Good morning. I'm very pleased and delighted to welcome today with us, Jérôme Grivet, Chief Financial Officer of Crédit Agricole SA. Thank you very much, Jérôme, for giving us some of your time in this busy period. It will be a Q&A only. The audience can ask questions through the screen. We can start straight away. Thank you, Jérôme. Maybe some first question, the obvious one, is on the COVID and implication on your earnings. On the revenue side first, maybe you can actually shed some light on how you managed to still sustain actually quite good operation in first half with positive growth in most divisions. How is that sustainable in the light of the developments we're seeing at the moment?
Good morning to every one of you. It's a very wide question you're asking, Tarik. I'll try to give you some light or some elements, but I'll try not to be too long in my answer. It's true that we've been posting quite solid results in the first half of this year, and amongst the different elements, we've been posting an improvement of the gross operating income over the first half of the year by close to 3% for Crédit Agricole SA, and even more than 5% excluding another increase in our contribution to the Single Resolution Fund. It's true that we've been improving also the cost-income ratio during this period of time as compared to the previous year, thanks to a very resilient top line. I think the resilience of our top line is explained by two main elements.
The first one is that we have a very diversified set of activities, and they don't react the same way to the present situation. I'll come back on this element a little bit later on. The second feature that we have, and that is also helping the resilience of the top line, is that we manage to permanently improve the capacity of our different business lines to work together. Which means that we increase regularly the revenue synergies, which are a very significant help to the resilience of the top line of most of our businesses.
If I dig a little bit deeper into what happened in the different businesses in H1 of Q2, it's clear that all retail-related businesses have had a low level of activity during Q2, because definitely Q2 was earmarked by, let's say, six weeks or even two months of lockdown, which means that all activities that require a proactive commercial effort from our salesperson were really impacted. You have to read across our results the fact that 2/3 of the second quarter was indeed very much impacted for retail activities, which cover retail banking activities, also all retail-related activities like, for example, consumer credit and car financing businesses. It's clear that in those retail-related activities, we have seen a very sharp rebound in the level of activity starting in June and continuing across the summer.
Just to give you a few examples, it's been the case for the loan production, it's been the case for the gross commercial or customer capture. It's been the case for inflows on savings products or the opening of new savings accounts and so on and so forth. It means that clearly we are at least partially catching up with all the operations that we've missed in April and May. At the same time, we have had a very good momentum across the lockdown period in all our large customers' activities. Of course, those activities don't require the same setup of branch opening of physical meetings than retail-related activities. Actually, the second quarter of this year was marked by a very high density of operation, for example, financing operation in the CIB, but also a very good level of activity in the custody businesses.
Last point, in the asset gathering activities, so asset management and insurance, we've been penalized by two elements, the market volatility and the downward-oriented market trends that penalized all valuation that we have to take into account in our revenues. The second element was clearly the fact that in retail-related activities, we've missed at least six weeks or two months of business. This had an impact on the number of new insurance policies that we sell or on the new inflows in unit trust, be it with Amundi or within life insurance policies. Globally, a good resilience of our activities despite some weak levels of activity across the second quarter.
If we try to foresee a little bit what can happen, I think one must keep in mind the fact that more than three-quarters of our revenues are indeed recurring revenues, i.e., they are already here at the beginning of the year. It's the case, of course, for the net interest income for a very large proportion, but it's also the case for many fees-generating businesses because the fees are linked to the handling and the management of a contract. In most cases, all the contracts that we have with our customers, be it for payment tools or for insurance policies or for savings account management, all these contracts last a very long period of time. Generally, it's in the region of 10 years.
It means that we are adding up regularly new contracts and new policy to our stocks, but we can count on the fact that we start the year with a high level of revenues, again, more than three-quarters of our revenues being recurrent. When it comes to the cost base, and I will be shorter on this issue, I think we stick to our general policy, which is to assess and to assign to each business line a dedicated cost-to-income target. Of course, all these cost-to-income targets being coherent with the global cost-to-income ratio target that we have for the group globally, and to actually decentralize the concrete efforts in terms of cost management that are required to meeting those targets.
