance of all our operating divisions. We see a recurring theme sustained by the diversification of its businesses. CIB delivered a solid growth of .1% in revenues compared to last year on a -for-like basis. A healthy growth also for CPBS had plus .7% with robust commercial and personal banking activities while IPS the third division grew by .6% when we exclude real estate and principal investment also on a -for-like basis. If we then look to the operating expenses there are .4% -on-year generating positive jobs of basically one point. Thanks to a long-term approach and prudent and proactive risk management, cost of risk remains at the low level of 33 basis points and when I say low it's because it's low compared to the 2025 objective which is below. Next to that our financial structure remains solid as well with the group CET1 ratio at .4% sustained by the organic growth of 20 basis points in this quarter. On the same basis, pre-dex income is up .2% -on-year resulting in a net income of 2.7 billion euros for the third quarter. This growth is solid. It's solid if you look over nine months it's totally in line with our objectives. So after nine months it clocks in bottom line 8.8 billion euros and so our distributable net income grew by .5% versus last year reported results. So the results of last year that served the dividend of last year. So illustrating again our ability to offset the impact of the sale of Bank of the West and this through organic growth. As mentioned in the intro this is further boosted by the share buyback and leading to a very lack of a better word handsome growth in the nine months distributable EPS end of the period as I mentioned earlier .9% -on-year outpacing our plan EPS CAGR of 12% and illustrating both our growth and the benefit of the execution of the share buybacks. If you now move slide or whatever support you're on slide 4 we see the key pillars on which BNP Paribas has built a solid performance over the years. We have delivered sustained growth in revenues .1% on average in the past three years benefiting from our distinct model diversified and uniquely positioned generating growth opportunity and resilience. We have delivered constant improvement in our organic cost income ratio as well and our strict discipline on costs as well as the benefit of our industrialized platforms are illustrated by the evolution of our cost income ratio excluding exceptional items improving steadily since 2018 from .5% to reach .0% on a distributable basis illustrating the intrinsic operational efficiency of our model post the impact of the single resolution fund ramp up. So we have the year we have improved our risk profile our proactive and constant risk management leading to significant reshuffling of portfolios combined with a strong discipline and origination resulted in a specific decrease in the cost of risk on growth operating income ratio. To sum up we have built a European leader uniquely positioned to generate solid growth on a long-term basis. As you see on slide five it results in a significant growth in 2023 and indeed on a nine month basis our distributable net income increased by .5% when compared to 2022 reported results fully in line with the 2023 objective. Organic growth has clearly compensated for the sale of Bank of the West and by basing the return to shareholders in 2023 on distributable net income we have anticipated the end of the ramp up for the single resolution fund as soon as 2023 and this for 800 million euros as well we excluded extraordinary items in particular the negative impact of the adjustment of TLTA rule hedges for around 900 million. Last but not least in line with what we announced we confirmed our 2023 objectives of a distributable net income 1 billion euros higher than 2022 reported. So that's the gist of the results if we look in detail at the group level and moving to the main exceptional and extraordinary items. Slide seven. They are very limited this quarter amounting to less than 200 million euros so decreasing compared to last year. As far as the previous 2023 quarters for the first the second you also find a residual limited impact of 58 million euros related to the adjustment of hedges from the change in the ECB terms and conditions on the TLTA rule. A negative extraordinary item booked in the corporate center and excluded from the distributable income. To wrap up our full P&L on slide eight providing details of the synthesis I gave on the first page for revenues cost and cost of risk. So again good revenue growth 4% positive jobs low cost of risk and strong growth in pre-tax income clocking in up .2% -on-year on a distributable basis 6% on a report as well. Hence a net income at 2.7 billion euros which illustrates again the solid underlying performance of the group. And to conclude before we look at the operating divisions let me mention our return on tangible equity clocking in at 12.7%. That's the group. If you now look at the revenues of the operating divisions at slide nine what do we see? A good set of results for CIB thanks to a diversified and strong client franchise. Indeed CIB's revenues were solid at 5% on a super strong rise in global banking revenues up 25% on a -for-like basis as well as a strong growth at security services up 12% on a -for-like basis. Allow me to stress again this it's why this activity is called CIB right. It generates a continuous and recurring stream of earnings by bridging the needs of corporates and institutions. Here go the name CIB. And this as a result of a more -to-normal activity on micro products in Europe global markets revenues were down by .4% on a -for-like basis versus the high level in the third quarter but still a 59% increase when compared to the third quarter in 2018. An illustration of our new dimension and ability to gain market shares in that space. So that's CIB very solid very recurring and very diversified. Same is true for CPBS very positive momentum with a sharp .7% increase on a -for-like basis driven by strong performance of commercial and personal banking boosted by the rise in net interest revenues. The solid increase in revenues for ARVAL and leading solutions up 10% witnessing a healthy growth in volumes as well as maintained high level of contribution related to used car prices. And this with a less of a favorable environment for personal finance which continues its transition and selectivity at origination. The third one is IPS which delivered a good performance in revenues of up .5% when we exclude real estate and principal investments both facing challenging environments. However we see a solid performance of well management up 9% and insurance up 4%. If you now flick to slide 10 the operating divisions delivered positive jobs via recurring cost savings and cost deficit. So if we look at it division by division positive jobs 1.2 points CIB positive jobs 1.3 for CPBS also supported by the rationalization of its operating model and continued cost saving measures. Positive jobs effects for 4.3 points for IPS when we exclude real estate and principal investments supported by positive jobs again in what I mentioned earlier the solid environment for insurance and well management. Let me remind you of the under building of our cost discipline. This thing just doesn't come like this. Indeed this is at the heart of our growth plan as you can see on slide 11. Leveraging our internal platforms remains a key priority and we are moving fast to adapt. 90% of the objective of increasing resources in the main service center by 2025 is already achieved. So we wanted the objective we have is basically done two years in advance. In addition we continue the optimization of our premises and office space to integrate new and continuing work usages improving our mutualization ratio to flex office and fewer inner city locations. Last we are ensuring a strong discipline on investments with a proactive management related to external spending. As a result and despite the inflationary context we confirm our recurring savings programs up to 2.3 billion euros over the plan with 1 billion euros already achieved. This approach is key to our ability to deliver positive jobs each year in combination with the end of the ramp up of the single resolution fund representing a decrease of 0.8 billion euros in the next year. So we are now able to continue to increase our growth reading expenses between 2023 and 2024 as already anticipated through our distributable results. Having looked at the top line at the cost there is also the risk line. So with this if you look at our risk profile let's turn to page 12. These are charts you are very familiar with and consist of phrasing being variance on the team low risk. Indeed our cost of risk has been low over a long period below our guidance of 40 basis points since 2017 except for the exceptional year 2020 where we took additional provisions which are basically most still there. It is not only the credit aspects that see a disciplined approach also our CID has grown in a very disciplined way maintaining a very prudent and proactive approach in terms of risk management. The most powerful illustration of this is our capacity to significantly grow our global markets activities revenues while keeping our VAR as a measure of the risk we take at a low level. Finally we like to stress our pretty high stock of stages 1 and 2 provisioning covering 2 times our cost of risk of non performing loans. If we focus specifically on the third quarter you can see the confirmation of a low cost of risk 33 basis points at group level on one low impairments on defaulted assets the so called stage 3 and two a limited release in ex-ante provisioning including an additional provision on commercial real estate for 68 million euros.

