EUR 850.00 For Business Accounts Only

Morningstar | Tailwind From Lower Loan Losses Begins to Wane in BNP Paribas' 3Q

No-moat BNP Paribas reported attributable net income of EUR 2.1 billion for the third quarter, 4% higher than what it reported for the corresponding period in 2017 and in line with consensus expectations for the quarter. The results were saved by a lower tax rate; pretax profits declined 5%, with flat revenue and a 2% increase in expenses. We do not forecast quarterly earnings, but the run rate of earnings growth is in line with our full-year expectations. Our estimated profit before tax for fiscal 2018 of EUR 10.7 billion is 6% below consensus expectations. We maintain our fair value estimate of EUR 53 per share as well as our no-moat rating.

The tailwind BNP has enjoyed from lower loan losses is starting to peter out in most business units. Loan-loss provisions increased for the French retail banking division, although BNP did indicate that this was isolated to a specific exposure. As one could have anticipated, loan losses in the Europe-Mediterranean business unit (largely Turkey and Poland) were significantly higher, but the Turkish lending book is less than 2% of the consolidated book. The consumer finance book contributes roughly half of BNP's total loan loss currently, and its credit loss ratio deteriorated to 1.6% for the third quarter from 1.3% in the second quarter; management highlighted that consumer finance loan losses for the first half of the year were at a particularly low level. The consumer finance lending book is only 11% of the group's lending book. However, its contribution to overall loan losses is significant: Between 2015 and 2017, it accounted for around a third of all of BNP's loan losses.