It is through this policy that we have seen, for example, in the last three or four years, we have seen a decrease in absolute terms of the cost base at LCL without any massive redundancy plan or without big announcements, but simply with a steady effort to optimize the cost base, to optimize the cost of the back offices, to optimize the setup of the network. This has indeed helped LCL to very significantly improve its cost-to-income ratio. To put it in a nutshell, when it comes to the operational parameters of our activities, we are, I wouldn't say optimistic because of course there are lots of uncertainties, but we have, I think, the tools to continue to be efficient and to continue to have a very satisfying level of the cost of operating cost.
Thank you. I'll just follow up on the recovery. In Q2, you mentioned that collecting some data from the regional banks, you can comfortably say that you're observing a V-shaped recovery.
I'd be interested actually to know what are the metrics that you collected and that you are actually following and looking at to draw this conclusion, because since then some of your competitors use the same shape of recovery. The flare-ups in infections that we've seen in the last week or two, does that impact somehow this conclusion, or you're still confident? For example, if you look at Marseille yesterday, that's news from yesterday, but we announced that all bars and restaurants will be closed in the rest of the metropolis, basically, but 10:00 P.M. curfews. How would that impact your conclusion in terms of the shape of the recovery?
Clearly, there are still a lot of uncertainties around us, and so it's very difficult to forecast what is going to happen in the coming months or even quarters. What we've been looking at, for example, is the trend in card payments, the trend in withdrawals at our ATM machines, the trend in the number of home loan simulations, the trend in the opening of savings accounts, the trends in terms of new P&C insurance policies that we sign with our customers. All these indicators have indeed shown a V-shaped trajectory, i.e., a sharp decrease between March and May, as compared to a very decent level of activity in the beginning of the year, in January and February. A sharp increase in May, in June, continuing in July.
August was a little bit less significant because it was the summer holiday period, but the start in September was also very positive. In addition to that, what I can mention is that we've seen, starting in August and September, the end of the three months payment holidays that we had granted for our retail customers in consumer loans or in home loans. Actually, the effective repayments on a normal basis of those installments after the payment holiday was very satisfactory also. 93%, for example, of all the consumer credit customers that benefited from a payment holiday, actually started to pay normally their installments after the three-month period. It was completely in line with what we expected. This is globally the, I would say, micro indicators that we assess.
On a more macro viewpoint, maybe I can just try to elaborate a very quick reasoning showing why we are still, I would say, carefully optimistic. Carefully because of the uncertainties, optimistic because of the macro figures. If I take just the example of France, the GDP in France was due to be around EUR 2.5 trillion this year. We are going to lack around 10% of that. Actually, the latest figures are closer to 9%, let's stick to 10% decrease in GDP between 2019 and 2020. It means that we are going to face a loss of wealth creation of around EUR 250 billion, which is quite huge indeed. How is this taken in charge by the different economic agents? The public agents, i.e., the states or the Social Security, the local governments, and so on and so forth, are going to absorb 60% of that loss.
We are going to see a deterioration of EUR 150 billion of all the public deficits in 2020 as compared to 2019. Of course, this is raising long-term questions on how it's going to be repaid and what are the impacts on the monetary policy and so on and so forth. As far as 2020 is concerned, it means that 60% of the losses in GDP are taken in charge by the public authorities, which leaves only "around EUR 100 billion of losses for the private agents." If I zoom a little bit on the different categories of private agents, we have the household and individuals, which are actually almost not impacted by what happened in 2020.
Actually, we assume that between 5%-10% of the losses, so definitely less than EUR 10 billion, are going to be taken in charge by the individuals, because actually, most categories of individuals are not going to be hit revenue-wise. All the pensioners are going to keep their pensions as expected. All the public employees, civil servants, are also going to keep their revenues as they expected them. All the employees of the large corporates are also going to be almost not impacted, only self-employed persons, plus also the new unemployed, are going to lose some revenues. It means that actually, the revenue losses for households are going to be very little in 2020. It means that it leaves, let's say, around EUR 90 billion of losses for the businesses, SMEs, medium-sized enterprises, and large corporates.