If you

now turn to the financial structure on slide 15 you can see what I mentioned the solid CET1 ratio clocking in at 13.4 percent with organic capital generation to report net income after setting aside 60 percent of our distributional results and net of the evolution of our risk-weighted assets had a 20 basis points positive impact this quarter. This was offset by the effect of the launch in August of the second tranche of the 2023 share buyback program for 40 basis points. All the effects were limited. If you look at other regulatory metrics for example leverage ratio it clocked in at 4.5 percent well above the required level. Also liquidity profile at the end of the quarter stands high with an LCR of 138 percent end of period. And then the level of our liquidity buffer the so called HQLA amounted to 370 billion out of which 70 percent is deposits at central bank. Our liquidity reserve is still comfortable at 439 billion euros and includes 253 of central bank deposits. If with this we switch to slide 16 I take it messages jump off the slide for you to see how strong and deep our value creating model is. Basically three things. First on the left the continued growth of our net tangible book value per share in all environments reaching 86.3 euros at the end of September up every year and up 33 percent versus 2018. This growth is even amplified when translating in unique per share with an outstanding EPS growth of 53 percent since 2018. That almost doubling the growth for the tangible equity per share and it is even further amplified by the increased ordinary payout ratio now at 60 percent and significant share buyback program for the equivalent of 7 percent of our market cap in 2023. Hence a tremendous increase of the amount to be distributed to shareholders at 72 percent of the period to reach 5 billion euros for the nine months of 2023. To conclude more than 85 percent of our share buyback has been completed and 70 million shares have been canceled as a result. So here we basically have discussed the growth part of our GTS plan. So if we move to the T the technology on slide 17 and the key investments to support operational performance innovation and growth we intensively deploy artificial intelligence. More than 700 use cases have been rolled out with the intention to create significant value by 2025. We're also experimenting circa 300 use cases including 26 generative AI ones with large language models. They will increase the scope of use of AI but always based on strong standards in terms of security. Our successful open information system offers now close to 290 IT products to share. APZation if that's a word is also broadly adopted. It brings interoperability and rationalization with 820 APIs available sustaining 670 million transactions per month. A safer and more resilient IT with the cloud. Our objective is to embark more than 60 60 percent of our apps by 2025. We are currently at 43 percent. Finally these developments make us more attractive as a leader in the industry with high end AI and IT profiles. Another evidence is our number of partnerships with startups where we found a good way to blend them in. So as the largest European bank we have a clear ambition to contributing to a net zero economy by 2050 as shown on slide 18. As you can see this is not a passing fad as far more than a decade we have been deploying very significant resources and efforts to finance the transition. I'm sure you have noted an acceleration in 2022 and 23 with ambitious targets to accelerate our pivotal move towards financing low carbon energy. To reiterate by 2030 we will have completed the transitioning of our financing activities to the production of low carbon energy by more than 80 80 percent and this in less than 15 years. Last our leadership remains with our number one worldwide ranking in sustainable bonds. Let me also mention that according to a study by AFII BNP Paribas is the bank with the greatest appetite of the world 16 largest bank for green bond financing. Also the bank with the smallest appetite for financing of fossil fuels over the past 12 months. It is a clear tribute to our ambition for the advent of a carbon neutral economy by 2050. If we did let's take a look at the divisions. Let's start by CID on slides 21 to 24. Leveraging on solid leadership positions and market share gains CID delivered this quarter a strong increase in results positive jobs and a decrease of cost of risk. As a tribute to the successful strategy CID became number one in EMEA in terms of revenues on capital markets activities with a 7 percent market share on the first nine months. We are also number one worldwide in EMEA in sustainable finance. Moreover CID confirms again this quarter its resilient growth year after year as evidenced by the evolution of the quarterly pretext income. Please also note that this pretext quarterly income is the highest third quarter for CID since 2018 in a back to normal environment for markets. So serving its clients needs to a diversified and integrated model CID's revenues were up 5.1 percent year on year on a like for like basis. Supported by a very strong growth at global banking, good resilience at global markets and extremely good performance by security services. Indeed global banking continues to gain market shares and confirms its leadership position on European bonds and loan syndication markets as illustrated on slide 22. Hence revenues in global banking were up 24.7 percent year on year on a like for like basis. If we zoom in somewhat sharp gains in transaction banking up 59 percent in EMEA and strong growth within capital markets particularly in the Americas and EMEA. In a more contrasted environment global markets continues to leverage on the diversified model supporting the revenue strength you can see on slide 23. As you have seen it activity was quite sustained in equity derivatives and they were at a good momentum in prime brokerage volumes. At the same time it was I would say normalized on macro and credit was quite boring this quarter. In this environment global markets showed a good resilience compared to a high third quarter in 2022 with revenues decreasing by 8.4 percent year on year like for like. However plus 59 percent when compared to the third quarter just reiterating that last year was quite an exceptional level. Moreover facing robust credit markets notably in EMEA and normalized client activity on rates and foreign exchange. FIC revenues were down 40.3 percent year on year. A solid performance versus a very strong third quarter in 2022 with a more normalized environment in macro and particularly in EMEA. If you then look at equity and prime services it displays a good relative performance with greater stable revenues supported by sustained momentum in equity derivatives and higher balances in prime brokerage. Finally the third part of CID security services continue to benefit from a strong business drive new mandates and a sustained development in private capital. With the positive impact of rates and increased assets revenues went up sharply 12.4 percent year on year on a like for like basis also for security services a record quarter. If we gravitate back to CIV overall total costs were up 1.7 percent posted Jaws 1.2 points. If you look at Jaws they are extremely positive when we look at global banking at 16 points or at security services at 7 points. All in all accounting for the very low level of cost of risk CIV generated a pre-tax income of 1.6 billion euros in the third quarter. A record as you can see on slide 23 up almost 14 percent year on year. So in a nutshell a very efficient and resilient recurring CIV model benefiting from continued market