Good afternoon, ladies and gentlemen, and welcome to the presentation of Ben Pepa Riba First Quarter 2020 Results. For your information, this conference call is being recorded. Supporting slides are available on BNP Paribas IR website, invest. Bnpparibas.com. During today's presentation, you will be able to ask your question by pressing If you would like to ask your questions, please make sure to be in a quiet area to maximize audio quality.
I will now turn the call over to Mr. Jean Laurent Bonafay, Group Chief Executive Officer. Sir, please go ahead.
Thank you. So good afternoon, ladies and gentlemen. Welcome to BNP Paribas results presentation for the Q1 of 2020. Before we get into the specifics of the Q1 performance, I'd like to say that our thoughts go to the most affected by the current health crisis and the ones mobilized to support them. Now in today's presentation, We will update you on how the BNP Paribas Group navigates this environment and will focus on group results, division results and the outlook for 2020, which will conclude our presentation.
First, I will take you through the summary of our group results, Then Lars Machenille will comment on the results by division, and then I will update you on the outlook for 2020. As usual, at the end, Lars, Felice and myself will be pleased to take your questions. So before going into key messages and results, I invite you to move to Slide 3, where we remind that BNP Paribas has entered this Crisis with a very solid balance sheet, capital and liquidity wise, a diversified and resilient business model, a strict risk discipline at origination and long term client relationships combined with high performance digital solutions. As such, We are well equipped to accompany our clients through this crisis. Switching to Slide 4, I would like to highlight some of the ways we're responding to this health crisis.
The group's teams have mobilized around the world To support the functioning of the economy and its financing, our concerns have been to protect our employees We are fully mobilized to ensure banking services to quickly implement solutions to support the financing of our clients. To illustrate these, some figures. First, over 130,000 employees worldwide Are working remotely while close to 90% of our branches remain open with a suitable public health setup. 2nd, Close to 70,000 applications have been received for state guaranteed loans, notably in France, where it was launched earlier than in other countries. It is important to mention that we were very active in occupying our clients globally across loan, bond and equity markets with over €115,000,000,000 raised with an exceptional mobilization of the group.
Last but not least, BNP Paribas Group has demonstrated its social engagement through a global plan of emergency financial aid of over €50,000,000 as well as €100,000,000 in investments to support SMEs, mid caps and the health sector. Now turning to Slide 6 with our first set of key messages. Clearly, the acceleration of the Alk Kraussi signal towards the end of the quarter resulted in extreme shocks on financial markets and in a major shift in the macroeconomic outlook. This triggered several negative impacts on the group's financial performance, which was otherwise in line with its 2020 objectives. 1st, a negative €502,000,000 impact on the group's Cost of risk, mainly due to the ex ante provisioning of expected losses.
2nd, 2 one off negative impacts on revenues, totaling €568,000,000 in the Q1. The first one off Item consisted in a negative €184,000,000 impact in revenues in our Equity and Prime Services business, resulting from the unexpected and sudden restrictions on 2019 dividends by European authorities. The second one off item was a negative €384,000,000 accounting impact in our insurance Revenues related to the valuation at fair market value of certain portfolio as at March 31, bearing in mind That such impact is reversible with market recovery as demonstrated in the Q1 2019. In this context, if we move to Slide 7, you can see that at the end of the quarter, supported by an excellent business drive, In line with our 2020 objectives, our results were impacted by the harshness of the health crisis. Group revenues at €10,900,000,000 showed resilience despite an extreme market shock at the end of the quarter, is a decrease of 2.3% on last year.
When excluding the 2 one off revenue impacts we have just talked about, This would have translated into a 2.8% increase. Costs, on the other hand, were significantly down by 3.5% €292,000,000 in line with our objectives and a testimony to the continued success of our transformation plan. We included, as anticipated, €45,000,000 of restructuring and the depletion costs as well as €34,000,000 of IT Reinforcement costs As planned, no transformation costs. Our cost of goods rose to 67 basis points, out of which 23 basis points were due to the effect of the health crisis on credit and counterparty risk and 85.4% increase in our cost of risk this quarter, mainly for ex ante provisioning of expected losses. Our net income for the Q1 stood at EUR 1,300,000,000, Down 33% on last year.
And excluding the negative major impacts on the health crisis on revenues and cost of risk, Net income was up 6.7%, in line with the group's 2020 objectives. Our core equity Tier 1 ratio stood at 12%. Finally, the return on tangible equity reached 8% in the Q1 as a result of the impact of the health Moving to Slide 10 for a zoom on revenues in the operating divisions. Overall, Revenues in the operating divisions were down 3.1%, while excluding the negative one off revenue impacts of the ice crisis, They were up 2%. Looking at divisions individually, domestic markets revenues were indignant as With a small decrease of 1.2% of last year due to the persisting impact of low interest rates in the networks, which was partially offset by the increased activity in specialized businesses.
International Financial Services So a decrease of 5.4 percent year on year with revenue growth in Personal Finance, Bankwest and Euromaid, but penalized by the negative one off accounting impact in our insurance business from the sharp fall in stock markets. Excluding this one off impact, IFS revenue would have been up 3.6%. Revenues in Corporate and Institutional Banking We're down 1.9% on the back of a very good performance in FIC, Corporate Banking and Security Services and a one off negative revenue impact in Equity and Private Services. Excluding this one off impact, CIB saw an increase of 4.3% in the top line. Switching to Slide 11 and costs in the operating divisions.
Domestic Markets Deliver a 0.5 percent production in stock with a 1.5% decrease in the network and content increase in specialized businesses. When excluding the effect of taxes, such as E3.21 taxes, the division saw positive jaws in Spain. IFR saw a 49% increase in cost, and it continues to develop into the business. And CIB reduced significantly by 2.7%, due in particular to its continued cost saving plan. Moving to cost of risk, starting with Slide 12.
The impact of the effect of the health crisis was €502,000,000 or 23 basis points. It reflects The change in macroeconomic anticipations based on favorable scenarios. It reflects as well the specificities of our portfolios and product risk management standards throughout the cycle. The macroeconomic anticipations take into account the specific features The dynamic of the crisis and in particular the impacts of the lockdown measures on economic activity as well as the anticipated FX of government support measures and authorities' decisions. Finally, the impact also includes a sector specific component Based on the review of certain sensitive sectors, including hotels, tourism, leisure, transport and logistics, Non food retail and oil and gas.
You can see from this slide that the majority of the impact is borne by CIB and IFA. Looking at the different business one at a time, starting with Corporate Banking on Slide 13. Cost of risk was up, mainly related to the anticipated impact of the health crisis. Turning to the other business line On Slide 14 and 15, cost of risk remained low in French Retail, continued to decrease at Biennale in Italy An increase for directly in Belgian Retail due to the anticipated effects of the health crisis. In the other retail businesses, The anticipated impact of the health crisis has resulted in moderate increase of the cost of risk in Euromaid and an increase in bank The increase in Personal Finance is mainly on the back of anticipated effects of the health crisis as well.
Turning to Slide 16, financial structure. You can see that our common equity Tier 1 ratio remained stable at 12%, mainly due to the support of the economy and combined effects of the health crisis. Our Basel III leverage ratio Clocked in at 3.9 percent and the group's immediately available liquidity reserve totaled €339,000,000,000 up €30,000,000,000 from last quarter. On Slide 17, you can see that our net book value per share was stable at €69 as of March 31. At €69,700,000 our tangible net book value per share has grown at an annual rate of 7.2% since 2008, highlighting our continued value creations through the cycle.
Finally, I remind you that the resolution to suspend the payment of the initially planned dividend has been submitted to the Annual General Meeting. Besides, after the 1st October 2020 and subject to the then prevailing circumstances, the Board of Directors We convene a general meeting in order to proceed with the distribution of reserves to shareholders in place of the dividend. You will find on Slide 18 some key points on the continuous enforcement of the group's internal control and compliance system. And now I hand over to Lars for the divisional results.
Thank you, Jean Laurent. Fine, ladies and gentlemen, good afternoon. Today, I will walk you through the results of each operating division, starting with the 1st domestic markets. If I can ask you to slide to swipe to Slide 20. You can see that it showed good business drive with solid loan growth, in particular in the French and Belgian retail networks as well as in the specialized businesses.
It also showed a steady rise in deposits in all retail networks as well as good net asset inflows in Private Banking. Domestic Markets adapted very quickly to the new environment and showed an extraordinary mobilization of its teams to support customers during the health crisis. For instance, Around 90% of branches remained open across its retail networks to ensure continuity of service and support customers, for example, with state guaranteed loans, that memo where applicable. The strength of our digital platforms illustrated in particular by a steady increase in the number of customers active on mobile apps as well as in the number of daily connections was also critical in ensuring smooth continuity of service. If we now focus on the P and L.
