Conflict in Iran: major French banks increase provisions for geopolitical risks

BNP Paribas, Société Générale and Crédit Agricole SA prepare for a downturn

The French listed banks were shaken on the stock exchange this Thursday following the publication of their results, which were generally good. Is this a result of this morning’s poor GDP growth figure in France or a fear of a downturn affecting the banks’ results? Likely both, as the first signs of a slowdown in activity are starting to show in the first quarter results.

Société Générale notes a slowdown in credit demand from companies in France. A decrease in volume of rates and exchange activities (-18%) has also weighed on the quarter, given its significant activity profile in European rates. The risk cost remains at the bottom end of the range, but the bank saw fit to create a €80 million generic provision linked to the uncertain context. Similarly, Crédit Agricole made a general precautionary provision of €100 million (€60 million for Crédit Agricole SA) linked to macroeconomic risks. The bank notably adjusted the weighting of economic scenarios by increasing the “adverse” scenario by 10% and reducing the “central” scenario accordingly. Finally, BNP Paribas also made a general provision of €60 million for geopolitical risk.

Deteriorating Environment

“We took advantage of this quarter to continue increasing our coverage and provisions in anticipation of a macroeconomic scenario deteriorating due to events in the Middle East,” explains Olivier Gavalda, CEO of Crédit Agricole SA. However, he has not yet seen a deterioration in risk costs or a slowdown in credit production.