BNP Paribas limits profit fall, boasts strong balance sheet

French bank BNP Paribas reported a 4.7-percent fall in net profit for the second quarter on Wednesday, but this was far better than analysts had expected. Performance at the investment banking arm, which has been reduced in scale, fell heavily but the bank said its balance sheet and liquidity was strong. The overall net profit was 1.76 billion euros ($2.34 billion), whereas analysts polled by Dow Jones Newswires had forecast an 18.0-percent plunge to 1.51 billion euros. Shares in the bank giant rose 1.5 percent to 48.58 euros in late afternoon trading on an overall flat market on the Paris stock exchange. The bank said that "in an economic climate which is still difficult in Europe" activity by operating unit had held steady on a 12-month comparison. Net banking income, a key measure for a bank showing the difference between the cost of rewarding depositors and the price of lending, fell by 1.8 percent to 9.92 billion euros. Exceptional items, which had brought in more than 270 million euros of profit in the second quarter of last year, contributed 157 million euros this time. Managing director Jean-Laurent Bonnafe said in a statement that the overall result reflected "resilience of income in Europe and good dynamics in strongly growing markets, the continuing improvement of operating efficiency ... and a cost of risk which remains moderate despite the economic situation." Sales by the retail banking arm rose by 0.3 percent but the results were hit by a 28.3-percent rise in the cost of risks in Italy. The division managing assets, insurance and private wealth drove growth in the group, showing a 6.4-percent rise in pre-tax profit from the equivalent figure last year, owing mainly to insurance activity. But investment banking and financing activities plunged by 38.7 percent mainly owing to the effect of action to de-leverage, or reduce the risk exposure, of the group. Since the financial crisis, many banks have curtailed activities to reduce their risk exposure and help them to meet greatly tightened regulatory ratios of core capital to weighted risk. The bank said that in line with a programme for efficiency announced at the beginning of the year, it intends to cut costs by 2.0 billion euros in a full year from 2015, and management costs had fallen by 0.7 percent. In the first six months, the programme had cut recurrent costs by 330 million euros. The bank said it had improved its ratio of core shareholder funds to risk underwritten to 10.4 percent at the end of June, on the basis of Basel III prudential rules which take full effect at the beginning of 2019. The bank said that this was one of the highest ratios in the world. The group said that in the quarter, the leverage ratio of its total balance sheet relative to shareholder funds was 3.4 percent, better than the ratio of 3.0 percent laid down in the latest accounting rules known as Basel III. BNP Paribas said that it had liquid and immediately available reserves of 236 billion euros. Looking to the future, it said it aims to "significantly increase" retail deposits through its online Hello bank! in Germany in a bid to have around 1.1 million customers and a 1.0-percent market share of individuals' deposits there by 2017. "To that end, the group plans to bolster its organisation by growing the workforce by over 500 staff in three years," it said. BNP Paribas said it also planned to step up activities with businesses by reinforcing its offer in specialised services, as it did last month in acquiring the securities depository unit of Commerzbank. It also announced plans to expand its asset management business, targeting a 10 percent increase in revenues from the business line which brought the bank 800 million euros last year.