Top line showed resilience with a slight decrease year on year as guided. Indeed, the impact of persisting low rate environment was partially offset by the increase in volumes and the rise in fees, in particular at Consource Bank in Germany. Operating costs were 0.5% down year on year, which when excluding the effect of taxes subject to IFRS CET21 translated into a 2.3% decrease and post withdrawals. Pretax income was down 5 point 5% year on year, but up 2.6% excluding the anticipated effect of the health crisis on the cost which was described earlier by Jean Laurent. Also, if you look at pretax income, excluding the effect of taxes, Subject to IFRS CET21, it was up 1% on last year.
Looking now at the different businesses Part of domestic markets, which you can find on Slides 21 to 24, I'd like to highlight in particular. In French Retail Banking, loans were up 5% with a positive evolution across all customer segments and margins holding up well, while deposits were up 8.3%. Revenues were down 4.4% due to a high base effect in the Q1 of 2019 and the impact of the low rate environment. Costs were slightly down with the ongoing impact of cost optimization measures. Pretax income was down 27% year on year and down 14%, excluding the effect of taxes subject to IFRS 21.
Thanks to its digital transformation and the strong mobilization of its teams, French Retail Banking was able to roll out very quickly The state guaranteed loan program in France. FRB received 44,000 applications for a total of more than €11,000,000,000 and this at the end of April. If we now go to Italy with BNLBC, which showed a 2.5 Percent decrease in revenues due to the impact of the low interest rate environment as well as the positioning on clients with a better risk profile, something we have been doing now since several quarters. Costs were down 1.2% year on year, thanks to the effect of cost saving measures. Thanks to a sharp drop in cost of risk All over the year, pretax income more than doubled year on year.
BNL has been fully mobilized to help customers overcome the effects of the health crisis and rolled out very rapidly adapted measures like loan moratorium. If we now go north, we go to Belgium Retail Banking, It was really active in supporting their clients and, for example, approved 74,000 modifications of repayment schedules as at April 24, and this across all customer segments. Belgian Retail Banking showed a sustained business activity with loans up 5% and deposits up 5.4 Revenues were down 3.3% due to the impact of already mentioned the low interest rates, which was only partly offset by higher volumes And the rise in fees. Costs were down 1.6% on the back cost reduction measures and down 5% excluding the effect of taxes subject to IFRS 21, thus generating positive jaws. Pretax income was slightly negative as a result mainly of the strong impact of IFRS 21 taxes, which I remind you have both a European and a Belgian component.
Excluding taxes, subject to this IFRS CET21, pretax income was only down 3.8% compared to last year. Finally, the last part in domestic markets, the specialized businesses, continued to deliver very good business drive, with in particular, A strong growth of 8.7 percent in the finance fleet at Aarwal and a significant increase in orders and number of clients at personal investors, in particular with Consurg Bank in Germany with an increase of 172% year on year. Revenues were up 9% year on year with a positive jaws effect, thanks to a contained increase in costs stemming from business development. Pretax income rose sharply 16%. To wrap up this Q1, domestic markets showed its intrinsic capacity to deliver on the group's 2020 objectives and be very mobilized for the road ahead.
With this, if I can invite you to swipe to Slide 25, You will see that our 2nd domain, International Financial Services, showed sustained business activity with loans up 4.5% with good growth, in particular, at Personal Finance and Europe Med. Besides, IFS reported good net asset inflows, while assets under management were down 3.5% due to the drop in the market at the end of the quarter. If we now look at the P and L, Revenues were down 5.4% year on year, mainly due to the one off accounting impact on our insurance revenues for €384,000,000 a negative impact related to the accounting valuation of certain Insurance portfolios had market value. Excluding such an impact, IFS revenues would have been up 3.6%. I'll come back to that.
Now if we look at operating costs in IFS, they evolved by 2.9% year on year on the back of business development contained by cost savings. With the combined effect of the one off impact in our insurance revenues and the anticipated effect of the health crisis on the cost of risk, IFS pretax income was down 50% year on year, but it would have been down 3% without these two negative impacts. If we now look at the different business lines building the IFS, and this is in Slides 26 to 31, I'd like to highlight the following. First of all, when we look at Personal Finance, it continued to show steady growth momentum in the Q1 with a 4.4% increase in loans, which was nonetheless impacted towards the end of the quarter with points of sale closing as the pandemic spread. Personal Finance reallocated its resources towards customer relationships in order to proactively put together solutions, including deferrals on a case by case basis for those customers whose financial situation was justifiably affected by the health crisis.
Revenues were up 3.4% with growth in particular in Italy and Germany and cost increased at a slower pace of 2.3%, So delivering positive jaws. If we now turn to Europe Med, which reported good business growth, In particular, in like Turkey, Morocco, these loans were up 5.5%, deposit 6.6% across the region. The support to clients during the health crisis was facilitated by apps enabling individual and SME clients to report financial concerns and this in particularly in Poland and Turkey. Overall, on a comparable basis, revenues were up 1.6% impacted by the regulatory environment, while costs evolved by 5.9 percent due, amongst others, to wage drift. If we now cross the Atlantic And even more go to California with BancWest, where we saw an overall increase in business activity with loans up 1.5% and deposits 8.5%, in each case on a comparable basis.
Besides, the number of accounts opened online grew sharply And BancWest adapted quickly to the new environment with 99% of branches remaining over open and over 70% of employees working remotely. It is also actively involved in the implementation of the Payroll Protection Program, the federal support program aimed at small businesses. On a comparable basis, revenues were up 3.4%, thanks to the repricing of deposits and higher transaction fees, while costs were up Limited to 1.4%, thus generating positive jaws. If we now turn to insurance, It maintained a good level of activity in the 1st 2 months, but witnessed a slowdown in savings inflow in Europe and Asia with the spread of the health crisis. Revenues were affected negatively by a 1 off €384,000,000 accounting impact stemming from the drop in financial markets at the end of the quarter.
As a reminder, part of the assets in insurance business are marked at fair value. As such, this effect may be reversed in the event of a stock market recovery. Costs were slightly up Due to the continued business development initiatives and pretax income was down 62% year on year. Excluding the one off impact, it was up 11.8%. If we now turn to Wealth and Asset Management, revenues were down 3% due to the impact of the health crisis on performances of Asset Management and Real Estate Services and this on the back of, for example, the suspension of construction works only partially offset by the increase in fees in Wealth Management.
Costs were quasi flat on last year due to the combined effect of development costs in Wealth Management, in particularly Germany, and the transformation plan, so the reduction of cost, in particularly, Asset Management. So with this, It completes the Retail Banking and Services business, so Domestic Markets and IFS. And if I can now draw your attention to Slide 32 on corporate and institutional banking. CIB showed strong business drive in the Q1, further accentuated by the intense mobilization to support the economy in the context of the COVID-nineteen crisis and that occurred towards the end of the quarter. For example, with over €150,000,000,000 of capital rates for clients across loan, Bond and Equity Markets.
The activity was indeed very sustained and CIB consolidated its leading positions in EMEA with the number one ranking in volume and market share in syndicated loans and euro denominated bonds. If we now look at the P and L, starting with the revenues, They were slightly down by 1.9% on the back of a very strong growth in Corporate Banking and Security Services with Double digit increases compared to last year and offset by a one off negative effect of €184,000,000 for Equity and Prime Services Businesses, this stemming from the unexpected and sudden restrictions by European authorities on 2019 dividends. Excluding this one off impact, revenues would have been up 4.3%. Thanks to cost saving measures, costs were down 2.8%, so generating positive jaws. Overall, CIB's pretax income was down 60% year on year when excluding the one off negative impact on revenues and the component of the cost Of credit and counterparty risk stemming from the health crisis, they would have been up 18.8% compared to a year ago.
If we now turn to the components of CIB, we turn to the next three slides, 33 to 35. Let's go into more detail. If we start with Global Markets, Slide 33, revenues were down 14% on the back of a very strong growth in FIC impacted by the extraordinary shocks on European markets towards the end of the quarter on equity and prime services. Indeed, FICC revenues were up 34.5 percent with a very steep rise in crayon volumes, and particularly on electronic platforms and the prompt recovery of market liquidity and a swift resumption of primary bond activity after the outbreak of the crisis. Equity and Prime Services revenues were sharply down on the back of the one off impact of dividend restrictions and extreme market shocks.