From a liquidity viewpoint, this loss has been more than covered by the state-guaranteed loans, by the payment holidays, and so on. The state-guaranteed loans only represented in France more than EUR 120 billion, and it's still available for the coming three months. It means clearly that this EUR 90 billion loss for the businesses is not raising any liquidity issue globally. I'm not saying that country, in some sectors or in certain areas, we are not going to see difficulties, and actually, we have seen difficulties. Globally, the wealth losses that are incurred by the businesses are more than covered by the liquidity lines that have been provided to them.
This is raising a medium-term issue, which is the capacity of those enterprises, those businesses, to absorb these losses across time in order first to repay normally their loans, their current loans, amongst them the state-guaranteed loans, but also to be able to continue to borrow and to continue to invest in order to fuel the recovery and to fuel the future GDP growth. Clearly, and this is why we are quite positive on what has been put in place in France, clearly, liquidity-wise, all the setup of governmental measures is more than covering the losses incurred by the businesses.
Very good. This is maybe a good transition to talk about cost of risk in general. You don't give a guidance for a full year or even less for next year, but I think from your comments, different occasions, we can understand the second half will definitely be lower than first half. I guess really the question mark is when all these guarantee schemes will stop, when we will actually have a check of these provisions were enough or not. I know in France, one of your core markets, there are talks about an extension, not an extension of the PGE, like the guarantee scheme, but a cap in interest rate for some of the loans that will be extended and so on. How is that fits with your risk management or risk profile?
If you are capped in rate and you get some clients coming through the door that you actually, the pricing doesn't cover your risk, are you obliged to take these clients? How really the dynamics work in there?
Lots of elements in your question. Just to answer your last point, what has been said is that as far as the extension of the state-guaranteed loan is concerned, you know that the state-guaranteed loan was granted for one year, and then after the first year, the client has the right to choose to repay or to amortize the capital that it has to repay up to five years. The question that was discussed with the finance ministry was what type of rate would be applied to the amortization period, if any. We ended up with the idea that the rate for the amortization period could be in the range 1%-2.5%. For the first two years, up to two years, and then between 2%-2.5% for an amortization above two years, up to five years. It's a range.
We've been discussing that, assuming that when the amortization period starts, we will have more or less the same monetary conditions than the one we have now, which is probably not a very aggressive bet, because clearly, we expect the monetary policy to remain unchanged in the coming months, at least, I would say. This rate setting of the amortization period of the state-guaranteed loan is not really a constraint, is not an issue for us. It simply is the continuation of what we have accepted, and what is clearly considering the monetary policy that we have, it's perfectly coherent. When I come to the risk issue that you raised, it's true that in the first half of the year, we had to adjust our macroeconomic scenario in order to calculate the need for additional Stage 1 and Stage 2 provisions.
This indeed represented a significant part of the cost of risk that was booked in Q1 and Q2. Considering all the latest forecasts that were issued by the Banque de France, by the OECD and so on and so forth, we are not going to update further our macroeconomic scenario, at least for Q3. It means that as far as Stage 1 and Stage 2 provisioning is concerned, in Q3, we will have only to take into account all the evolution of our portfolio, but no additional macroeconomic evolution. It's leading probably to a lower level of Stage 1 and Stage 2 provisioning than in H1. As far as Stage 3 is concerned, of course, we will depend on, I would say, idiosyncratic elements or information or events.
It means that normally we shouldn't see in Q3 and Q4 a wave of default as some expected it, but we are possibly facing, as it happened in the first half, some events unexpected, not necessarily in line with the global macroeconomic trends. As you know, in Q1 and Q2, we had to book some quite significant individual provisions because of some events like frauds in certain areas. This can happen. It's not possible to forecast it, but we are not seeing, as of now, the wave of defaults that would generate a significant need for additional Stage 3 provisions. Again, we don't want to give guidance on the level of provisions, more exactly on the level of provisioning for Q3 and Q4.
