Good afternoon, ladies and gentlemen, and welcome to the presentation of BNP Paribas First Quarter 2018 Results. For your information, this call is being recorded. Supporting slides are available on BNP Paribas IR website, invest. Bmpparibas.com. I would now like to hand the call over to Lars Masionea, Group Chief Financial Officer.
Please go ahead, sir.
Thank you. Good afternoon, fine ladies and gentlemen, and welcome to BNP Paribas' Q1 2018 results presentation. I hope you've all got a copy of the presentation in front of you, because in my usual way, I take you through the first two chapters and then hand it over So starting with our key messages on Slide 3, you'll see that business activity continued to progress well in the context of economic growth across Europe. This was illustrated by the group's 2.7% growth in loan outstandings compared to the Q1 a year ago. When we turn to revenues of the operating divisions, they were 1.4% lower on the back of a negative ForEx effect, especially due to the U.
S. Dollar depreciation over the period and the less favorable market context for fixed income activities in Europe, again compared to the Q1 2017. Nevertheless, the economic pickup saw Retail Banking and Services divisions grow its revenues by 2% year on year. If we turn to costs of these operating divisions, they were 1% higher, but stable Net of the impact of the increased annual taxes and levies that you know are fully accounted in the Q1 and this per IFRS CET21. The cost of risk at group level was still at a low level, equivalent to 32 basis points over outstanding, which is essentially in line with what we saw in the first quarter of 2017.
The group's net result clocked in at a solid €1,600,000,000 just 3.8 percent lower than the same quarter a year ago and this net of exceptional items and the impact of the annual taxes and laddies. I also draw your attention to the drop in corporate income tax. It stands at 27%, which is a structural drop of 2 percentage points and this on the back of the decreases that have been noticed both in the U. S. And in Belgium.
So these solid results of EUR 1,600,000,000 are in line with the trajectory of our 2020 business plan. I remind you that in that 2020 horizon, We have an ROE objective above 10%, which if the current outlooks materialize will be closer to 10.5%. So having just mentioned these exceptional elements of the quarter, I would like to kindly ask you to advance to Slide 5, where you can see that they were moderately negative this quarter, whereas they had been moderately positive a year ago. In fact, after tax, they impacted the Q1 to the tune of minus €56,000,000 versus a positive impact of €76,000,000 the year before. So if we now pick the next slide, which is number 6, you can see the impact Of the higher taxes and contributions accounted this quarter for the full year as per IFRS 21.
The total amount increased by a tad less than 1 €100,000,000 compared to last year from €1,000,000,000 to €1,100,000,000 For your guide on a yearly basis, The increase should be limited to €47,000,000 as €33,000,000 were booked in the Q2 of 2017 and are now crystallized in the Q1. As a reminder, these taxes included in particular the 572,000,000 Euro contribution to the Single Resolution Fund, which stood at €469,000,000 a year ago. If you now can swipe to the next one, Number 7, you can see the performance of the group and of the operating divisions in the Q1. I draw your attention to the fact that Pretax income of the operating divisions excluding this, IFRS 21 was minus 3.6%, which is in line with the minus 3.8 percent of net income excluding exceptional items and these taxes. So net income held up well and equated to an annual return on equity of 10.2% excluding exceptional items or 11.9% in return on tangible equity.
If we now zoom on the revenues Of the operating divisions and for this, let's turn to Slide 8. You can see that They were impacted by negative ForEx effect that I mentioned. They were up at domestic markets on the back of good business development, which was partly offset by the low rate environment this quarter. They marked a good increase at International Financial Services, driven by the development of the businesses and this both in an organic and in a bolt on way. But on CIB, they were down 9.8% on the back of the lackluster market context, in particularly in FICC in Europe and this again compared to the Q1 2017.
