BNP joins race for higher payouts as low provisions fuel profit

[PARIS] BNP Paribas joined European peers in pledging higher profitability and bigger shareholder returns as the impact from the pandemic eases and interest rates start to rise.

The Paris-based bank set a target for a return on tangible equity - a key measure of profitability - of more than 11 per cent in 4 years' time, up from 10 per cent last year, according to a statement Tuesday (Feb 8). It also plans to return 60 per cent of net income to shareholders under its new strategic plan, confirming a Bloomberg News report from last year.

Led by chief executive officer Jean-Laurent Bonnafe, the French lender has promised some of the biggest payouts among peers in Europe, after regulators in the bloc last year lifted a de facto ban on dividends. Flush with cash from the sale of its US retail unit late last year, Bonnafe is also pursuing bolt-on acquisitions, after building up equities trading where the firm is eyeing the top spot in Europe.

But in a sign of the challenges that remain, revenue from that business fell short of analysts' expectations in the fourth quarter, even as it outperformed Wall Street with a gain of 17 per cent. The bank's bigger fixed income trading unit suffered steeper declines than peers, dropping 25 per cent.

For the bank as a whole, revenue in the fourth quarter was in line with expectations, while net income was ahead of forecasts as BNP set aside less money than expected for troubled loans. European lenders are raising their profitability targets as the prospect of higher interest rates promises to boost income from lending.

After almost 15 years in which returns on shareholder capital have languished mostly in the single digits, several banks are now targeting at least 10 per cent, with Nordea Bank Abp and Banco Santander aiming for more than 13 per cent.

An increasing portion of those profits is being earmarked for dividends and share buybacks, to reward investors who stuck with Europe's banks over the lean years and win new ones. BNP said it plans to return at least 50 per cent of profit through dividends, with the rest deployed through buybacks.

Spain's Banco Bilbao Vizcaya Argentaria in November increased its payout target to between 40 per cent and 50 per cent of profit. Italy's Intesa Sanpaolo said last week it plans to pay out 70 per cent of annual earnings to shareholders through cash dividends. BLOOMBERG