Mar 27, 2013
Paris, March 25th 2013 - The outlook for France's banking system remains negative, says Moody's Investors Service in a new report published today, and reflects the rating agency's expectation that French banks will continue to face difficult operating conditions in 2013, amidst recessionary trends in Europe. The negative outlook also captures the banks' significant reliance on wholesale funds and certain downside risks to asset quality, although the rating agency recognises the meaningful progress that the banks have achieved through their adaptation plans.
The new report, entitled "Banking System Outlook: France", is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.
Moody's says that significant reliance on wholesale funds remains a structural feature of the French banking system that is unlikely to change in the near term, despite substantial improvements at the four largest groups' -- BNP Paribas, Credit Agricole, Societe Generale and BPCE. These groups managed to increase customer deposits by 3% between 30 September 2011 and year-end 2012, while reducing their loan book by 6%. As a consequence, liquidity reserves were significantly enhanced and wholesale funds decreased by 7% over the same period. However, Moody's says that wholesale funds at the four largest groups still accounted for 35% of total cash balance sheets at year-end 2012, in the upper range amongst peers.
In addition, Moody's says that the continued economic weakness will progressively impair the performance of banks' loan portfolios. Moody's notes that the banks achieved a degree of de-risking in recent quarters, notably by significantly reducing their exposure to peripheral euro area countries. However, French banks' exposures to Italy and Spain, mainly through local subsidiaries and accounting for 5% of total assets, remain a tail risk for the system.
Lastly, despite negative pressures on underlying profitability stemming from recessionary trends, the rating agency expects that the banking system's overall net income will rebound from the 2012 level, which has been impacted by elevated non-recurring charges.
Re-disseminated by The Asian Banker