share gains and a favorable positioning. So that's the first division. If you can now turn your attention to commercial personal banking and service slide 25 to 32. As you can see this division performed well with a solid growth of businesses accompanied by positive jobs thanks to the strong performance of commercial and personal banking and sustained growth at Armal. In terms of activities loans were up 2.1 percent and up 9.5 percent when compared to the third quarter in 2021 especially lifted by the specialized businesses and almost stable in the eurozone for commercial and personal banking. Deposits are down by 3 percent year on year but were most stable versus the second quarter of this year. Private banking and asset inflow were strong reaching close to 14 billion euros over nine months since January 1st confirming our distinctive franchise and favorable client positioning. Moreover the division continues to focus on its commercial footprint and robust sales. Customer acquisition is a constant feature as illustrated by the growth of HelloBank shy of 18 percent or the pace of account opening at nickel close to 25 percent. Also important payments a strategic initiative for CPBS. Transaction volumes are on a clear growth path in the acquiring business thanks to our pooled payment platforms. In terms of P&L revenues clocked in at 6.8 billion euros up 6 percent year on year thanks to net interest revenues that held up well. A very good performance also at Armal combined with a good resilience at Leasing Solutions. If we move on to the performance of commercial and personal banking activities in the eurozone if we look at the countries. In France a good resilience of our results thanks to our strong franchises. Net interest revenues are down 5.9 percent but up 3.1 percent inherently so when excluding the impact of inflation hedges. It demonstrates our favorable positioning in France our loans outstanding are stable and we continue to adjust our margins. Deposits are stabilizing with margins holding up well. If you look at fees they are stabilizing at a healthy level at 14 percent compared to the third quarter in 2018. Of note our strong performance on life insurance and a significant increase in production in property and casualty insurance. That's France. If you look at Belgium results end up sharply with the net interest revenue up by 15 percent and a very positive jaws effect. Nice momentum on credit and deposits are quasi stable when excluding the 6.9 billion euros end of period impact of the issuance of the Belgian state bonds maturing in one year in September 2024. So these are also will weigh on net interest income revenue in the coming quarters but as said temporarily. Then growth in Luxembourg with net interest revenues up 38 percent here on here. Then if we go to Italy BNL loans outstanding are stable on individuals and decrease on corporates with improving margins and strong discipline at origination. Margins held up well on deposits and off balance sheet savings decreased as a result of an unfavorable environment and despite strong inflows in private banking. On this backdrop net interest revenue increased by 4.2 percent. On fees we continue to get the full benefit from our leading positions on flow business and favorable client mix that sustain a balancing effect between banking fees and financial fees. Then if you look at another part within CPBS specialized businesses revenues were 4 percent year after year when excluding personal finance to growth is even 14 percent. Based on a pattern you know well by now our volume leading solutions continue to deliver a strong growth in revenues up 10 percent on the back of used car market that is normalizing progressively but normalizing towards a high level. Our wealth continues to deliver a very strong growth in the finance fleet supporting the development of its diversified revenues. On personal finance the transformation is progressing smoothly and the origination is prudent. Business-wise higher volumes and improved margins versus the second quarter of 2023 despite continued pressure. Outstanding loans were up 11.5 percent year on year with new partnerships in particularly in auto loans that will support the long term improvement of the risk profile. Lastly within CPBS there are new digital businesses and personal investors. They confirmed their role as new customer acquisition engines delivering a strong growth in revenues up 35 percent with an impressive positive choice effect. If with this I gravitate back to CPBS and costs they were up 4.8 percent year on year but the division delivered positive draws of 1.3 points in the commercial and personal banking in the Eurozone, in Euro-Mediterranean and in the specialized businesses bar personal finance. So if we look at the pre-tax income of CPBS it is solid at 1.9 billion euros stable year on year like for like. To sum up a very solid quarter for CPBS demonstrating the strength and resilience of its businesses in a contrasted environment. All in all the division is leveraging on the full benefit of strong client franchises leadership positions supported by enhanced operational efficiency and profitable growth engines. With this let's now move to slide 33 to 36 where we see the business momentum for investment and protection services IPS where this business momentum has been good albeit obscured by the current environment for principal investments and the real estate businesses. So overall the activity is sustained thanks to good net asset intervals over nine months be it for well management at 13.7 billion euros especially in the commercial and personal banking or asset management at 11.3 billion overall. To look at the P&L IPS revenues stood at 1.4 billion euros excluding the contribution of real estate and principal investments the revenues are up 4.5 percent with a significant increase in wealth management and insurance. Indeed a high performance for wealth management with revenues of 9 percent on the back of solid margins and higher transaction fees. Insurance also performed well at 4 percent supported by the good performance of protection in France and Italy and strong contributions by associates basically in all regions. And a good business drive in France supporting inflows notably in unit length. Also asset management saw an increase in revenue at 2.6 percent year on year on the back of the good net asset inflows that I talked about. If we gravitate back to IPS operating expenses were stable year on year with a positive draw of 2.6 points for insurance and five points for wealth and asset management again when excluding real estate and principal investments. All in all IPS pre-tax income thus came down by 6.7 percent year on year due to the less favorable environment impacting real estate combined with the base effect for principal investments. Including those an high growth for the pre-tax income of 12 percent year on year. So we've done the group we've done the divisions before handing it back to you let me now conclude the presentation with slide 33. So BNP Paribas third quarter results confirm a solid intrinsic performance for the group and the relevance of the business model. So one robust revenue growth with positive draws two distributable income in line with 23 objectives with an EPS growth of 15 percent. Three a sound financial structure with a common equity tier one of 13.4 percent and a low cost of risk at 33 basis points. For a clear leadership in financing the energy transition and fifth a strong engagement from our teams to support more than ever our client needs and the economy. With this I thank you very much for your kind attention and I'm very pleased to take your questions.

