BNP Paribas has set aside new provisions in anticipation of a surge in customers defaulting on their loans because of the covid-19 crisis.
France’s largest bank has set aside €657m to cover bad loans, raising its total provision to €1.43bn.
The Paris-based lender, the biggest by assets in France, said net profit fell by 33% to €1.28bn in the three months ended 31 March, while revenue declined by 2% to €10.89bn.
In light of the ongoing coronavirus pandemic, the bank has warned that net profit for 2020 might fall by 15% to 20%.
BNP Paribas shares were 2.2% higher at €27.70 in mid-afternoon trading in Paris having been up about 5% in early trading.
“The health crisis has had major repercussions on macroeconomic outlook and produced extreme shocks on the financial markets,” BNP said in a statement.
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Last week local rival Société Générale reported an unexpected first-quarter loss after similar weakness in its equities business.
The bank’s outlook remains positive
Thanks to BNP Paribas’s diversified business model, the bank’s earnings and outlook were slightly above expectations.
This remains the case even though some analysts have noted a weaker than expected core Tier 1 capital ratio—a key measure of capital strength—and low provisions.
“The optimistic outlook statement relative to expectations may support the shares initially but we would expect this to fade as focus shifts to worse-than-expected capital and a lack of provisioning in all but the corporate bank and consumer credit,” Barclays analysts wrote in a note.
BNP’s core Tier 1 capital ratio—that measures a bank’s top quality capital such as equity and retained earnings against risk-weighted assets—stood at 12% in March from 12.1% in December, still well above the 9.31% threshold set by the European Central Bank for the French lender.
BNP Paribas suffered a big hit in its equity derivatives unit from companies that canceled their dividend payments. It is a business where the two French banks have a strong foothold. The move wiped €184m from BNP Paribas’ structured products revenue this quarter.
Banks world-wide have been setting aside billions of dollars to cover bad loans and have been shoring up capital by canceling dividends and share buybacks, as lockdowns and uncertainty as a result of the novel coronavirus pandemic have slammed the brakes on the global economy.