New regulations are forcing French banks to step up sales of bad loans even though their balance sheets are healthier than rivals in southern Europe, a study by Deloitte showed yesterday.
European financial regulators are putting pressure on banks to tackle their bad loans in a set of new guidelines that would accelerate disposals of non-performing loans or NPLs.
“Holding the second largest NPL stock in Europe, French banks are starting to feel the pressure irrespective of the health of their balance sheets,” the study said.
French banks had a stock of around 124bn euros ($138.16bn) of NPLs at the end of June, while €70bn of bad loans were tied to assets in their home market at end-2018, Deloitte said.
New rules could eventually raise the amount of capital needed to back up bad loans, even though French banks’ stocks of bad loans are lower than the European average as a percentage of their total loan portfolios. The NPL ratio for French banks stood at 2.6% end-June 2019 on average, versus 3% for Europe, European Banking Authority data showed.
While French banks reduced their exposure to bad loans over the past two years, the drop in NPLs was driven by selling portfolios of loans in other European markets, rather than at home.
BNP Paribas was the most exposed to credit risk with €34bn of NPLs held in France and abroad, equal to a 4.3% NPL ratio at end-Dec, the Deloitte study said.
Meanwhile, state-backed La Banque Postale had the lowest level with NPLs of just 1bn euros, or a 1.5% ratio.
Deloitte said French banks launched sizeable portfolio sales earlier this year, adding that €47bn of could be sold over 2020-2024.
The French credit management market is getting more attention from international private equity funds that invest in distressed assets and who have been so far active in Italy, Spain or Greece, where bad loans are much higher.
“There is some appetite from investors to diversify and to move to markets like France,” Deloitte partner Hrisa Nacea said.
Meanwhile, BNP Paribas has obtained a 22.5% stake in wealth management platform Allfunds in the latest sign of asset managers looking to trim costs in the face of rising regulatory expenses and pressure on fees from investors.
Under the deal, for which financial terms were not announced, BNP Paribas will entrust Allfunds with managing the distribution of third-party investment fund contracts for several BNP Paribas Group entities.
Similar to platforms such as Britain’s Hargreaves Lansdown, Allfunds can offer economies of scale and help fund management companies manage increasingly tough data rules for those aiming to sell funds across borders.
The wealth management industry is proving increasingly attractive to mainstream banks since it uses up less capital than other areas and is set to be boosted by the rise of millennial high net worth individuals.
Deutsche Bank said in June that it planned to hire more staff for its wealth management business.
“It’s clearly an area where investment banks see a lot of potential. You can see why BNP Paribas would want to bulk up in this space,” said MB Capital investment manager James Ingram.
BNP Paribas Securities Services will also transfer its Banca Corrispondente local paying agency activities in Italy, as well as some Italian transfer agency services, over to Spanish-headquartered Allfunds.
“This partnership will enable us to significantly enhance our offering, giving our clients access to a successful and fast-growing fund distribution platform,” BNP Paribas Securities Services CEO Patrick Colle said.
Construction scaffolding surrounds the BNP Paribas headquarters in Paris (file). BNP Paribas was the most exposed to credit risk with u20ac34bn of NPLs held in France and abroad, equal to a 4.3% NPL ratio at end-Dec, the Deloitte study says.