Ladies and gentlemen if you would like to ask a question please press star one on your telephone keypad. Please lift your handset ensure that the mute function on your telephone is switched off and that you are in a quiet area to maximize audio audio quality. We will take question as many time permits again please press star one to ask questions. The first question is from Stefan Stalman from Autonomous Research. Please go ahead.

Good afternoon Lars thanks for taking my questions. The first one is on French retail and you can imagine it's about the inflation hedges and I have probably about 50 questions on the inflation hedges. But in order to squeeze it into one maybe you could tell us everything that you can about how these hedges work. How many of these positions are left and what the impact of the hedges could be in future quarters. And the second question I wanted to ask please is on your stake in Bank of Nanjing. We have now had two banks one in Canada and in Standard Shops today who have impaired their stakes in Chinese banks. And I think also the market value of Bank of Nanjing is much lower than your current carrying value given the weakness in the stock. Do you see any potential of an impairment coming down the pipe here on your stake there? Thank you very much.

Stefan thank you for your questions. On the retail side and the hedges there's a couple of things. Before I will take that just as a quick reminder so we're all aligned. In France we have a situation where mortgages are basically issued at fixed rate and so the impact of higher rates on assets they step in over time. On liabilities and particularly the regulated ones there is a more rapid effect of this happening. And so there was the impact potentially of inflation on this. And so that's why in 2021 we basically said if there would be inflation to accompany the interest rates there could be an impact on the deposit side. And so we thought it wise to basically take on board a hedging for that effect. So on one hand the risk was that inflation would make our liabilities more expensive. So we considered hedging it by onboarding assets that had a yield that was also linked to inflation. That's basically what we had. And then if you look at it when in 2022 the inflation went up we had somewhat of a contribution from this inflation hedge. And actually that inflation hedge was the contribution was a tad higher than what we saw on the impact on the liabilities. So that's basically what we saw. What happened now in Q3 is that inflation starts to taper off. And so basically the contribution from that on the asset side is no longer there. And so that is basically if you compare to a year ago it's basically 50 million of that contribution that goes away. But that is let's say a one time effect with whatever we see on inflation now that should basically be the same. So there is no further deterioration that we anticipate. Nevertheless when you compare in the quarters until the one of the Q3 in 2024 there is this kind of 50 million delta that you will have to take into account. So that's basically it. And it's going to last till the third quarter of 2024 because in the third quarter of 2023 it is no longer there. So it's a one time effect. It's not going to budge much. So that's basically the effect of the hedging on the retail. But nevertheless if you look through it if you exclude that effect you clearly see that the interest impact is basically up. As you know even in an environment for us in French retail we are rather positioned on the corporate and the affluence than the pure retail. And so basically if you compare that to the overall banking system in France this is much better than what you observe across the board. So that is that. With respect to your question, in China it all depends on the kind of things that you do. So what we typically do with Bank of Nanjing is that we bring knowledge related to insurance. So there is the insurance products that are distributed to it. And that basically if you look at the value of what we do at this stage we have no indication that there would be an impairment on that activity. So Stéphane those would be my two answers.

Thank you very much Lars.

The next question is from Anke Rangin from RBC. Please go ahead.

Thank you very much for taking my question. Just on the NII coming back across the different CPBS markets, would you say that NII has generally peaked? And from here we should see a slowdown across France, Belgium and also Italy. And if you think about looking into 2024, do you think you will be able to grow your revenues in CPBS? Thank you very much.

Anke, thank you. Listen, don't get me wrong. We are not a forward guiding bank that gives you all the numbers that you basically take into account. So if you look at it in general, intrinsically, if I come back to France, you have seen that there is an impact which is written to the hedges that I just explained. But bar that, if you look through that, you see a nutmeg. And then on top of that, let's not forget that we are a bank very much focused on complementing these kinds of interest income revenues by also fees and commissions that we do. And so that is what we will continue to do. And so therefore intrinsically, there is this what we continue to do and what we continue to see. So that's a bit the stance of what we see. You've seen that. Look at the elements. Look at what we see, what you've seen in Luxembourg. Look at what you have seen. So we keep on doing what we do. We are basically focused on the corporates, on the affluence. We're really focusing on fees and commissions. And then there is the other effect. Let's not forget. If you look for whatever that is worth. But if you look at the 10 year kind of curve and if you take that as a proxy for what it is, if you see that curve, you clearly see that whatever is renewed is renewed at a higher margin. So that's all the kind of effect that should lead to sustained growth.

Thank you. The next question is from Jacques-Henri Collard from Kepler Schövere. Please go ahead.

Yes. Good afternoon, Lars. Basically three from me and one only on net interest income because my colleagues have summarized quite well. Simply in Q4 2022 earnings, you said, OK, with the way interest rates are going, I will have an extra two billion net interest income. Is it something that everything being equal, you can still confirm today to 2025? That's the first question. The second on your generic provision. Yeah, there was a bit of a fuss about your release, but at the end of the day, you still have five billion, more than five billion of S1 and S2 provision. That's 63 basis points of your loan book right now. Are you going to keep that? Is there a strategy around these S1 and S2? And would you be able to say that by the end of 25, you'll be happy to have to have that stock of general provision? And last question, if I look at your distributable income at eight point eight billion, if I annualize that over 12 months, I come across something which is closer to eleven point seven, eleven point eight, rather than eleven point two. Have you been conservative in giving that guidance? Thank you.