I want to remind again that the provisioning effort on one single quarter must take into account, and takes indeed into account, all the previous provisioning efforts that we've made. Actually, as you know, Crédit Agricole Group started this year with a very low level of NPLs and a very high level of provisions covering those NPLs. Of course, our additional provisioning efforts take into account the existing provisions that we have in our books, which are now in excess of EUR 20 billion , roughly for the group, and in excess of EUR 10 billion for CASA.
Very clear. Thank you. Maybe we can spend a few minutes on Italy, your second home market. First of all, I don't mean to be a wide question, but just give us what's on the ground you see if you're ambitious in terms of, I would say, underlying business growth is going in line with the plan. A second question on Italy is on the change in the landscape. We had the big merger already done with Intesa Sanpaolo. We have rumors of another one coming. You have a big bank there. You have a decent market share. Do you feel threatened or the dynamics might change if you don't participate in this? Is there any sense of fear of missing out something, or you are just heading with your strategy and carrying on? Thank you.
Just to start, let me remind you that we have a comprehensive and global set of businesses in Italy. It means that actually, retail banking activities are, of course, a key component of our set up of businesses in Italy, but it accounts for only between one-fourth and one-third of our net profit. I think it was a little bit less than one-third of the net profit that was generated in Italy last year. It means that actually, of course, we are very focused on what is happening in the retail banking business in Italy. What is very important for us also is to be able to continue to develop our specialized businesses in Italy: asset management, consumer credit, car financing, leasing, factoring, wealth management, CIB, name it.
Clearly, when we look at Italy, we don't want to look only at retail banking activities and at retail banking M&A transactions that are or are not taking place in this country. That's the first point. The second point is that when it comes to banking activities, our business model is skewed towards retail precisely, and actually it represents now half of the loan book of Cariparma, Crédit Agricole Italia. In these activities, considering the way we do them, considering the locations of our branches, actually, we have been posting regularly in the last quarters a level of activity that was above the market average. It's clear that the level of activity in Italy is being impacted by the situation. When it comes to our own network, its level of activity is better than the average of the market.
When it comes to M&A, well, we've said when we published our medium-term plan last year, and this was only a reiteration of what we had said before, that we were ready to consider or contemplate a M&A transaction that would fit in our business model, and that could show, I would say, financial metrics that are, I would say, acceptable for us with, amongst other elements, a capacity of generating a return on investment after three years, above 10%. Actually, what we did with the three small savings banks that we bought end of 2018 was exactly that.
A sound balance sheet, a weak operating profile, a small size, a good location, and at the end of the day, a return on investment which was significantly above 10%, and also a level of badwill that really covered a significant part of the capital consumption of the additional RWA that we took. We are not now in a situation of examining any kind of concrete file. We've said that we are ready to contemplate that type of transaction. I think that I will not comment further the Italian situation beyond that statement, which is simply, again, the reiteration of our strategy in this country.
We could still see you doing what's in your current strategy, which is still doing more partnerships, more business line kind of consolidation. That's still okay. Maybe on the M&A, I will link it to capital, but we'll get to capital and dividend a bit later on. If let's say it's in a scenario where the regulator or ECB or whoever, or the SSM decide to extend the ban on dividend, your capital position is already quite high and will keep growing then. On the other hand, you will have some assets that are much cheaper than a year or two years ago. Is your view could be flexible in that front and think, "Okay, maybe we have to be opportunistic as well because we don't want to run with too much excess capital?
We have a group backing us, and valuations are cheap, so maybe we can use more badwill and change a bit our because the strategy you set in plan was mid 2019, where the world was, I would say, quite different.