The diversification continued with the progressive integration of Deutsche Bank's prime brokerage and electronic execution and the first client answers have already been achieved. If I now ask you to swipe to the next Slide 34, Corporate Banking Showed a very strong business activity with a sustained growth in loans and higher utilization under existing revolving credit facilities to the tune of close to €25,000,000,000 in March. Between mid March and mid April, Capital Markets Arranged more than €75,000,000,000 of syndicated loans with aggregate final holds not exceeding 15% of deal size and led more than 50% of all investment grade bonds in EMEA. At the same time, deposits grew by 14% year on year. Finally, the business consolidated its number one positions in syndicated loans and corporate banks in Europe, while strengthening positions in Asia, where it achieved for the first time a top 5 position in cash management and corporate banking.
As a result, corporate banking revenues grew by 10% with fees up 18%, a 24% increase in revenues on the capital markets platform and a good resilience of transaction businesses worldwide. Now finally, if I can ask you to glance at Slide 35 On the 3rd part of CIB, namely security services, where the revenues were up 11.8%, thanks to the increase in average of outstandings and transaction volumes. Besides, the business benefited from a strong growth in Asia Pacific to the tune of 35% as well as in the Americas to the tune of 40%. Finally, Security Services Pursued its strategic development with the announced acquisition of Banco Sabadell's depository business in Spain and the setup of strategic alliance with Black to provide asset managers with integrated services through the Aladdin platform. So ladies and gentlemen, This concludes the division results.
I now hand back to Jean Laurent for the last part of the presentation.
Thank you, Ola. Let's now look at Slide 37, which will conclude today's presentation and give us the opportunity to There are a lot of moving parts. The global health crisis leads to a drastic revision of the 20 20 macroeconomic scenario. We can currently anticipate that once lockdown measures cease to apply, The current recession will give way to a very gradual recovery, but a return to normalized health conditions Should not be expected before the end of the year, and a return to 2019 GDP level is not anticipated before 2022. In this context, the unprecedented measures taken to mitigate the impact of the crisis on the economic and social fabric by governments and monetary Authorities are critical.
BNP Paribas is taking an active part in these economic support initiatives. Going forward, It should result in an increase in net interest income, which could mitigate at least in part the likely decrease in fees affected by the crisis. Parallel, the group anticipates to amplify the initially planned decrease in operating expenses, but this decrease could be offset The increase in the 1st of fiscal year. This moving context and unless new crisis or new developments of the crisis occur, Net income for 2020 could be about 15% to 20% lower than in 2019. This concludes today's presentation.
As a takeaway, I would like you to keep in mind The excellent business drive in the Q1, in line with our 2020 objectives, is not badly impacted by this unprecedented health crisis. This context, the good resilience of revenues and results confirms the robustness of our diversified and integrated business model The strength of our franchises. The strong mobilization of our teams around the world to contribute for the resilience of the economy and ensure its financing. Ladies and gentlemen, thank you for your attention. And together with Philippe and Lars, We'll now be pleased to
take your questions.
Thank you, sir. And that you are in a quiet area to maximize audio quality. We will take questions in order received and we will take as many as time permits. We have one first question from Mr. Stefan Stadman from Autonomous Research.
Sir, please go ahead.
Yes, good afternoon, gentlemen. Thank you very much for taking my questions. I have 2, please. The first one is you hint In the presentation in your presentation, it's potential additional cost cutting and cost reductions. Could you maybe talk a little bit More about how much we could possibly expect here and by when and then which divisions those cuts would primarily affect?
And the second question relates to the equities business. I think the Impact from the dividend trades that you highlight can certainly only be part of the story that drove The weakness during the quarter, could you maybe break down further drivers of the weakness, whether it's The cost of hedging or counterparties defaulting or valuation adjustments or anything else that may have played a role here? Thank you very much.
Cost cutting additional cost cutting could be In between €300,000,000 to €500,000,000 Let's say, on average, €400,000,000 This is The order of magnitude we are targeting depending on the way of the business is moving. Can you really understand that according me to the activity of the bank and the different businesses, There are some, I would say, marginal costs that can be avoided. So marginally, a kind of Low activity will help reduce the global cost base of the bank. So we were starting with a kind of minus Plus €1,000,000,000 could be up to minus €1,400,000,000 even €1,500,000,000 So this is for the cost base. For Equities, maybe Lars or Philippe can give more More details.
This way, we are splitting the €189,000,000 That hit the platform at the very at the end of March.
Yes, yes. So in the equity derivative, I think we had indeed 3 elements Of negative results, one is the €100,000,000 €84,000,000 due to the dividend restrictions that were imposed in a very harsh way, very Switched away by the authorities. This is easily understandable. We are selling Structured products that are mostly indexed on indexes, on equity indexes and we hedge them by holding The underlying shares, underlying equities and of course in the pricing and in The economics of the business, we take into account the dividends that we are going to receive While holding the stocks, while the indexes themselves are not taking into account the dividends. And so we have structurally long dividends, if you want.
And we count on them to mark for the economics So the business and here it's about the 2019 dividends, which were announced, which were In certain cases, about to be paid and that we are retained at the end because of the strong recommendation by the authorities. And so this is a very isolated one off loss, which is clearly understandable. Then Apart from that, as you have observed, even apart from that, the Equity Derivative business had Very flattish result over the quarter, which means that they have lost in March Roughly what they had won in January February and this is due to two factors that occurred in March. The first one is the heavy volatility, very high volatility. We are showing the curves In the slide, and of course, when you sell structured products With the options embedded in it, the hedging consists in adjusting the amount of underlying instruments we held In order to be delta neutral as much as possible throughout the life of the product And this dynamic hedging is of course much easier when the volatility is not too high And it becomes extremely difficult when the volatility becomes very high and hectic and which happens in the quarter.
And hence, we had this kind of losses due to the Dynamic hedging, always a little bit lagging compared with the very high activity, Very high volatility in the stocks. And then the last one is about The price, I would say, reserves at the end of each month and Each quarter, we adjust the mark to market according to the accounting standards. And it entails a certain number of reserves, Which are well, which were indeed significantly increased in this period of uncertainty at the end of March. Just one example, which is really understandable. The mark to market the day to day mark to market is Based on the mid price, the middle of the bid and ask price and in the accounting standards, we are At the end of each time we close the accounts, we are supposed to reserve the amount which is necessary to close The position and this closeout cost It's depending, of course, of the spread between the bid and the ask.
So Because roughly it represents half if the price is marked at mid price, it represents half the spread, the bit of first spread. And this EBITDA for spread is in normal times is relatively small and so the adjustment is limited. But at the end of March typically The bid ask we are very wide. Sometimes it was not very clear even where is the bid Or where is the ask depending on the price. And so we had to reserve much higher Of mounts at the moment of the closing of the accounts.
So those are the elements that explain that The March month was bad for the equity derivatives. But at the same time and given the The FIC results were very good as you have seen an improvement of An increase of 35% compared with last year, and this is balancing to a certain extent The difficulties encountered in equity derivatives.
Thank you very much. Very helpful. Thank you.
Thank you, sir. Next question is from Mr. Jean Paul Ricola from Kepler Cheuvreux. Sir, please go ahead.
Yes. Good afternoon, everybody. Well done. Great set of results considering the circumstances. My question is about the politics Of the results, you've chosen to show a cost of risk of 67 basis points.
When I look at your pre provision profitability, Annualized, okay, it's about EUR 11,000,000,000. You could have decided to have an ex ante which was much more aggressive And that would have put you on an annualized basis at about 1.3%, 1.4%. And you could have literally wiped out Every single bit of competition in a way by saying, okay, we decide to really have this big ex ante provision irrespective of what happens. We have such a great You know, cash flow generation, but in a case, we are able to do that. So I was curious to know what really drove you to just be stuck in a way at 67 basis points.
And if you could maybe be a little bit more precise by telling us what type of GDP assumptions were behind it? Thank you.
There are rules. We are not free to do anything we want, 1st of all. 2nd, what we are doing, of course, is Taking into account the quality of the balance sheet, if I can make 2 very simple examples, Cost of risk at BNP Paribas is up 84% to 85% this quarter. At Santander, it's up 80%. And if you look at SocGen, cost of risk for the Q1 is 65,000,000,000, so risk at BNP Paribas is 67,000,000.
So Comparing banks that can be, to some extent, compared, we are very much in line. And again, there are rules. And those rules, when we are looking ahead, We can now forward guidance. That we are Concerning the quality of the franchise and the portfolio, ACD cannot create cost of risk that just do not exist.