Thank you for your questions. If I start with the rather technical ones. So if we start on the S1 and the S2. So as a quick reminder, so the S1 and the S2 are basically the forward looking kind of elements that we take and intrinsically, they are there to be used to be constituted when things are good and basically used when things are dire. And so that is basically happening through the forward looking scenarios and what have you. So the five billion, it is logical that they are relatively high, given the fact that they could be used. So listen, I am not in a state of saying I want to have that five. So I'm a happy camper that I have five billion in this environment, meaning that it could go down if they would be so more thermal. So there is not that I have a specific number in mind. What is important is that I have a buffer that could be used. And so if we then look basically at your questions on outlook, question basically on 2023 and 2025. Listen, on 2023, we basically guided for that year that we would do one billion above what we have seen. So that basically it. We confirm that. That's it. And then when it's to 2025, there also we stick to the guidance that we have given. And for all the reasons that I just mentioned, there are some headwinds, but there are some tailwinds that we just mentioned. So we basically stick to that.

Okay. Thank you.

The next question is from Julia Miotto with Morgan Stanley. Please go ahead.

Hi, Lars. Two questions from me, please. One strategic and one in the quarter. So the first one, we have heard the US banks talking about the impact they foresee with Basel endgame. So, you know, double digit impacts to RWAs and the impact to BNP and European banks is expected to be much lower. Do you think you can take market share in the investment bank, you know, going forward over the next few years? Or how do you see the competitive environment changing? That's my first question. Then the second question, and sorry to ask about Europe, it's normally a small division we don't particularly focus on, but the results are quite volatile and the meaningfully higher in this quarter. So is this more one-off in nature or is this kind of a new run rate? If you can help us model that division, that would be helpful. Thank you.

Julia, thank you for your questions. Listen, first of all, when it comes to the finalization of Basel, what was used to be called Basel 4, it's basically too early to say, right, of what the endgame will be. There are proposals being made by the US. There are concerns being raised by the banks. So this is the typical discussion that basically in Europe has taken place and that is now taking place over there. So it's basically too early to say. We are talking about an endgame proposal. We'll have to see. For now, basically our ambition is unchanged. We want to serve clients. We want to do that in stepping up in some activities where we can. That's basically where we stand. So our plan is not changed by this. So that is that. Dan, on your question related to Turkey, intrinsically the first thing is really the performance has been very well. I mean, you don't know them, but the team that we have on the ground in Turkey is amazing. So they have really been focusing on the right products and the right approach. So that is basically the main important thing. And then, yes, there is some volatility stemming from the so-called IS-29, right? And so IS-29, which is hyperinflation, basically means that you have to re-evaluate every quarter your assets and your liabilities. So that gives somewhat of a volatility, but that is on the margin, something which is not that relevant. If I put it brutally, it's a recycling from something which was in the balance sheet related to the differences in Forex, which is now recycled in the P&L. So intrinsically on the common equity one, it doesn't change anything. And intrinsically, the step up that you have seen is due to the fact that we have a very strong team on the ground and that is delivering strongly.

Thank you. The next question is from Matthew Clark with MeduBanker. Please go ahead.

Hello. Two questions from me. First one is on the deployment of the retained component of the proceeds from the Bankwest disposal. I mean, every quarter we're looking out to see whether you're putting that to work yet. Would you argue that you are already deploying that? And if so, how and where can we see that in your balance sheet? And if not, when and where should we be looking for to see that that's evidence of that being put to work? And then second question is on the digital euro. How, if at all, do you expect that to impact your results going forward? Thank you.

Thank you, Matthew, for your question. Yeah, on the deployment, listen. On the deployment, what we do is we scout for the right activities, we blend them in, and then we want to make sure that the agreement is well ironed out. And so that's basically what we're doing. You might have seen in the press all kinds of discussions that we have, and so that's what we're doing. And the usual thing you know is by now, right, we're not going to rush in. We're going to make sure that every I is dotted and T is dashed. And so at this stage, honestly, we see the pipeline, we see them evolving. You will know on a Monday when it's done. And I see no reason at this stage to redeploy it differently. Then on the digital euro, so on the digital euro, two things. Intrinsically, what we see is that the ECB in particular is reflecting on this, yeah? And I think they've now positioned it better. It's a reflection that they are doing. It's going to take time. It's not something where they say this is the solution. That's what we wheel in. They look at reflection. They have a horizon, which is rather 2028. So that's basically where it stands. And independent of these reflections, we keep on moving on. We have these discussions. It's what we're doing with cash management. It's in particular what we're doing in development with other banks when it comes to EPI. So the instant payments or the product is EPI is the overall entity, but the Wero is the instrument. So we really are developing on our sides to have the clear solutions in place. So, Matthew, that will be my two answers. Okay. Thank you.

The next question is from Tariq El-Majad with Bank of America. Please go ahead.

Hi. Good afternoon, everyone. A couple of questions, please. I would be a bit more conservative, sorry, than Jacques Henry on the asset quality, actually. If we are in a scenario of a higher rate for longer, which looks like we are heading towards that, how that impacts your provisioning? Because I guess you have some scenarios of where rates will go and then implications mostly to be fair on the corporate rather than the retail side. Would that potentially lead to more stage one and two because some of them could get weaker and commercial estate could be one of them? So that's the first question. The second one is on the growth. To answer the last question, you really focused on bolt-on. You hinted to some bolt-on, I guess, if I understood well. What about the organic? Or have you shifted all the excess capital to go towards the mostly the bolt-on or are just over interpreted there? And I squeeze in the last one. On your targets next year or let's take 25, there was some exogenous impacts from Belgium, the hedges and so on. So are you confident to offset these by potentially higher growth or maybe were actually cautious in your initial guidance? Thank you.