Now if we continue flicking and go to Page 9, you'll see what I mentioned. These costs of our operating costs, operating divisions are stable excluding the impact of IFRS CET1. In domestic markets, costs were down 0.3% on average in our retail networks, but they were up in the specialized businesses on the back of their continued business development. International Financial Services cost Evolution reflected business growth, while CIB costs marked a strong decrease benefiting from the cost savings measures we've been implementing. If we remain on costs and if you could just swipe to Slide 10, you'll see the good progress we're making in the implementation of our program of new customer experience, digital transformation and savings across the group, so the 3 axis of our 2020 plan.
By the end of March, we've generated a little over €700,000,000 in accumulated savings. In the Q1, They amounted to €175,000,000 and were fairly evenly split among the 3 operating divisions. I remind you that we're targeting €1,100,000,000 of cumulated cost savings by the end of the year and transformation costs Stood at just over $200,000,000 in the Q1, bearing in mind our expectations of $1,100,000,000 for the full year 2018. So as you can see, we're actively implementing our 2020 transformation plan. If we now shift to the next slide in the P and L, namely the cost of risk, And I would kindly ask you to flick through the 3 specific slides on the topic, which start at Page 11.
You can see that the group cost of risk remained at a low level. Taking the businesses one at a time, we see that in Corporate Banking, provisions were offset by write backs this quarter, but to a lesser extent than in the Q1 of 2017. Cost of risk was low in French Retail, Very low in Belgian retail and continued to decrease at BNL in Italy. In other retail businesses Like personal finance saw a low cost of risk, EuroMed's cost of risk was stable at the moderate level, while BancWest was still at the low level. Turning now to Slide 14, which reflects our very solid financial structure, where you can see that our common equity Tier 1 ratio stands at 11.6%.
As we already said, on January 1, The ratio reflected amongst others introduction of IFRS 9 as such starting the year at 11.6%. And as every quarter, the CET1 ratio increases by the net income generated after, of course, allowing for a dividend of 50%. And in Q1, given the impact of IFRS 21 taxes, this effect is basically offset by higher risk weighted assets Not of ForEx and this in connection with the good business activity that I mentioned before. On the other ratios, we have the leverage ratio, which To that 4.1 percent and our liquidity coverage ratio is to that 120%. So all that is doing fine.
On that liquidity coverage ratio, we also express it in the immediately available liquidity reserve, which totaled a whopping €321,000,000,000 at the end of March, half of which is deposited at the Central Banks. If we now turn to Slide 15, where we see that the net book value per share stood at €73.6 at the end of the Q1 compared to a pro form a of €73.1 at the beginning of the year. I remind you this pro form a to reflect the impact of IFRS 9 as we already said. As you know, this is a purely an accounting And it doesn't alter the actual value of the bank nor its profit generation capacity going forward. If we synthesize and if we look since 2,008, the net book value per share has been growing at a compounded annual growth rate, CAGR of 5.3% clearly illustrating the continued value creation through the cycle.
I leave you to peruse the next two slides of this introductory part on which covers our ambitious CSR Policy illustrating, for example, our strong support to the carbon neutrality and also a slide on our reinforced internal control system And would now kindly ask you to advance to the results by division and we start with Domestic Markets on Slide 19. As you can see, domestic markets confirmed good business drive in the Q1 on the back of robust economic growth in the Eurozone. In particular, we continue to see good loan growth in the retail networks as well as in the specialized businesses. This combined with an increase in deposits across all geographies. Taking to Private Banking, it showed a good net inflow in the quarter and Hello Bank attracted 110 1,000 new clients in the 1st 3 months of the year, up 15% compared to the Q1 last year.
Domestic Markets is progressively developing new client experiences and pursuing digital transformations. In particular, it is speeding up clients' use of mobile banking services by releasing new features in mobile payment systems, for example. And to illustrate, there is client acquisition through digital channels now accounts for roughly 1 third of new customers And active mobile users are up 21% compared to last year, so well on track. Now when we Turning to the P and L, revenues were 0.4% higher at close to €4,000,000,000 As mentioned, we saw good business drive in our domestic Market, as I mentioned, the loan growth for example is up 5% in Belgium, 7% up in France. But as expected, we continue to be impacted this quarter by the low interest rate environment.