And about your GDP assumptions, can you share them?
Yes. Jacques, yes. The thing is, GDP evolution related to the cost of risk is not kind of a linear link. So what you have to look at is that saying, Indeed, what kind of products are we in? Are they collateralized products?
What kind of countries are we active in? And in those countries, are there guarantees? So which all make the difference. So the idea is that we basically took into account the kind of countries where we are, The kind of products that we have, the collateral that we have, and we basically apply that in a modeling that is basically operated by teams which are a combination of risk and finance teams and that use models which are also which are our models that are also used in the stress testing, the forecasting. So that's basically what we can say about this.
Okay. Thank you very much.
Thank you, sir. Next question is from Madam Delphine Lee from JPMorgan. Madam, go ahead.
Yes, good afternoon. Thanks for the presentation. If I could just come back on cost of risk, Just trying to understand a little bit more the level of provisioning, in particular for the sector which are impacted. I mean, you mentioned on Slide 40, your exposures to oil and gas, aircraft, travel, etcetera. Would it be possible to have the level of provisioning of coverage that you have in those sectors?
And also for the full year, in terms of your guidance of 15%, 20% decline in net profit, what Cost of risk assumption are you using? Then my second question is on capital. Would it be possible
Want to
get just some color on where you think you'll end up the year at in terms of CET1 ratio Because I assume you will you might have some reversal on some of the impacts you've seen this quarter, but at the same time, I guess, Market risk or credit risk migration and some impact from TRIM will put some pressure by year end. So any color would be much appreciated. Thank you.
So again, on cost of risk, I don't think we are disclosing those details. If you look at oil and gas in particular, we have an excellent franchise. We exited in 12 and recently in 2017, most of the sub segments that are, I would say, stay having problems. So it's a very good franchise we have in the oil and gas environment. 2nd, looking at the cost of risk, We are telling you basically how far we can go in terms of cost base reduction can derive from that Kind of excess provisioning compared to last year.
So from that, you can derive ratio we'd like Thanks, Gerard. This is our average numbers. In absolute terms, which are one that are relevant in absolute terms, We believe that the increase in risk based will cover an exceptional increase The cost of risk. And again, I refer to the slide we gave you. It's Page 12 of the presentation, cost of risk, Structured through the ratio of cost of risk compared to gross operating income, you can see that through the cycle, the bank I want to be extremely resilient.
I've stayed very much the way this is the TSA decline, Say to a very low type of cost of risk platform, and well, this is it. So We have all the numbers in absolute terms. Those numbers are, I would say, the one that are relevant.
Yes. Dafin, maybe on the cost of common equity Tier 1 at the year end. If you look at so we stand at 12%. And so how do we look going forward? So indeed, going forward, there is a fraction Of the impact in Q1, that might be returned.
It might be returned because the market risk and the counterparty effect We'll reduce. It might be that the PVA, which is a prudent valuation adjustment, which if you look at the regulation, will basically be Impacting much less than it is today. If we look at regulatory changes like the ones impacting PVA, there could be regulatory impacts Aligning Europe on the U. S. On things like software and the like.
So these are elements that could improve. So both the reversal of those elements and the changes in regulation It would be a positive effect. At the same time, I mean, we at the bank, we are there to support the economy In this crisis period, and so this means that our risk weighted assets could go up. So that is a bit the basis. So the starting point is 12, it could go up for the reasons that I said.
It could be a bit tempered by our support of the economy.
Great. Thank you.
Thank you, madam. Next question is from Madame Saube Pate from Societe Generale. Madam, go ahead.
Yes. Good morning. Good afternoon, SABETE BACHER from SocGen. Thank you very much for taking my questions. 1st of all, can you comment On the differences between the moratorium and the state guarantee schemes that are put in place in each of your core retail markets, Have you actually seen any disparity in terms of effectiveness from any of these measures in any of those markets?
I'm I'm thinking actually particularly at Belgium, because this is where we've seen the highest cost of risk increase quarter on quarter compared to France in Italy. So does that reflect any difference in the effectiveness of the monetary and state support measures in the country? Any comment on this would be appreciated. And then regarding dividend and distribution, would it be possible to know how firm is your commitment to maintain an ratio policy of 50% for 2020. Obviously, I appreciate this is very holiday to assess this.
You still have a little visibility on the 2019 dividend so far, but Any color on your commitment to your official distribution policy would be helpful. Thank you very much.
Well, the last one is very easy. The commitment is 50 percent out ratio is what we are, I would say, preparing the bank to date. Cost of risk in the Q1 cannot have any impact at divisional level Because of the quality or the efficiency or any kind of guarantee scheme, France, Germany, Belgium, Luxembourg, Poland, to some extent, very close in the way they are built. In Belgium, it's slightly different. It's a facility that is on point of contention.
There are good reasons to believe that this Scheme will be completed in the next weeks. So nothing that can be derived from the level of cost of risk from the division And linked to the efficiency of such plans, in Belgium, the relative contribution of Flatsler Last year was extremely low, I mean, close to now. So obviously, that level for a number of quarters With or without the crisis, customers can only go slightly up. And what we have seen in Belgium is, let's say, the increasing Evolution to a more normalized level through the cycle.
Okay. Thank you.
Thank you, madam. Next question is from Mr. John Peace from Credit Suisse. Sir, go ahead.
Yes. Hi, there. So my first question is just back again to your cost To risk provisioning, and presumably, you have a bull case, a base case and a bear case, and you've weighted them Appropriately. And I just wondered if you could give us a bit of a feeling as to what those weights are and what your net profit evolution would be in those different scenarios to Give us an idea of how things might evolve if the lockdowns end up being longer than we currently hope. And then my second question is just on your CET1 ratio targets.
Do you think targeting 12% is the right metric Still in the future? Or do you think it's better to switch to a buffer over your minimum regulatory amount? Thank you.
Well, if you exclude extreme scenarios that could be extremely good, extremely negative, The one that is, I would say, the base case is the one that is minus 50% Comparing to 2019 in terms of group result, the bad one is minus 20%. Basically, the difference is very much linked to the cost of risk. I mean, the difference in between minus 50%, minus 20% at the end of the year, The net result of BNP Paribas is going to be very much linked to the cost of risk. So This is €500,000,000 post tax in between the 2, which is basically €750,000,000 or €900,000,000 pretax. So it gives the order of magnitude between The 2 scenarios, one that is relative, say, a positive and one that is More severe at the end of the year.
So you stand in between minus 15% looking at the net Result of the company or minus €20,000,000 and again, this is a difference of basically €400,000,000, €500,000,000 Post tax, which is again the range of 600,600 pretax. For Tier 1 ratio, The target for the plan is 12%. We believe this is The guidance we can give today based on the scenario we have under the previous guidance At the end of the year 2020, we would have been at a much better level, but 12% is the level We as of today, we consider the company could end up at the end of the year, Including paying an exceptional dividend at the end of the year, Do we have to look at the distance to the minimum? Yes, we can give that information, of course. It's easy to give that.
12% is also something that to some extent gives some comfort looking ahead and in particular looking at The so called Basel IV finalization of the Basel package. We don't know as of today if yes or no This will take place. There are voices saying that maybe this ultimate stage is not Maybe required or necessary anymore. To some extent, if the banking system He is able to pass that crisis based on the current Basel III, one could consider that is enough. It's as simple as that.
So it's too early to say. Clearly, 12 is not the minimum we need. We Could go below, but this is the guidance we have under the scenario we are and the guidance we are giving the market today. And of It's slightly below what we were having as a target internally for 2020 When we communicated at the beginning of that year for the year 2020, so clearly it's slightly below. But this is the target We have according to the current guidance.
Okay. Thank you.
Thank you, sir. Next question is from Mr. Tarik Elnajat from Bank of America. Sir, go ahead.
Hi, good afternoon, everyone. Just a couple of questions, please. Just so I'll go back on costs. The €400,000,000 to €500,000,000 extra savings, Is that for 2020 only as like kind of one off cost savings due to less travel and so on? Or is it Part of it could be actually as well remain as a savings in the future years.
And second question is, switch to come back to that on the cost of risk. I mean, I understand that you're applying the rules and you don't have cost of risk as a target. But with the COVID-nineteen, there were some degree of flexibility in terms of interpretation of the rules. And I wanted to understand how you dealt with the Integrating the macro assumptions within your models and also in terms of treatment of forbearance and so on for specific files? Thank you very
much. Hopefully, travels do not represent 400 on a daily basis. There will be other inputs. One of them is that During that period of lockdown, you discover it's already, I would say, well known To discover that the way you are banking with counterpart is slightly different. I mean, it's very much the online way.