Thank you for your questions. On the asset quality, several points. So first of all, my answer is based on the assets at B&T Parabuyer. So as we mentioned, they are basically focused on things like corporate or they are basically focused on, for example, mortgage loans in environments where there are belts, suspenders and somebody holding up your trousers, right? So that is basically one thing that we have in place. And so that's why we feel relatively comfortable that even when the rates go up, there is no impact. It's the mortgages in France. When the rates go up, the mortgage does not reprice. So from that point of view, that's the kind of comfort that we have. And then you have areas that typically are a bit more of a point of attention. So one of them is personal finance. The personal finance, we have been anticipating this before. So we have been shifting out of rather of the plain vanilla personal loans into the collateralized loans like the car leasing and so on and so forth. So that is basically what we have been doing. That is why intrinsically in basis points you don't see that going up. Another one is real estate where real estate we are very, we are small ticketed and so forth. But nevertheless, you might have seen in my comments that we have been putting aside some generic provisioning for that. So from that point of view, with those reasons, so the clients on which we are, the type of kind of product that some others have, we are well protected. We have truckloads of S1 and S2 provisioning and the one area that could be a bit of a point of attention, you heard how we have been protecting ourselves against those. So that's basically on the asset quality. Then when it comes to growth, yes, on growth, listen, like we said earlier, if the economy grows fast, we believe that we can redeploy part of that to grow even faster. If the growth is a bit more timid, which is probably what we are going to see next year, then that fueling of additional growth, natural, organic, will be a bit slower. But at the same time, there will be more turmoil in the market, so probably more kind of activities will be available to do deals with. So that is why, yes, there might be a bit of shift. We said from the 11 billion of capital gains, there are 4 billion that are basically used in share buyback this year, which is basically almost done. The rest of the 7 billion will be a mix of organic and bolt-on. In the current environment, depending on how the next year will unfold, yes, it might shift a bit towards bolting on. So then when you come to targets, as I said earlier, we basically confirm 2023. And then when you look ahead with respect to 2025, yes, there are some head and tail winds. The headwinds, well, they are in the market, right? I'm not telling you anything new. You have, for example, in Belgium, there is like 7 billion of deposits that have now gone to another bank, quote unquote. This is Tom and Chic, which have gone to Belgian government bonds. And so that will lead to a kind of foregone revenues without any adaptations, which could be like 200 million a year. But this is a thing which is in the market, which I think everybody knows. You know, it's in the market. Other Belgian banks have mentioned this earlier. So that's with that. But at the same time, there are also tail winds, yes? There are things happening in cash management and others. So that's why we basically stick to our 2025 guidance. These were my three answers.

Thank you, Lars.

The next question is from Delphine Lee with JP Morgan. Please go ahead.

Good afternoon, Lars. Thank you for taking my questions. My first one is on Arval. Just wondering if you could just, you know, maybe help us understand like how much the normalization of used car prices would impact your top line going forward, how much you think could reverse in coming years. My second question is on personal finance. I think you kind of feel, you know, aiming to exit a few countries and just wanted to know where you are on that process and then also kind of like how much headwinds in terms of earnings should we expect from this restructuring. And then my last question is on corporate center. So numbers can be sometimes a bit volatile. If you don't mind just giving us a bit of guidance in terms of how much the run rate in terms of costs and revenue should be per quarter. Thank you very much.

Delphine, can you rephrase your second question? I'm not sure I understood.

So in personal finance, I think the intention was to exit a few countries. And I was just wondering kind of like what earnings headwind should we expect in coming years from that?

Okay, clear. So if we take first of all, one by one. So Arval, as you know, the way it is positioned, it's a big returning theme, right? We are not a one trick pony. We are diversified. We are diversified as a group, as division and as entity. And so that's why Arval, we basically aim to have three themes of revenue. There is of course the first, the financing. So if there are new cars, they need financing, they have income. Then there is the retail value of the car. And then thirdly, there is all the services that we charge around it, you know, maintenance, all the kinds of mobility packages and so on. And so yes, so the second hand car are normalizing. So they are, the value is tapering off, but to a high level. But at the same time, the financing is stepping up. And typically, the new cars that are being financed, I don't know if you drive or have bought an electric car, they typically are more expensive. So they basically fuels that growth in that. So that is basically what we see on the evolution of Arval. So yes, the VO is normalizing, but the other ones are basically stepping up. Then if I look at personal finance, so as a quick reminder, many years ago, we believed that the knowledge and the experience that we have on personal finance is something we can export into other countries. What we have been seeing in the last couple of years, given that we have a decade of low interest rates, we see in several countries other people stepping in when it comes to providing these kinds of personal loans financing. And they do this at prices which for us don't make sense in the sense that they don't cover the cost of risk that you would un-averagely expect. And so that is why we said, listen, we have to be able to step out of these kinds of personal kind of financing and step in the more collateralized ones. So the collateralized ones is basically saying when we move into the elements that we see that are collateralized, therefore we need contracts to have those collateral kind of products. And so that is why we have been striking a lot of deals with car manufacturers in basically the Eurozone. And so as we haven't done that, in other areas we said, areas like Latin America, Eastern Europe are basically areas where we are not the natural competitor to do this. And so we basically said we want to step out of these activities. And stepping out means we can sell them or we basically ram them down. So that's basically what we have decided and what we're doing. If you look at the pre-tax income impact, it basically limited. As these were startups that were growing overall, the cost of growth was basically compensating that. So the impact of these activities going on pre-tax income will be close to zero. Then if you look at the corporate center, the corporate center there's basically a couple of things. There is one thing that is really indeed very volatile. That is the choice that we have made with respect to the insurance changes, the IFRS 17 and 9. So with that arrival, there have been, there is basically some volatility that you have in the P&L and a mapping of elements from cost between revenues. And as that would lead to this disturbing read compared to the year before, we basically decided to have that recalibration of IFRS 17 and then the volatility driven by IFRS 9 to take it out of our entities, out of the divisions and put it in the corporate center. Because it's basically a mapping literally cost and revenues and it's a volatility that is normally ironed out over the period. So that's basically what we've done. And I know it leads to some volatility, but that's that. But if you look through this and we single that line out, but it is part of our corporate line. But if you look for the rest at the corporate center in the third quarter this year, it's basically in line with last year. If I look for one exception, we booked last year in 2022, we looked, we booked the impact of the credit holidays in Poland, which we booked, considered as an exceptional and booked it in the corporate center for the rest. Basically corporate center is in line with a year ago. So that would be my three answers.

