May 27, 2013
London, May 21st 2013 - The quality of the funding and liquidity of the large French banks improved in 2012 as they completed capital deleveraging and funding plans, says Moody's Investors Service in a new report. The banks, however, continue to present funding and liquidity profiles that are weaker than those of their large international peers.
Moody's will continue to place a particular emphasis on funding and liquidity profiles when it assess the credit strength of the large French banks, the rating agency says in the Credit Focus report "BNP, SG, Credit Agricole and BPCE: Funding and Liquidity Improving, but Still Below Peers."
"We recognize that funding pressures for European banks, including the large French groups, have receded in recent quarters, as investor sentiment has improved," says Alessandro Roccati, a Moody's Senior Vice President. "The year 2013 started on a positive note, with large issuances from all major French banks, but markets remain fragile and prone to setbacks, particularly given continuing issues in the euro periphery."
The funding profiles of the large French banks are weaker than those of their international peers because they continue to depend on more confidence-sensitive wholesale funding, says Moody's.
Some of the reasons for the dependence are structural and include strong competition for bank deposits from alternative savings products and large trading and investment portfolios that add to wholesale funding needs.
Despite enhancements in matching short-term liabilities with liquid assets and in extending funding profiles, BNP Paribas (BNP), Societe Generale (SG), Groupe Credit Agricole (GCA) and Groupe BPCE (BPCE) have substantial wholesale funding exposures: €1.2 trillion in aggregate at end-2012, says Moody's.
Although Moody's expects gradual decreases in wholesale funding in 2013 as the banks work to lower customer funding gaps, the rating agency also expects the elevated exposures to persist because they partly reflect these structural features.
As for liquidity, Moody's says that although liquidity buffers have increased significantly, they still rank in the lower range among international peers. Further, these buffers consist to some extent of less liquid central bank eligible assets as opposed to cash and marketable securities.
Re-disseminated by The Asian Banker