The way the bank, our platforms are leveraged by our counterparts is slightly different and Place, I would say, cost intensive. So most probably, part of this We'll be, I would say, a stable or recurring looking ahead, be not all of it, but most probably part of it. So we have
not forced, but the reality
is that where the bank is moving today is Slightly different from, I would say, the classical way, because it's not that we are forcing our Customers or account department, the way it is, they for them, it's much more convenient than for everybody. It's much more convenient to use Anything that is in the online apps, Customer journeys, we design both the recent years. So this is less cost intensive. So most probably In terms of flexibility, in terms of efficiency, we will derive a number Of lessons, shortcut, and I'm pretty sure that most probably 2 third, even 3 quarters of this It can be recurrent. So the marginal part will be only, we'll say, maybe travels, gathering That's all I have to say, but this is going to be marginal.
Most of it, if we are disciplined, will stay The way it is. And hopefully, it will also accelerate, I would say, the maturity of a number of business models To some extent, what we are seeing is Kind of acceleration of what we were considering for the 2, 3, 4 years to come. I mean, when we look internally To our first internal targets for the next term plan, to some extent in a number of businesses, We're already at that level in terms of efficiency, online, digital, because this is the I would say, This is the way to bank with us. And instead of being part of it, this All of a sudden, it becomes the majority of the business. So we will draw all the lessons business by business.
And there is, in my opinion, a lot to come from that situation, a lot to learn and It will accelerate the transformation of our bank as it will accelerate, in my opinion, the transformation of the global sector Banking, hopefully. So we are quite confident that we To deliver those cost cutting in a recurrent way.
Yes, Tarek, maybe on the macro view that you talked about on the cost of risk. So what we took into account is a gradual normalization By the year end, that doesn't mean that GDP is back, right? It just at that moment, we will start to normalize. For example, we assume that GDP could be reaching the 2019 levels, but not before the end of 2022. And so that is basically the models.
The only thing in our model that we had to specify is The guarantees that have been installed in the countries that we talked about. And so that is basically how we apply and that is how those parameters will evolve. Let's be very fair, the deconfination like in Paris is starting gradually only next week. I don't know where you guys are, but if you are in London, It is maybe a bit later. So we'll have to see how that gradual normalization unfolds and how that impacts going forward.
I'd like to stress at this point that we should not Try and look for function cost of risk being a function of the The size of the recession of this year in the Stage 2 of IFRS 9, it's about the losses expected losses until the end of Each loan. And so, first, it depends also on the recovery, the shape of the recovery, which will occur In 2021, 2022, hence the comments of last thing that we have taken a scenario where The level of GDP of 2019 is only back at the end of 2022 and kind of U shape Scenario. The second thing is that even all those macroeconomics Only a small part of the ingredients that have been put in the machine in order to get View of the cost of risk in the future, because it's a view that with the same macroeconomic growth and conditions, Two banks with very different business profiles will have very different level of cost of risk. And so the nature of the assets, the nature of the activities that are conducted More important than the well, at least as important As the macroeconomic figures and to that respect, again, we insist on the fact that Our business model is very diversified with a certain number of important businesses, which have very low cost of risk.
For example, Security Services has almost zero cost of risk. We have the private banking, which is one of our 1 point has a very low or nil cost of risk. So we have many businesses, insurance, Well, there is no cost of risk at all almost. So those elements have to be taken into consideration. And hence, The fact that we as Lars said, that we have built a relatively complex model and system, which It has been looked at by the SSM, by the way.
And in order To answer the to be able to provide our supervisors with figures on the stress test And that we are using for all our forward looking exercises, be it the budget or be it The IFRS 9 or any kind of projections in the future?
Thank you very much. I'll just throw my leg for follow-up on the cost of risk. I mean, because it's very important element in terms of your guidance Overall for the net profit. Would you be willing to give a range in terms of basis points or in absolute numbers?
No, the range has been given on the net. I think because there are a lot of moving I'm sorry, but there are a lot of moving parts. There are some uncertainties on the revenues as well, to which extent are we going to lose fees that are based On volumes or based on values, to which extent are we going to make more net interest income Due to the volumes we are going to generate. So they are moving parts in the Top line, the cost, we are going to increase our savings, To which extent are we going to be able to do it within 1 year? There is also some uncertainty there.
There are uncertainties to a certain extent In the cost of risk as well. So at the end, rather than putting a lot of figures, we have preferred to give you The kind of range on the net net, which we think is already relatively, I would say, maybe courageous, brave, maybe even. And given the circumstances, there are not that many banks having said that. And we prefer to speak to that guidance, which is at the end the bottom line, so the most important one.
Thank you very
much. Thank you, sir. Next question is from Mr. Matthew Clark from Mediobanca. Sir,
So two questions, please. Firstly, on your CET1 Outlook, could you just talk in a bit more detail about the risk of rating migrations providing headwinds? That's something that some
of your competitors That doesn't seem
to be something that's implicitly concerning you given the flattish CET1 outlook. So maybe you could explain why that's not a concern for you, if that's the case? And then secondly, on the cost The risk, you're flagging an increase this year. Could you give some kind of commentary on what you expect next year? Should it be normalized by Jira, is the IFRS 9 effects wear off?
Or would you expect it to still be elevated at a similar level in 2021 as Yes, you're expecting in 2020 even if
you enter what that level is? Thank you.
Core Equity Tier 1, I mean, say, one of the key element is the impact of, It's a market related activity. Maybe the difference in the evolution compared to Sao Pius is 30 bps coming from BNP. But if you compare to, for example, SocGen in terms of bps, the decrease is very much the This is very much the same. So I don't believe we have something that is that different.
It's more about going forward rather than the first Quarter. So as the year progresses, presumably, you will have to update your models, and that will show a deterioration in the fundamental prospects So
the businesses that you led me to?
So Philippe will tell you.
No, yes. You're right that we are also taking into account Some rating migrations, one last enumerated the positive and negative. Maybe you forgot this one, but yes, indeed, there is this one as well. But all in all, we still Consider that the positive elements should help absorbing the negative ones. Indeed, at the end of the first quarter, We had a range of negative impacts that are all coming all at once And that are due to the largely to what happened in March and at the end of March.
And that normally should Come back progressively, the 10 bps on value at risk, for example, like Jean Laurent says, Typically, it's due to the extreme volatility in March. And by and as you know, the way it's calculated, It's going to be progressively withdrawn of 1st less and less weighted in the calculation And it's going to disappear after 1 year completely, assuming, of course, that there is no other crisis in In the meantime, of course, this is a prerequisite, of course. The same for counterparty risk, which the counterparty risk increase, which is another 10 bps, It's due to the fact that because of the big changes in the values in March beginning of April, The derivatives have moved a lot in value and hence the counterparties has Increased because of the net present value of the derivative. But with time elapsing, these net present value are going To be progressively going to 0. And given the average maturity of our OTC derivatives, within 1 year, it will also be quite negligible.
And the prudent value should come to 0 as well. Here it's For regulatory reasons and also because it's linked to the volatility at the moment of the closing. And then all the impacts on the OCIs are also partly probably going to come back Or at least to be somewhat mitigated. So we have several plus the software Adjustment to the regulation, which is underway, which has been voted level 1 tax. So now it's just a question of being That being put into force, and it is announced for mid June, if I am right, because it has been well, it's Going to be anticipated rather relatively early this year.
So all this creates several positive impact on the common equity Tier 1. And we view the negative ones that are going to come, including rating migrations As well, relatively not overwhelming the positive ones at least. The migrations, I would like to stress that we are, of course, according to the regulation, by the way, we are our ratings are through the cycle. So they are supposed they are not supposed to change each time. There is a hiccup in the this Shock will necessarily have some consequences on certain companies.
But again, Well, our analysis of our loan portfolio is such that We don't see that as being a big movement in the next months.
Thank
you.
Thank you, sir. Next question is from
Just to come back on the question on cost of risk into 2021.
Normally, if you assume that 2022 kind of Back to normal, 2021 will stay at a kind of high level. It's early to say if this level will be just the same compared to 2020, of course, looking at the new accounting norms, normally 2020 is a kind of maximum and 2021 Should be slightly below, but this will very much depend on the real scenario we'll be in. But If the 2022 is the back to normal year, 2021 as a consequence, We see still a kind of high level cost of risk compared to, I would say, the through the cycle normalized cost of risk for
Very clear. Many thanks.
Thank you, sir. Next question is from Mr. Kiri Vijayar Yarajah from HSBC. Sir, go ahead.