Thank you very much. The next question is from Samuel Moran Smith with Barclays. Please go ahead.

Good afternoon. Thanks for taking my questions. I've got two on capital. So firstly, just following up on your comments on the capital redeployment to recognize a full year revenues in 2025, which is kind of what you've guided. And I would assume that any bolt on acquisitions would have to be finalized fairly soon. So if such opportunities are not presenting themselves, should we think about that same revenue impact, but just in 2026 or 2027? Or should we think about a different use of the funds and perhaps returning it to shareholders? And then secondly, just on your 12% Ct1 target. So since you set that target, we've seen the number of other European banks raising their capital targets. By my calculations, the 12% target is around 200 bits above your fully loaded MDA. So just questioning whether you're still comfortable operating at that level of buffer. Thanks.

Samuel, thank you for your questions. First of all, on the redeployment, as I mentioned, we do see a lot of positive discussions that we have leading to options to redeploy. If for one reason or another there is some turmoil and whatever things take a bit of time, again, at this stage, I see no sign that we would not be able to do it. So if the full effect will not be entirely in 25, but some will spill into 26, so be it. Again, at this stage, I see no reason why there would be a delay. And so for there, if it maybe spills a bit in 2006, 26, so be it. Then on the common equity T1, let's be very fair. I mean, there can be banks that fly at different levels of common equity T1. Because if you look at it, there is a regulatory minimum that you have to apply. And then banks decide to fly a certain amount above. But that certain amount above is something that is calibrated, given the volatility that the banks can be exposed to. And that is basically what you see. And that's a discussion we are having with our supervisors and what have you. And certainly if you look back at BNP Paribas in whatever crisis, go back, I've witnessed, I'm not getting any younger, so I've witnessed quite a lot of them. And so we basically never had a negative impact. And that's basically what people see. And so that is why we can fly and we feel very comfortable and our supervisors feel very comfortable with our target on common equity T1. And there is maybe a good reason why others fly at high level. Let's also be clear. The overall supervision and things of control, yes, it is levels of capital, but it's also approach on how you are structured on the way on how you act. Look at how we typically before things start to impacting how we act. So we acted on restructuring personal finance. We acted on restructuring several zones in the world, like what we reduced in several parts in the world. So we are typically on the vanguard of these changes. And for all of these kind of reasons, if you look back, we are supervisors and you should feel comfortable with the 12 percent at which we fly.

Great. Thanks.

The next question is from Chris Hallam with Goldman Sachs. Please go ahead.

Good afternoon, everybody. Just three quick questions from me. In your prepared comments, I think you said you expected NII in Belgium to remain suppressed or to decline. I know you don't want to guide on every line. Could you just give us an idea of size and duration of those headwinds? Second, you flagged the normalization of activity in FIC in Q2 and again now in Q3. So just how close to fully normalized do you think revenues in FIC are? What sort of level should we settle at? Chris,

can you rephrase that question?

Yeah. So the second question is just on FIC. So you talked about normalization and activity levels in FIC. How close to fully normalized do you think we are? So what sort of level of revenue should you settle at in FIC once you see a fully normalized set of market conditions? Chris,

Chris, Chris, once again, on what division are you talking?

FIC.

Ah,

the code.

All right. Yes,

yes, yes. Good. And then lastly, in the press release, you talk about net asset outflows in asset management happening late in the quarter. So I wondered just if you could give any color on flows so far in the first few weeks of Q4, whether those outflows have continued or not.

Chris, thanks. First, let me end with your question. I mean, we are not a forward guiding bank. So because, you know, if we give you a number of this week when it changes, I have to call you back. So don't get me wrong, but not on this one. On your two other questions. First, with respect to Belgium. So, yes, on Belgium, there is basically a competitor for the banks, which is the Belgian state, which basically got around seven billion of our deposits, which are moved. So this is an effect which would normally last until the third quarter of 2024. And the effect should be around 200 million versus 24. But again, this is not us, right? This is all the large banks in Belgium. Others have announced it as well. So that's basically what it is. And I take it as it has been announced since a while that it is basically into the market. Then when it comes to fixed income currencies and the commodities. So if you look at it, it's something as a general, if you look at our activities in CIB in general, we are able to serve across the field of services and particularly in Europe. So we do it on global banking, as I said earlier, we also do it in equity prime services derivatives. And we also do it in the fixed income currencies and the commodities. So basically, all this is fine. And if you look at the rhythm at which we came in this quarter, it's very fine. The thing which is it's quote unquote perturbing is when you compare it to a year ago. So I remind you, we are basically European player. And in particularly the last see the commodities in a year ago, the third quarter, there was a lot of volatility, you know, there were these concerns about gas and whatever. So the commodities and that and the related products of it, they had a higher price and they had a high volatility because a lot of customers wanted to hedge themselves against it. So we had a very high level in Q3. And what we see now is basically back to a normalized kind of level. So that's where we stand. That's typically the level at which we will be. And so if you look at our asset management, the one thing in general to make that reflection is we had influence in Europe. So again, we are a European focused bank. And we had some outflows in particularly on money market after the high level in the first half of the year. But again, if you look at the nine months, it's a very positive evolution. But that's the distinctive evolution between the first six months and the third quarter. OK, thank you.

The next question is from Mike Harrison with Redburn Atlantic. Please go ahead.

Hi, there. Yeah, two questions for me, please. First one is if the ECB increases their minimum reserve requirement next year, I just wanted to what levers you're thinking about to pull on to offset the impacts on both NII and the -to-rich ratio, or would you just take the hit on the LCR given it's relatively healthy? And secondly, just circling back around the questions on Belgium, do you have any concerns about other governments following suit and competing harder with banks and you guys specifically for retail funding? Thanks.

