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France's BNP Sees Profit Growth With Pandemic Blow Cushioned By The Government

France's BNP Sees Profit Growth With Pandemic Blow Cushioned By The Government
Unprecedented support from the French government to keep the economy afloat during the coronavirus pandemic benefited the country’s biggest listed lender BNP Paribas as it cut down on provisions for unpaid loans.
Banks across Europe have been able to shield profits as borrowers were able to keep up repayments because of the billions of euros of state support across Europe, ranging from worker furlough schemes to assistance for businesses, even though the virus continues to loom over the global economy.
A 26.6 per cent jump in the second-quarter net income was reported by BNP on Friday prompting the Chief Executive Officer of euro zone's biggest lender, Jean-Laurent Bonnafe, to say that he was preparing for a "solid recovery".
After ending the national lockdown in mid-May, the French government has since been gradually easing other pandemic related restrictions.  
The French government borrows to pay for public spending, just like other European countries, and the government has increased that significantly during the pandemic. The French government should now start to gradually withdraw Covid-19 support this year and the next but should also start to reduce its budget deficit from 2023, said the national public auditor of the country.
This would postpone any economic hangover from the pandemic, a boon to borrowers and banks, as well as their shareholders.
Betting on economic recovery, provisions for soured credit have also been similarly cut by Spain's BBVA, Russia's second-largest lender VTB, and Britain's NatWest.
"Clearly they are benefiting from massive state support. It is support for the economy, the borrowers. So they benefit indirectly," said Jerome Legras of Axiom Alternative Investments.
A net profit of 2.91 billion euros was posted by BNP Paribas which even while its cost of risk, which is reflection of the provisions of the bank for bad loans, dropped by 43.8 per cent to 813 million euros. The bank reported a 0.9 per cent rise in revenues with a 9.5 per cent growth in its retail banking business which helped the bank to offset lower sale revenues from its corporate and investment banking businesses.
The behavior of its customers was also influenced by the pandemic. For example, the bank reported a 7.5 per cent year on year rise in deposits because customers found it difficult to spend money during the pandemic induced lockdowns. Loans rose by 4 per cent during the period.
A shift to online banking was accelerated by lockdowns and curfews as the bank saw a surge of a quarter in daily connections to mobile apps.
A drop of more than 40 per cent in earnings in fixed income, currencies and commodities trading at the bank was offset by the general improvement in the retail banking business.
There was a 1.6 per cent drop in revenues from the corporate banking business of BNP Paribas – an area where the bank has been making a push on advising clients on mergers.

Christopher J. Mitchell

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