Yes. Good afternoon, everyone. A couple of questions on capital, if I may. So firstly, On the ex anti provisions that you're taking, just what are your thoughts on taking advantage of the IFRS 9 transitional rules, holding back Some of those provisions from actually hitting your regulatory capital, giving yourself a little bit more flexibility to maybe more to be more aggressive on some of those Provisionings going into this cycle. And then secondly, just really clarification on your Slide 16 on capital And the minus 20 bps you show from supporting the economy, just some color on what's driving that minus 20 bps Through risk weight asset inflation.
And importantly, is there more of that in the pipeline as you presumably as you support the economy further? Thank you.
Yes. Kerik, first, On the IFRS 9, so what if you look at the evolution of our common equity Tier 1, we've given the main drivers. And then we basically said That all the other effects basically cancel each other out. So what we've done is that as there are some new kind of rules when it comes to securitization, which are Phasing in and which are increasing a bit the risk weighted assets. We've also phased IFRS 9 to basically iron out all those regulatory investments.
So yes, we have faced IFRS 9, but the impact on all of these elements coming into play are basically 0.
On Slide 16, the 20 basis points, there are the The risk weighted assets associated with new credit that we extended towards the end of March in order to support Our clients, we had a lot of underwriting of new syndicated lines, underwriting And this created risk weighted assets at the end of March. Part of that indeed has been distributed Beginning of April, the pace of new underwritings has slowed down somewhat and probably Slow down further. So part of this will be somewhat eroded, I would say, in June. But another part is going Stay because we have also some final takes. And this one and The support to the smaller companies is going to get into force during the second quarter.
It has already started Quite rapidly. Of course, it's guaranteed by the governments to the tune of 90% or 85% depending on the countries. But still there is a part which is going to remain at our risk and so that's going to feed some additional risk weighted assets. And so this is why we consider that this part of the risk weighted assets should rather go up, up probably In a limited way, but still the trend is somewhat up probably during the course of the year.
Got it.
Thank you. Thanks, guys.
Thank you, sir. Next question is from Madame Abdura Guelfi from Citigroup. Please go ahead. Hi, good afternoon. I have a question on
the government guarantee scheme and how the profitability of this new lending will compare with Stability of the existing lending. And then the second one is way more general, but I can see how The resilience has been your balance sheet, your capital and the high level of pre provision profit. But then you think that the lack of Transparency that you are providing in terms of the moving parts of 2020 will put you in a disadvantaged position versus banks that maybe are weaker than you in terms of balance
I'm not aware of banks that have given Such a clear way, the guidance for the entire 2020 year. So if you find one, tell me
I'm talking about
Sorry, I'm talking about the details. Yes, Francois.
Give all the details, but not global guidance. If I may, you are not giving anything. So we are among the few, maybe the only one that have given a clear and full guidance in 2025,000,000. On guarantee schemes, it's very simple. The part that is guaranteed is risk free in terms of risk weight.
So it's away from the balance sheet in terms of core equity Tier 1 and capital consumption. And the liquidity that is behind to finance that But most of it most of it is coming from the Central Bank. So it's a kind of It's not the bank, but to some extent, it's away from the bank because it's a kind of free equity portfolio. And second, the liquidity necessary to finance that portfolio is coming, let's say, Most of it from the Central Bank. So it doesn't have any effect on the profitability of the bank No, in a positive way, no, in a negative way.
It has obviously a strong positive impact on the underlying economies because it ringfirms those companies. And most probably, ultimately, It reduces the cost of risk of banks that are operating locally in those economies. So if you look at the pure P and L, net banking income, no impact. If you look at the Cost of risk on that portfolio, no impact. If you look at the equity side, no impact.
But globally, it Improves the quality of the global portfolio of those banks that are operating under those schemes. So ultimately, to some extent, It limits the impact of the crisis in terms of cost of risk in those local economies. And clearly, those schemes are very efficient in Germany, France, Italy, Luxembourg. And this It will help obviously keep cost of risk at a very acceptable level in terms of bps. It's globally, I would say part of the game.
And so the impact cannot give you the Profitability, the regular way for portfolio in a bank, but it's an indirect impact on the quality of the franchise And the economy you are operating in locally in any country that is benefits from that The type of scheme. And you can say just the same in California for Bank of the West under the federal scheme. And you have the same in Poland. To some extent, you have something that is equivalent in Turkey.
Yes. To fully understand what Jean Laurent says, I would like to add that you have to bear in mind that, of course, Each bank in those schemes, each bank is supposed to bring its own clients. So we are going to so it's designed in order to help normal companies that would be Affected by the economic environment temporarily and that has to be helped to bridge The bad period and to go through the crisis and resume their activities in a normal way. And we are going to bring our own existing clients. And again, we feel that The client franchise is very healthy that we have in our different countries.
And so it's going to help really keeping the cost of risk at a low level as Jean
Thank you, madam. Next question is from Mr. Jean Pierre Lambert from KBW. Please go ahead.
Jean Pierre, You've left us.
You're in mute. I'm there. Can you hear me? Sorry.
Yes, yes.
Okay. Apologies for that. I have questions related to the guarantee schemes, two questions. The first one, how are the guarantee schemes integrated In your expectation for loan loss charges, is it in the probability of the scenarios? Is it in the loss given default?
Or is it in the Higher GDP or higher recovery, if you want, of the economies. Just how you do use this from a methodological point of view? The second question is on your tactics for the use of the guarantee. If you look at the cursor of internal rating, Which band you target for these guarantees? Does it make sense to get these guarantees for highly rated customers?
Or The middle of the range, which could fall into Stage 2 or Stage 3, yes? How do you see the tactical allocation? Thank you.
There is no tactical allocation. There are rules depending on the different Please, in Europe, under the strict control of the European Commission, which means you do not grant that loan stock To companies that were, I would say, fragileized before the crisis, they are strict rules. So the tactical, I would say approach is not part of the game. Basically, through those schemes, you are helping companies That we are very much sound before the crisis. Then you have a few exemption for maybe larger, I would say, Companies in any country, but this is more like kind of a restructuring tool to help restructure a certain situation.
So there is nothing that can be considered tactical. Looking at the impact For the time being, not considering or not computing those schemes In our scenarios, because it's too early to say. Maybe what we can say is that, To some extent, those schemes protect those underlying economies. And Instead of having in a worst case scenario something that is really bad, we have something that is slightly more acceptable. But looking at, I would say, our guidance, those schemes are not, let's say, computed in or factored.
We know that they are existing. They are processes. They will help, I would say, ring fence this Underlying economy, most probably to make it short, it gives confidence to the fact that in 2022, It can be back to, let's say, 2019 in terms of absolute terms. I mean, It's a kind of ring fencing of the economy. And most probably based on this, the local economies will be Less fragilized by the crisis and the ability to rebound in 2021 will come sooner.
And then as such, The reboon can be completed in 2022.
Great. Thank you very much, Roger.
Very shortly, increase seriously the probability of seeing in 2022 The kind of normalized economy compared to 2019.
Perfect. Thank you very much.
Thank you, sir. Next question is from Mr. Omar Fall from Barclays. Sir, please go ahead.
Hi, good afternoon. Just a couple of questions. So firstly, specifically on personal finance, Could you give us a sense of how much state support could apply to this business Fine. And it's various forms. I mean, I'm assuming not very much compared to the networks.
Is that fair? And how much have you put in place in terms of moratorium programs in this business so far, if any? And do you plan to do so? And then second question, sorry, a bit boring, but last Corte, you very helpful. You gave us guidance on potential exceptional this year from real estate sales and adaptation and It seems the real estate gains you've done a big chunk of that and maybe you're running at a slightly lower run rate for the costs.
Could you just confirm that within your full year profit target, the EUR 15,000,000 to EUR 20,000,000 you have those initial Numbers, the €500,000,000 of gains and the restructuring costs as per before? Or you've made some changes because maybe you've seen Some more gains than you could do. Thank you.
For that second part of your question, I mean, Jens, looking at disposal of buildings, are going to be exactly the one that Forecasting at the beginning of that year, so we can only confirm that one. And anything that is restructuring costs, we can only confirm It's your guidance that anything that is that we currently call exceptional items, which are not that exceptional compared to the Current crisis, but those items we were accustomed to describe as exceptional are going to be very much Clear online, in line with the initial guidance. For Personal Finance, Lars We'll give you maybe some more details, but we have to understand that it's a multi domestic business. The approach In that domain, it depends very much on the local, I would say, jurisdiction, Moratoria, especially very much depend on the local approach And the underlying business can be slightly different in different countries because the business model is Yes. Exactly the same in the country.