Thank you for your question. If we look at the ECB, the reserves, as you know, there is an impact which is like somewhere between 200 and 200 million a year. And that basically is something that we will handle. We will process it in the overall planning. But that's the element. And then when I come back to Belgium, so indeed the thing that we have done. Listen, I can give you if your question is what could what would other countries do? Listen, let me let me share what I see in the countries which are relevant for us. So first of all, Italy. So Italy has also been thinking about some taxation, but then in the end, they basically decided to do something else. So I don't see a taxation to come on that side. Also in France, there is kind of an equilibrium in the sense that the equilibrium that can be seen are the so called the regulatory or regulated deposits. So I do I don't pick anything up when it comes to to France and Italy. So from that point of view for us in the space where we are active, I don't see anything on the horizon.

OK, thanks.

The next question is from Pierre Chediville with CIC. Please go ahead.

Yes, good afternoon. Last one question regarding our value. We have seen that one of the players was qualified as a bank and it disturbed their their view regarding their profitability and notably they had to issue subordinated debt. And I was wondering if our value could be threatened by this new qualification as a bank and what could be the consequences for it. And my second question is about the payment activity. We have also seen recently one major player made making a profit warning and also experiences difficulties related, it seems, to cyber security issues. And also I wanted to know regarding the micro environment, if your payment activity is also suffering and if you feel that there are some rising threats regarding cyber security around this activity. Thank you.

Thank you. If I if I started the last one, listen, the only thing I can say is what you refer to is an intrinsic issue. So that's it. There is nothing else for us that triggers concerns on our side. When we look at the car fleet leasing, the thing is, does it have to be a bank? I'm not aware of that. What is the thing that is under the finalization of Basel 3, so the so called Basel 4, these kind of activities will have to be regulatory wise considered as a bank. It doesn't mean that it has to be a bank, but regulatory wise it has to be treated as a bank. And that's a change coming under Basel 3. But that for us is part of the overall Basel 3 implementation. So for us, there's no there's no change on that. So those will be my answers, Pierre.

Perfect. Thank

you.

The next question is from Kiri Vijaraja from HSBC. Please go ahead.

Yes, thank you. Good afternoon Lars. Firstly, just coming back to our favorite, Belgium. You've been very clear on the volume effect in terms of the government sucking away the deposits. But I just wondered if there's been any visible impact on deposit pricing in the Belgian markets at all? Or is that risk or is that likely to come through at a later stage? Or does it feel on the pricing side fairly stable and static? And then turning to the M&A topic, we've seen some assets change hands in Central and Eastern Europe recently. And I wondered, do you still see yourself more as a seller of assets rather than a buyer in CE? And if other big banks are potentially going to be deploying more capital towards CE, does that kind of alter your thinking about the risk reward there in terms of investing or rather de-investing in CE? Thank you.

Thank you Kiri for your questions. So first of all, in Belgium, we don't see any pricing pressure. And you don't have to believe me. I talked to the other Belgian banks. They basically confirmed that same kind of situation. When you look at M&A, listen, if you look at M&A on Eastern Europe, you might have heard like half an hour ago that we're basically divesting our personal finance kind of activities. Moreover, as you know, with the redeployment of Bank of the West, we're basically not interested in buying banks because basically bringing them on board, having cross-border effects is not really what we do for us. What we want is really to build on our strength that we have in the Eurozone where we really have a client and we have a multitude of services that we can build around that client relationship. That's our strength. We keep on leveraging on our platforms. We keep on leveraging on the knowledge and the intimacy that we have in the clients. And that's what we are really distinctive at and that we continue to do because we do have all of those services. We do have all of those platforms. And you might have seen that we do have all the capital and the skills to basically grow those elements. So that's basically what we stand for. That's what we will continue to do in that area. But also, I mean, in like when we talked about cash and payments, it's the same thing. We are generating that kind of European platform. We're growing at it. We are quite uniquely positioned to have that pan-European growth with those pan-European synergies and revenues. And that is what we will continue to do,

Kieran. Thank you, Lars.

The next question is from Azuragwelfi with CT. Please go ahead.

Hi, Lars. Two questions for me. One is on the security service business. This has been improving in terms of profitability and revenue thanks to the rate environment as well. So in an environment where rate could take a different shape, how sustainable do you see the results that we have seen lately in this division? The second one is on asset quality and in particular on the guarantee lending that banks have written during the COVID period. Do you see a difference of the development of these loans from asset quality perspective versus the ones that are without the guarantee? And if I may ask one more quick thing is on the new digital division. You have rollout and in different countries, but not on all your franchise in Europe. Do you see opportunity for this to happen in coming years? Thank you.

Thank you for your question. Yes, security services, as I mentioned, they have a record level. But then again, as you know, and I know I'm a bit repeating myself, but it's this diversified setup, which we basically have and also there. So if you look at it, we have this record, but actually the number of transactions that security services have witnessed were rather low. So yes, maybe there can be some impact of rate coming down, but that typically should then be compensated by the transactions going up. So that's a bit of dynamic that we see when you look at the guaranteed lending, the ones that come to term and the phasing for us. Basically, we see no difference compared to the other originated activities. So basically no issue. And then on your third question on the new digital businesses, the thing is we are the fact that we can roll it out or roll it out depends a bit also on the competitive environment. So we are rolling it out when the opportunity is appropriate and when we can do so and given our presence. So this is something that we will unfold and that you will notice over time. But that will be my three answers. Operator, was that the last question?

There are no more questions registered at this time.

All right. So I want to thank all of you for being present. You have seen our solid results. You've seen our solid balance sheet. You have seen our solid return to shareholders. And you have also seen that given our diversified approach, we're very well positioned to continue to serve our clients, the economy, and we are well positioned on the prudential metrics to continue to do so. I thank you very much for your attention. Have a good day.

Ladies and gentlemen, this concludes the call of BNP Paribas Third Quarter 2023 results. Thank you for participating. You may now disconnect.