132 2019 Universal registration document and annual financial report - BNP PARIBAS

3 2019 review of oPerations

3

Profit and loss account

3.4 Profit and loss account

REVENUES

In millions of euros Year to 31

December 2019 Year to 31

December 2018 Change

(2019/2018)

Net interest income 21,127 21,062 0.3%

Net commission income 9,365 9,207 1.7%

Net gain on financial instruments at fair value through profit or loss 7,111 5,808 22.4%

Net gain on financial instruments at fair value through equity 350 315 11.1%

Net gain on derecognised financial assets at amortised cost 3 (5) ns

Net income from insurance activities 4,437 4,064 9.2%

Net income from other activities 2,204 2,065 6.7%

REVENUES 44,597 42,516 4.9%

OVERVIEW The EUR 2.0 billion increase in the Group s net banking income between 2018 and 2019 is mainly the result of a + EUR 1.3 billion variation in net gains on financial instruments at fair value through profit or loss and the EUR 0.4 billion increase in net income from insurance activities.

NET INTEREST INCOME This line item includes net interest income and expense related to customer transactions, interbank transactions, debt instruments issued by the Group, cash flow hedge instruments, derivatives used for interest- rate portfolio hedge, debt securities at amortised cost or at fair value through equity, and non-trading instruments at fair value through profit or loss.

More specifically, the Net interest income line item includes:

■ net interest income from loans and advances, including interest, transaction costs, fees and commissions included in the initial value of the loan. These items are calculated using the effective interest method, and recognised in the profit and loss account over the life of the loan;

■ net interest income from debt securities held by the Group, which are measured at amortised cost or at fair value through equity (for the interest calculated using the effective interest method), and from non-trading debt securities at fair value through profit or loss (for the contractual accrued interest);

■ net interest income from cash flow hedges, which are used in particular to hedge the interest rate risk on variable-rate assets and liabilities. Changes in the fair value of cash flow hedges are recorded in equity. The amounts recorded in equity over the life of the hedge are transferred to Net interest income as and when the cash flows

from the hedged item are recognised as profit or loss in the income statement.

Interest income and expense on fair value hedge derivatives are included with the interest generated by the hedged item. Similarly, interest income and expense arising from derivatives used for economic hedge of transactions designated as at fair value through profit or loss are allocated to the same line items as the interest income and expense relating to the underlying transactions.

The main factors affecting the level of net interest income are the relative volumes of interest-earning assets and interest-bearing liabilities and the spread between lending and funding rates. Net interest income is also affected by the impact of hedging transactions, and, to a lesser extent, exchange rate fluctuations.

Volumes of interest-earning assets and interest-bearing liabilities can be affected by various factors, in addition to general market conditions and growth in the Group s lending activities (either organically or through acquisitions). One such factor is the Group s business mix, such as the relative proportion of capital allocated to interest-generating as opposed to fee-generating businesses.

The other principal factor affecting net interest income is the spread between lending and funding rates, which itself is influenced by several factors. These include central bank funding rates (which affect both the yield on interest-earning assets and the rates paid on sources of funding, although not always in a linear and simultaneous manner), the proportion of funding sources represented by non-interest bearing customer deposits, government decisions to raise or lower interest rates on regulated savings accounts, the competitive environment, the relative weight of the Group s various interest-bearing products, which have different margins as a result of different competitive environments, and the Bank s hedging strategy and accounting treatment of hedging transactions.