So maybe Lars can Some more details, but it's more difficult to explain Personal Finance on average at that moment of the cycle.
Yes, indeed. So let's say, the large scale moratoria like that what we have seen in France or what we see in Italy, which is applied to the corporates and SMEs, is not something which at large, let's say, is Available in that activity. So it is more something that the bank is looking at how to handle. Then again, that depends On a country by country basis and depends also on the kind of product, the collateral, the guarantee that is in place. And so that is why the overall impact, if you look at the cost of risk of what we've taken up in the looking forward, is in personal finance, A material part of the cost of risk outlook, whereas for our domestic markets, it is a minor part.
And just as a follow-up to that, thanks for that. I guess you're very busy looking at All the parts of the portfolio, you have concerns everywhere, but specifically personal finance, the short duration of the book, Is this an area that you think that's very much at the forefront of your mind in terms of stress? And then how would you look at things like the used car market, which clearly has an impact on this business as well?
Yes, there's 2 things. So when you look at it, indeed, if you look at the efforts that are being done to be close to the To see how we can evolve, that is in particular the most intense when you look at personal finance compared to the other domestic markets, Given the turnover, given the duration. So that is clearly the case. And so that's why, as I said, it is a big part of The forward looking cost of risk. So I'll leave it to that, Omar.
Thanks so much, Lars.
Thank you, sir. Next question is from Madam Julia Miotto from Morgan Stanley. Please go ahead.
Thank you. Hi, good afternoon. Two questions for me. 1 on cost of risk and 1 on capital, please. So on cost of risk, could you please Quantify what percentage of your loan book is, at the moment, affected by payment monetalia and whether you are already provisioning for some of these or you are taking approach that This just depends on COVID and hence once the crisis is over, you will get these payments.
So you just accrue the revenues and wait until the end of the moratoria. So that is the first question. And then the second question, so we have discussed potential negative movements to capitals, but I would like to ask you, could you please quantify the positive impact that could come from the European Commission, Wide ranging set of measures recently announced. So the intangibles that you were referring to, the SME and infrastructure Sure, supporting factors, for example, so that we could have an idea of the magnitude of these as well. Thank you.
Okay.
Yes. Maybe when we look at the impact Of the moratoria, it is if you look at the picture of our balance sheet at the end of the Q1, It's a tad too early to basically see those movements. It depends also a bit country by country. So if you take, for example, Belgium, where there has been a big Flux, when it comes to mortgages which fall at the same time, which have been done, there is a high number of that being applied. So but it's a bit just a tad too early to give that number.
But you're right, when it comes to How we see the moratorium and how to evolve, it is of course, we're also looking at the period thereafter. So that is why We and when we look at the cost of risk, we look at the sectors in which they are active. Some sectors will probably rebound post COVID Stronger, there are others that will rebound slower, and that are elements that, of course, we take into account in our provisioning of the cost of risk. As Philippe, I said earlier, it's just not mechanical. We look at all of these aspects.
When I go to your second question on The potential positive impacts of what Europe is doing and what it means for us. So if you look at what we have guided, Depending on what the exact final shape and form will be when it comes to aligning Europe, when it comes to software On the U. S, so no longer deducing that from the capital. For us, that would be something like the equivalent of 20 basis points. When we look at the SME supporting factor, that would be in the range 5 to 10 basis points.
And then there is also a thing called the IPC, the revocable payments, Which could be up to 10 basis points. So that is a bit the effect that these kind of measures would have on BNP Paribas.
Thank you very much.
Thank you, madam. Next question is from Madam Anke Reingen from Bank of Canada. Madam, Go ahead. Yes. Thank you very much
for my question. Just following up on the capital question. Just to confirm, the 12% does not include any assumption of a TRIM hit? And should we basically assume The 12% is the target and you basically adjust your payout with respect to financial year 2020 and potentially 2019 Regarding where you land relative to the 12%. And then just lastly, I guess on the capital So, Wafaa, you gave Henri the slides on the different levels to MDA.
And obviously, it doesn't seem to see CET1 ratio. That's the constraint. But On the Tier 1 and total capital ratio, am I missing something? Or are you considering closing the gap so that the CET1 becomes a binding constraint? And then maybe just lastly, do you have any thoughts about the recent announced TLTRO and if you would be interested in picking up Any more or just rolling over?
Thank you.
To start just briefly, TRIM up to now has not considered that much. We have gone through a process. TRIM is a multi tiered process with inspections Going on the different types of models, so we have already gone through a certain number of TRIM Visits and up to now the impact has been in total relatively limited. And so we have never been you remember, we have never been really afraid by the TRIM consequences. And up to now, we have been right.
And in any case, TRIM visits have been stopped by the ECB in that moment, Well, probably also for operational reasons because it's difficult to have a TRIM inspection without Being on-site. And so and we don't expect that to resume really in a significant way before the end of the year. So the TRIM question anyway would be a result question for 2021, I believe. Then I would like to Percent payout ratio. The only thing is that the SSM doesn't agree with that.
They have stopped us. So at this stage, we are there. We say that we would like to distribute 50% of our results, Our 2019 results and then our 2020 results. And we wait for their decision in October because I understand that they have said that potentially in October they will review their recommendation. And so we are We cannot give you we don't know more than you know.
You know exactly everything. Well, we want to pay a 50 percent payout ratio for the 2020 plan. And the only thing is that we have been prevented from paying it This time, we're basically being prevented and
so we postponed on the 2019. But as you have seen in our presentation on the first Quarter results of 2020, we set aside 50% of the earnings for dividend. So that is to confirm that we remain on that trajectory. When it comes to your question on the MDA, so the MDA is the distance in euros that if you would Drop that amount of capital, you would be prevented from paying coupons and the likes. And so that MDA has to be calculated On common equity, on Tier 1 and on total capital.
And so indeed, in the past, it was measured on the common equity Tier 1. What you see now is that with Europe advancing the rule of part of the P2R, which used to be fully in common equity Tier 1, As that has now been moved into the Tier 1 and the total capital, the calculation of the binding concern on the NDA is now on total capital, And that is the $15,000,000,000 distance that we have. So we are very comfortable on that.
On TLTRO, please.
Well, TLTRO, we well, each Type of such, I would say window, new window is carefully looked at. As you know, it is not blank loan. It has to be collateralized With certain type of collateral, we try and take the best of each type Window of that kind. So we don't exclude to indeed to use the new Teltro or the additional Teltro that has been opened. And at first glance, we don't think to use the PELTRO, which is less favorable.
Thank you. Thank you, Madam. Next question is from Madam Lauren Quares from UBS. Madam, please go ahead. Hi, hello.
Good afternoon. Thank you for taking my questions. Just a few things from me. The first one is, as you said, it's quite remarkable and a brave move to provide us with a guidance for this year Income and given there is so much uncertainty and it's also not so easy to cut cost in such a period of time, I was wondering what else you could do to And the P and L, if needs be, you already announced some real estate disposal this year, and I was wondering if There were already some other options you could have identified, again, if needs be. Also, with regards to the equity performance, I was wondering whether this could lead you to review your product offering in equity derivative.
And finally, on the leverage ratio, just wondering how low are you going are you ready to go to support the economy? Thank you.
Thank you for your comment on the quality of the guidance. Daf?
Yes.
If we look at if I start from the leverage. So let's not forget, leverage today, The regulation says that we have to be at 3%. We typically hover around 4% during the 1st quarters of the year, Given the additional production that we have done this Q1, we are at 3.9%. So Don't get me wrong, but so the leverage is not the metric by which we stay at the bank. We do it on common equity Tier 1, and we are structured in such a way That leverage remains where it is.
So that is basically that point. When on that brief guidance of 2020, as we said, the main thing That gives us a bit of comfort is that in the moving parts, you have the cost of risk on the one hand, but on the other hand, you have the cost. And the cost, It is not a magical bullet that we fire. It is something that we had in the wings. It is part of the plan, of the plan ending in 2020.
So that is the kind of levers that we are putting in place and that we are strengthening. So that's basically that. When it comes to equity, what you know is we are in the process of Equity and Prime Services of Diversifying further that activity. So that activity that we have is fine. We are strengthening this with bringing on board the activities That we have acquired from other players.
So, Lorraine, that would be the 3 answers.
Thank you, madam. Next question is from Jean Francois Noel from Goldman Sachs. Sir, please go ahead.