Yeah. The world was different, but our strategy remains more or less based on the same grounds. The ground on which we base our capital strategy is very simple. We want to be best in class in terms of solvency at group level, and we can operate at CASA level with a thinner level of capital because CASA benefits from the solvency of the group and from the financial solidarity of the group. It means that we are able to offer a high level of profitability at CASA, and we are not to pile up capital at CASA across time. We had set a target, a CET1 target for CASA at 11%. There have been some recent announcements that may lead us to revisit this target, going forward.
I think that it would be relevant to wait a little bit until the dust has settled before really setting a new target. We think we have the capacity to set a new and possibly lower target going forward because of some regulatory decisions that have been taken this year. This is clearly leaving us with the capacity of somehow remunerating our shareholders, which we haven't been able to do in 2020. Let me remind you that in 2020, we've nevertheless continued to accrue a dividend to be paid in 2021. That's for sure. We are, as any listed bank, we are facing the same constraints, which is this recommendation of the ECB, which is this uncertainty on what is going to be the rule in 2021. We have a specific tool, and we have within the group, a capacity of trying to accommodate different constraints.
We have a switch mechanism, and when we unwind the switch mechanism, this transfers capital from CASA to the regional banks. This transfers profit from the regional banks to CASA, and this doesn't change anything at group level in terms of solvency. We have this capacity. If the normal course of the usual tools in order to remunerate our shareholders are not fully available, we have this capacity of improving going forward our earnings per share, and so improving, all things being equal, the profitability at CASA, without having to enter into the traditional remuneration tools, which are dividend or any kind of payments.
If I understand well, Switch 2 will be your first option to redeploy capital, if there's an extension of the ban, or it could be with payments and some Switch 2. The first window for you will be Q1 next year, right?
We have two windows a year for the unwinding of the switch mechanism. The first one is in January with the execution in March, and the second one is September with an execution in September. We have those two windows every year. We are committed to unwind 50% of the switch mechanism before 2022. We've done 35%, we still have 15% to go. The remaining 50% are also a potential tool, if needed, if the other tools don't operate properly.
What do you hear latest on the ECB stance? We have some other corporate telling us that they are leaning towards a case-by-case loans or say, ban lift for dividend. Have you heard the same? If it's true, what would be the criteria used?
Maybe our ears are not as good as the ones of our competitors, but we don't hear anything coming from the ECB on this front. What we've seen and what we've read is that this present recommendation is lasting up to the end of this year, and that the situation will be reassessed in December for 2021. When it comes to a potential case-by-case analysis, we think it will be perfectly relevant and perfectly coherent with the fact that the ECB has precisely a responsibility, which is to assess concrete situations and to take individual decisions on the basis of concrete situation, much more than taking across-the-board blanket decisions. Of course, the fact that the ECB may be heading towards case-by-case decisions is only natural for us.
In such an approach, we think that we are at the forefront for being granted the capacity of paying a dividend, because of our good solvency situation and because of our good profitability situation.
Maybe a last question just to wrap up all what we discussed. You had Investor Day in June last year. Many of your other competitors dropped guidance or you reiterate them. Is this a reiteration they can offer in a horizon of 2023? If provisions recover, you're still confident to achieve the double-digit ROE and the levels of distribution and so on? You will contemplate doing an update next year?
Up to now, if we said that we were not going to change our 2022 targets, it's because all the internal assessments that we do show that we still have the capacity to reach those targets in 2022. Of course, if at a certain point in time we have the certainty or the impression with a high degree of certainty that some changes need to be done to these targets, then we will talk to the market. Up to now, we are of the opinion that if, of course, if we remain very strict on our internal financial discipline, cost management, et cetera. If we have the capacity to continue to develop properly our businesses, we are able to reach the global targets that we have set for 2022.
Perfect. Our time is up. Thank you very much, Jérôme, for your availability and your answers, and hopefully we can meet in person soon.
I hope so, someday. Thank you, everyone of you. Thank you, Tarik, for your availability, too. Bye-bye.
Thank you. Bye-bye.