14th March 2022 – The six largest French banks generated about EUR47 billion in pre-tax profit in 2021, a near-doubling from 2020 and about 25% above 2019. Similar to European peers, their earnings benefited from strong tailwinds in corporate and investment banking (CIB), strong loan production and loan impairment charges (LICs) well below long-term averages.
Fitch Ratings believes the banks are in a position of strength as headwinds related to the Russia-Ukraine conflict materialise. Deterioration in asset quality has been avoided owing to the rapid and broad roll-out of state-guaranteed loans and other support measures.
The average impaired loans ratio for the sector dropped to below 3% at end-2021 and is lower than before the Covid-19 pandemic, benefiting from loan growth and the banks’ more active management of impaired loans through write-offs and sales.
French banks’ total claims on Russian counterparts were moderate at USD25 billion at end-September 2021, according to the Bank for International Settlements, USD10 billion of which was cross-border. This poses manageable direct asset quality risks for the sector. The banks will experience a significant increase in compliance and operational risks due to the numerous sanctions and a fast-evolving situation. We believe the large French banks use sophisticated filtering and sanctions-monitoring tools, which should help them adapt.
The full dashboard report “Large French Banks: Deteriorating 2022 Prospects” is available for download from the link above.
