2020 Universal registration document and annual financial report - BNP PARIBAS 147
32020 review of oPerations
3
Outlook
International Financial Services should benefit fully from the rebound in economic activity compared to 2020 levels, leveraging strong positions, developing targeted and innovative partnerships, as well as the successful transformation. The cooperation with Group entities will be intensified to further accelerate growth in the network banks and Wealth Management, as well as Asset Management and Insurance through the amplification of initiatives to transform customer deposits into financial savings, the diversification into non-life products in Insurance, and the development of the institutional franchise of Asset Management. By leveraging leadership and developing new partnerships, Personal Finance should deliver increasing loan production levels compared to 2020, as health conditions improve over the course of the year. The business will continue its targeted development of external partnerships to strengthen its positions on the main European markets. Lastly, International Financial Services will be able to rely on simplified, transformed and scalable platforms, journeys, as well as product and service offerings for supporting growth in its businesses amidst the recovery.
Revenues in the international retail networks are expected to grow. International Financial Services should also benefit over the course of the year from the recovery in activities that were impacted by public health measures and from the acceleration of the transformation of deposits into financial savings.
CIB s long-term, client-focused strategy is expected to see continued success in 2021 affirming its leadership in Europe while consolidating its market share gains. The division should expand development momentum, ramping up initiatives that are already under way. Geographical development will be amplified by the reinforcement of plans launched for example, in Germany, the United Kingdom, the Netherlands, and the Nordic countries, and broadening those plans further into Spain, Switzerland and, in tandem with BNL, Italy. CIB will also continue to expand its footprint in the Americas and Asia-Pacific while expanding its flow business and cross-border deals. The business will continue to develop electronic platforms and initiatives targeting players wishing to optimise their set-ups. Lastly, CIB will accelerate the development of its Equity businesses with the roll-out of a broader prime services offering and the strengthening of cooperation with Exane BNP Paribas.
CIB should benefit from the strengthening of franchises and market share gains in continuity with the strong business momentum seen throughout all phases of the crisis. It is also likely to benefit from the basis effect due to market shocks in the first half of 2020 that strongly impacted Equity & Prime Services revenues. On the contrary, FICC is unlikely to experience the same magnitude of revenues that it generated in 2020 on the back of exceptionally intense client activity.
PROVEN EFFECTIVENESS OF THE DIGITAL AND INDUSTRIAL TRANSFORMATION WITH THE BUSINESS RECOVERY The Group demonstrated in 2020 the effectiveness of its digital and industrial transformation.
The contribution of the transformation and the acceleration in the use of digital tools generated by the effects of the health crisis will further sustain the cost adjustments while providing support for activities development amidst a recovery from 2020 levels.
Hence, while supporting the business recovery, the Group s operating expenses are expected to be stable (excluding the effect of change in scope and taxes subject to IFRIC 21).
COST OF RISK At 66 basis points of customer loans outstanding, the cost of risk strongly increased in 2020 compared to 2019. The cost of risk on non-performing loans (stage 3) stood at 50 basis points in 2020, compared to 40 basis points in 2019. The cost of risk on performing loans (stages 1 and 2) stood at 16 basis points in 2020, compared to a non-material write-back in 2019. BNP Paribas thus recorded, in 2020, provisioning of performing loans for more than 1.4 billion euros in anticipation of the effects, to come, of the health crisis.
After peaking in 2020, a first stage in cost of risk normalisation is expected in 2021.
Indeed, government compensating measures (particularly in France), some extended into 2021, as well as stimulus plans should continue to cushion the shock stemming from the public health measures and to support the economic and social fabric. Moreover, economic activity should gradually return to normal with the easing of health restrictions and the development of vaccination plans.
Therefore, the cost of risk in 2021 should decrease compared to 2020 and come in at a level close to the cycle average.
SHAREHOLDER RETURN AND CAPITAL MANAGEMENT POLICY In accordance with the Group s distribution policy, the pay-out ratio objective is 50% of 2021 net income.
Moreover, as the Group s CET1 ratio at the end of 2020 was significantly higher than the ECB s notified requests and above the Group s 2020 objective (12.0%), the Group s distribution policy will be reviewed in the new 2025 strategic plan.
INFORMATION ON TRENDS
Information on trends (Macroeconomic conditions and Legislation and regulations applicable to financial institutions) are described in the section on Principal and Emerging Risks for the year in the Risks and Capital Adequacy chapter.
