FREE

Climate Transition Risks for French Banks’ Fleet Management Companies Appear Manageable

This commentary discusses the French Banks’ fleet leasing operations and their exposure to transition risks. This commentary focuses in particular on BNP Paribas and Societe Generale as they have built up sizable footprints in car leasing and fleet management which have become significant sources of revenues for the banks.

Key highlights include:

• We view fleet leasing operations as particularly exposed to transition risks as governments and regulators alike have increased the pressure related to carbon emissions as well as the transition to electric vehicles (EVs).

• In order to mitigate transition risks, we expect EVs to represent an increasingly larger share of the fleet leasing companies’ total fleet as time progresses. We note that EVs represented on average around 16% of fleet leasing companies total funded fleet at end-2022.

• Nevertheless, the high degree of diversification at French banks and their solid capacity to generate earnings should absorb the costs and transition risks for their specialised subsidiaries.

“We view the impact on French banks to be manageable and transition risks for their specialised subsidiaries not material enough to affect the short-to-medium term credit profiles of the banks,” notes Arnaud Journois, Vice President, Global FIG at DBRS Morningstar. “This is also reinforced by the French banks’ high degree of diversification and their solid capacity to generate overall earnings. As such, we consider that transition costs will be mitigated by the revenues generated in these subsidiaries.”