If we now turn to the operating costs in domestic markets, they were a bit higher due to the already mentioned IFRS 21, but if we look at really the retail networks and we exclude this IFRS 21 impact, We see that the costs were actually down 0.3% on average, while they were higher in the specialized businesses and this on the back of their continued development. As you know, we are of course continuing to simplify and optimize our branch networks. For example, in France, the delayering of the regional management setup is being implemented this year and this along the lines of what has already been done at BNL in Italy and BNP Paribas Fortis in Belgium. This It will shorten decision making process, improve operating efficiency and reduce as a consequence the cost base. Now if we look at the cost of risk, which is reducing in particularly at BNL, Pretax income reached €658,000,000 marking just a 1.5% reduction excluding the IFRS CET21 impact.
If we look a little bit zooming in on the countries of in domestic markets, what can we mention? For French Retail, We showed a good income resilience on the back of good business drive. And particularly, the good news is that the renegotiations and early repayments confirmed the sharp decline since June 2017. Of course, it weighs on this Q1 as we get less renegotiation and early repayment penalties, but means that the revenue evolution should improve in the 2nd part of the year. When we go to Italy, BNLBC's revenues went down, however, with a gradual improvement in business activity and a sharp rise in income, thanks to the continued cost of risk reduction.
If we go to Belgium, the Belgian retail continue to show good business drive offset of course by the impact of the low rate environment this quarter. Finally, the specialized businesses continue to deliver strong business drive. To wrap up, for domestic markets, Slide revenue increase on the back of good business drive despite the headwinds of the low rate environment. If we now take the other part of our retail activity, namely International Financial Services and you advance to Slide 25, where we can see that this division remains a very strong engine of growth. In particular, you can See on Page 25 that loans progressed well at Personal Finance and in our International Retail Banking.
Our insurance and saving business showed good asset inflows And the operating divisions actively implemented their digital transformation as well as new technologies and this across all the businesses. If we look at the P and L, the revenues topped €4,000,000,000 up 3.8% compared to the Q1 2017 And actually 5.5% higher at constant scope and exchange rate with the rise in all businesses. All as the division, of course, we mentioned it before, were affected by an unfavorable ForEx effect this quarter, in particular, the strengthening of the euro. When we turn to costs, they evolved at roughly the same pace as revenues as a result of business development leading to a 3.4% increase in the gross operating income or 6.2% when we look at Constant scope and exchange rate and IFRS CET21. If we look at the other element, the cost of risk, It was €50,000,000 higher than in the Q1 2017, but still at a low level.
As a result, International Financial Services Pre tax income came close to $1,300,000,000 up 4.8% and reflecting the continued profitable growth of this division. If you now again zoom on several of the businesses into International Financial Services and you flick to Slide 26, where we have personal finance, which continue to show good business drive in the Q1. Outstanding loans were up 12% on a comparable basis, thanks to high demand across Europe on the back of favorable economic context and the positive effect of the new partnerships. The business also continued to implement successfully the integration of the General Motors Europe Financing business acquired, I remind you, last year. And it also continued to expand in digital footprint and new technologies resulting in 72% of contracts already signed electronically in its main three markets, France, Italy, Spain.
If we turn to the P and L, revenues progressed by nearly 13% with higher volumes or in connection with the higher volumes and the position on better risk products. Costs grew at roughly the same pace as revenues or 4.9% on a comparable basis and this as a result of the good business development. Cost of risk was at a low level and pretax income reached EUR 373,000,000 up 5.5% compared to last year. To recap, in a favorable contracts across Europe, Personal Finance continued to show Good business development and strong income growth. If we now move to another part, which is International Retail Banking And there let's look at EuroMed on Page 27, where businesses activity continued to progress well as well as deposits in all regions.
