2018 Registration document and annual fi nancial report - BNP PARIBAS 131

32018 REVIEW OF OPERATIONS

3

Profi t and loss account

3.4 Profi t and loss account

NET BANKING INCOME

In millions of euros Year to 31 Dec. 2018 Year to 31 Dec. 2017 Change (2018/2017)

Net interest income 21,062 21, 191 -0.6%

Net commission income 9,207 9,430 -2.4%

Net gains on fi nancial instruments at fair value through profi t or loss 5,808 5,346 8.6%

Net gains on fi nancial instruments at fair value through equity 315 1,711 -81.6%

Net gains on derecognised fi nancial assets at amortised cost (5) 55 n.s.

Net income from insurance activities 4,064 3,813 6.6%

Net income from other activities 2,065 1,615 27.9%

NET BANKING INCOME 42, 516 43, 161 -1.5%

GENERAL The EUR 0.6 billion decrease in the Group s net banking income between 2017 and 2018 is mainly the result of a -EUR 0.9 billion variation in net gains on fi nancial instruments at fair value through profi t or loss or through equity, of the decrease by EUR 0.2 billion of net commission income, of the -EUR 0.1 billion variation in net interest income, partially offset by the EUR 0.4 billion increase in net income from other activities and the EUR 0.2 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 fl ow 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 profi t or loss.

More specifi cally, 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 profi t 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 profi t 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 fl ow 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 fl ows from the hedged item are recognised as profi t 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 profi t 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 fl uctuations.

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 infl uenced 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