Hi, good afternoon. I have just one question, and it relates again to your outlook. In a sense, if I take a step back and I look at what the market thinks of your shares, in a sense, this is trading at less than 40 3% of tangible book. Going into the results, we are probably consensus expectations are for much higher provision than what This guidance implies and it's not taking much notice on the new elements of measures cost of risk increase And of the potential resumption of dividend, in particular, following the suspension that was decided earlier into the COVID crisis. So obviously, you have a unique perspective of your own business and of the quality of your book.
And I just wanted to know What do you think you can share that would help reconcile essentially these two extreme views, one of which Essentially, your cost of risk or your profitability implies something which is nowhere close to what's better in 2,008, once the market is taking a completely different view. Or maybe in converse, what does make you think if you have to think a second time about the outlook and take into account what the market implies
Well, you have very much to look at Page 12. These are numbers and facts That's right. The kind of long term observations. So we believe that the group operating in So many different businesses, geographies is moving for years in a very disciplined way. And then you You believe this is real and it seems that it's real.
If you look at Slide Page 12 or you believe that we are very much on average. If you believe that we are very much on average, it means that you are not looking at BNP Paribas. It's as simple as that. There is No, as a point, this is the basis of the difference. And it seems that any bank, a certain region, Talking of Europe, it's considered the risk side basically on average.
Everybody, as long as I can look, read, understand comments coming from experts, analysts, and Sean and Sunday, They are all looking at the situation on average. In fact, there is no difference made In between platforms, it's just a reality. Remember, the way it goes. So you consider It's a certain discipline that is derived from a very diversified model, which puts the group in a situation It shows us every day to balance one loan against another one coming from Difference of your business in terms of quality, so you believe this discipline really exists At group level, I mean, our businesses, you believe this just doesn't exist. So if you consider the group on average, You get an average, I would say, results.
This is basically the difference. And if I may, it's very much I said Page 12 that you can measure a certain difference. And I'm not saying that this will stay from paper. I'm just telling you that this discipline is in place at group level For a number of years and we never lost that discipline. So most probably again in that crisis, It should make a difference.
So this difference will explain a certain, I would say, Positive impact in our favor compared to average looking at cost of risk. And if I may We've been aware for certain filing in Singapro that is costing the range of €2,000,000,000 to potential banks. We are not part of it. We are not part of it because back in 2012, we exited that counterpart because we are just lucky. So there are so many situations.
We are giving up revenues, nice margins because We tend to grow a kind of low risk approach to our different businesses. Of course, this is a new crisis. This is a crisis of a new type, kind of as precedented situation. So you never know. But this discipline ultimately will be represented in the cost of risk.
Okay, excellent. Is there anything else?
Yes. Maybe another way to look at it, Jean Francois, is that When we Lars said that already, but I will tell it another way. When we say that the guidance for this year now is minus 15% to 20%, It doesn't mean that the impact of the crisis is 15% to 20% because it's rather 25% to 30% because we were supposed to improve in that last Year of the 2020 plan and given what we have said about our targets, we were supposed to improve from 2019 to 2020 before the crisis To improve by 10% roughly the net. And so instead of increasing the net by 10%, we are seeing that It's going to go down by 15% to 20%. So the gap is bigger than it seems if you just compare 2019 2020.
Okay. Thanks. That's a good clarification. Any
major reconciliation maybe.
Thank you, sir. We have one last question from Mr. Pierre Desville from CEC. Sir, go ahead.
Yes. Good afternoon. Can you hear me?
Yes.
One question regarding insurance. As you are Credit insurance creditor insurance leader, I would like to ask you whether You see the combined ratio evolving on this specific line of product? And also what is your if you give it, I don't know, your solvency ratio on insurance Because generally, you don't give it. But regarding the circumstances, maybe you will make an exception. And my second question relates to the cost of risk and more generally to this specific situation where you have more than 130,000 people working remotely.
Do you think that you will have Come back to a normal situation after surprises? Or are you engaged in, I would say, a longer term reflection Regarding the way you manage your organization and in terms of Working organization, deleering, for instance, and that could result in Additional economies. Thank you.
Shall I start on insurance? So you're absolutely right. When it comes to non life, Combined ratio is a very important metric. And with what we're living today, there will be an impact, of course. When it comes to solvency, as you know, solvency as insurance is part of the group, there is a total aspect.
And so in particularly, the solvency, Indeed, on Cardiff, it is not a metric in particular. But as you can imagine, it is Well positioned, as you know. So we are well above where we have to be at a minimum. So that is basically the two points on insurance. On remote working?
Well, on remote working, we believe that well, first, we are surprised by Our capacity to extend work from home as fast as we did and as successfully as we did, And not only ourselves, I mean it was I think most of the industry has more or less done the same, Which shows that, well, probably we could do more in normal times. We had introduced work from home To the tune of maximum 2 days per week before the crisis and in practice, it was rather on average One day per week that was chosen by our team members. Then in the progressive freeing up that we are going to leave, we intend to Put back people at work in the office only very progressively, very gradually. And probably we will not come to the back to the previous situation. At the end, we should while it's likely that We will find a balance with more work from home even in normal time, probably not 5 days a week like today, but probably more than one day a week like before, probably something in between.
I don't know exactly What's going to be the right balance? It will probably be different from one business to another. It has to be tested, I would say, in a very decentralized way. But eventually, I agree with you, we'll end up with probably more work from home than in the past, Which will entail certainly new savings, especially in terms Of buildings and premises.
To give you an example, today, we are gathered in the boardroom of the bank. So We are 4. Between us, they are, let's say, 2 to 3 meters distance. Usually, we are 12. So we have a good potential in terms of cost cutting.
It's not a joke. I mean,
it's just the fact that in the digital universe, We can deliver a number of services that are much more fluid as long as the counterpart Like you, I would say can accept that kind of an interface. And clearly, This happened. This was basically at the very center of the next term plan, how we can push How far we can push the digital model, the online approach and get rid of the former, I would say, Physical face to face type of integration that is useful from time to time. That cannot be anymore The bulk of the relationship for a very simple reason is that trades, payments, everything, day to day banking is delivered On nights through Rotomat, through so we have to take the measure of that the full measure of that situation. And businesses by businesses, processes by processes, we have to deliver.
In 3 weeks throughout Europe, From U. K. To Nordics to Poland to Southern Italy, we delivered 50% of all the underwritings for large companies, 50%. And we were the lead bank in 70% For bond origination, well, it means that we've been extremely efficient. Otherwise, I would say it doesn't comply with the regular way of delivering the bank.
So we've experienced a very unique situation, and we have to draw the lessons. Of course, this situation cannot be, I would say, the model because clearly, It can be sustained to some extent in a limited for a certain limited period of time. But I would tend to say that most probably Half of it, even 2 third of it, can be, I would say, return in the midterm, meaning the 2, 3 years to come. And this clearly will have an impact on the efficiency of the bank to be reinvested most probably in As a value added type of services or products. So and clearly, Because also through that moment, we have measured, I would say, the satisfaction of our colleagues working from home.
We have developed, I would say, tools just to keep track their satisfaction at home. The results we're getting are much better than the one we're getting usually. So it means also something is that, that way of moving And delivering the bank is also, to some extent, more efficient also for our staff and our colleagues. And from that, you can also deliver additional level of efficiency, test satisfaction, quality and so on and so on. So nothing can be, I would say, built in just 2 months.
This parenthesis gives us, in my opinion, a unique View, unique observation, unique experience of what we could stabilize for the years to come In that new universe of banking and online services, knowing that, of course, face to face relationship You stay at the very heart of the bank because there are a number of services or situation you can only, I would say, deliver We consider the kind of face to face approach. So well, this is the To some extent, this is also a unique opportunity for this industry for banking, insurance, Financial Services, and it will push us that direction with an extremely strong momentum To be convinced because we are seeing that situation every day. So the question is not to be convinced. The question is not to believe yes or no, we can deliver. Yes, of course, we can deliver.
Clearly, we will have to adapt some systems, some processes to make it happen on a regular basis. But what we've seen recently and what we currently see for us and I guess for a lot of other banking platforms is full of SKIM platform is full of potential. I'm not saying this is going to be easy, but the potential is there. And now we will have to deliver it in a more, say, a recurrent way. And again, I'm not saying it's simple, The day you can see the potential, I would say, a better chance to deliver.
Thank you very much.
Very good question anyway.
And a good question to Wrap it up. If there are no further questions?
We have no further questions.
Okay. So thank you. We'll close the call. And thank you for having there with us In these remote times and well, we hope to have Opportunity to see you in person soon and take care of yourself in this period. All the best.
Thank you
so much. Take care. Stay safe. Bye bye.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.