Last month on this topic, we announced the acquisition in Poland of the core banking operation Over IFRS and Bank's Polska, this will boost our market share to more than 6% in terms of loan and deposits, reinforcing our number 6 ranking in Poland. This bolt on acquisition is expected to have a positive impact of plus 1% on the group's Net EPS in 2020, which implies €100,000,000 of additional net income in 2020. Looking in more detail at the P and L, we see that at constant scope and exchange rates revenues were up 7% on the back Of this strong volume growth, cost increased as a result of the good business development, but at a lesser pace than revenues. And so overall cost of risk was essentially stable in Europe Meds and therefore pretax income was up 17.6% in the Q1 on a comparable basis. If we now take a plane and fly over to the U.
S, California and we go to Slide 28, where we see that Bankwest confirmed good business drive in the Q1, but in euro terms was of course impacted by a 13% year on year depreciation of the U. S. Dollar. So therefore, if we look at constant scope and exchange rates, loans were up 4.2%, while deposits increased by 9%. The assets under management of our Private Banking marked a further progress of 11.6% to clock in just above $13,000,000,000 On the digital front, BancWest opened some 8,000 accounts online in the Q1 and this is twice the number of the previous year and representing over 20% of total accounts opening over the period.
If we continue to look at the P and L At constant scope and exchange rates, revenues were up 3.5% on the back of the volume growth I mentioned. Costs were kept well under control Enbank West generated a positive 1.8 points of jaws effect. On the whole, given an essential stable cost of risk at a very low level, Bancswest pretax income increased by close to 9% on a comparable basis. Given the unfavorable ForEx effect I mentioned, It was minus 8.5 percent at historical scope and exchange rate. So in a nutshell, good business drive and solid operating performance for GrandQuest, but an unfavorable ForEx effect.
If you could now kindly swipe to Page 29, where we look at our insurance and savings business, which saw assets under management stable versus year end 2017 at €1,051,000,000,000 at the end of March. Assets under management were positively impacted by good net asset inflows in all the businesses, which were, however, offset by negative performance and ForEx effects. If we now focus First, on insurance on Slide 30, which continued to show good business development, both in terms of saving and protection insurance, We saw good growth in France and also internationally, while net asset inflow into unit linked policies marked a further significant increase. The business continued its partnerships initiatives, as for example, in Japan, where we are about to launch new insurance products together With the Sumit Trust network and in France, we're jointly with Matmute, we're launching this month car and home insurance products. In terms of results, insurance revenues were 10.8% higher due to this good business development.
Cost evolution reflected also discontinued development of the business and including a good performance of the associated company's Pretax income marked 13% increase to clock in at €369,000,000 If we now move 2, the last part in IFS, which is Wealth and Asset Management, which you can see on Slide 31, it also showed Good business activity in all businesses. In particular, I remind you that Wealth Management announced the acquisition of ABN AMRO Luxembourg Asset Management Continued its digital transformation using for the first time the blockchain technology and retail sorry, real estate Confirmed significant business growth in particularly in Germany, where it's a leading property service provider. When we look now at the P and L, Wealth and Asset Management revenues progressed by 2.8% and is despite lower capital gains in Asset Management compared to a year ago. Costs increased on the back of the development of the businesses and were impacted by some Specific project in Asset Management and by costs related to, I remind you, the acquisition of Strad and Parker in the UK. Net of these, they were up 4.8% on last year.
When we look at the cost of risk, it was in this kind of activity, normal negligible. As I remind you in Q1 last year had benefited from a net write back of €40,000,000 So as a result, pre tax income stood at €187,000,000 down 13.9% compared to a year ago. Globally, continued Good business development for the business lines of Wealth and Asset Management. So if we just return to the last part of our divisions And that's on Page 32, where we look at Corporate and Institutional Banking, which faced a less favorable market context in Europe, in particularly for FICC and compared this of course compared to the Q1 last year, which had seen a strong client volumes. However, the division continued to successfully develop its business activity and deliver on its 2020 development plans.
As such, grabbing market share and delivering a pre tax return on equity above 18%. Revenues stood at €2,900,000,000 down 9.8% compared to the high comparison base I talked about a year ago and Also being impacted by a negative ForEx impact of almost 3 points in that reduction. Total CIB costs were 4.7% lower versus a year ago and 7.2% lower excluding the impact of IFRS And of course, they benefited from the cost efficiency measures that we've been implementing in the CIB division since 2016 and that have already generated €297,000,000 of recurring savings. CIB, of course, continues To be proactive in this area with the automation currently underway of some 200 processes and the implementation of 3 so called end to end projects, And this is on credit processes, ForEx cash and client onboarding. The last part for the CIB P and L is the cost of risk.
They marked net write back this quarter as in the Q1 2017, but to a lesser extent. So overall, CIB generated €558,000,000 of pretax income, marking a 15% reduction, Excluding the impact of IFRS 21 and this compared to Q1 2017 that had benefited from a favorable context for FICC activities in particularly in Europe. If we now turn to the next three slides, 33 to 35, let's peruse a bit more in detail each of the 3 businesses in our Corporate and Institutional Banking. If we start on Page 23 with Global Markets, whose revenues were down 14.6% as the pickup In volatility seen from the end of January resulted in a wait and see stance by European fixed income clients. However, also with an increase in volumes in Equity and Prime Services.
If we look at FICC revenues, they were actually down by 31% compared to a very high base a year ago, which I remind you had strong client volumes in Europe. We confirmed our strong positions on bond issuance and we ranked number 2 for all bonds Issues in Europe and number 8 for all international bonds. If we now turn to the other aspect, namely equities and we look at their revenues on the other hand, They showed strong growth of 19.3% and this on the back of higher client volumes in equity derivatives. If we now look to the 2nd part of Corporate and Institutional Banking on Page 34, and that is Corporate Banking, revenues there were impacted by An adverse ForEx effect for 5.7 points and so they were down by 8.8%. But as I said, 2 thirds of that on the back of this adverse ForEx effect.
And also remind you that the Q1 of 2017 included a high level of fees due to several deals that were closed that quarter. Corporate Banking revenues, if we look at areas were lower in the Due to this ForEx effect, but also due to the decision to stop financing non conventional oil and gas. They were slightly lower in Europe and they increased in Asia Pacific. When we look at transaction banking, they showed a good performance in Europe and in Asia. In particular, we strengthened our client positions on large corporates in Europe, where the penetration rate in cash management reached 41% And that of Corporate Banking arrived at 65% according to the latest Greenwich survey.
To round up this corporate banking, let me add that the deal pipeline is quite good with several significant mandates That should be executed in the coming months. So if now to close off Corporate and Institutional Banking, if we look at Slide 35 with Security Services continued to gain significant new mandates as for instance with International Capital Intermediate Capital Group and finalized its strategic partnership with Janus Henderson in the U. S. With $138,000,000,000 of assets under custody. In the Q1, the business line also announced the acquisition of depository banking businesses of Banco BPM in Italy.
Moreover, Security Services continued to develop joint offers in cooperation with global markets in areas such as execution and netting of derivatives and in collateral management. So wrapping up, Corporate and Institutional Banking was impacted this quarter by a negative ForEx impact and by an adverse comparison base in FICC, which shifted from limited client demand in Europe in 2018, whereas it had been particularly good in Europe the year before. However, the division is continuing to successfully develop its business activity, Strengthening market positions and with a good pipeline of deals for the rest of the year and as I said, operating at a pretax return on equity above 18%. So this, ladies and gentlemen, concludes my introductory remarks for the Group Q1 2018. As a takeaway, I would like you to retain that the group saw good business growth in the context of robust economic evolution across Europe, And we continued to strengthen our commercial positions.
We also delivered a solid net income of 1.6 €1,000,000,000 despite the adverse forest effect and the lackluster market context for fixed income in Europe. Thirdly, we are continuing to roll out new customer experiences and we're implementing digital transformation throughout the group. And lastly, these results are in line with the trajectory of the 2020 plan and the achievement of its targets. Finally, ladies and gentlemen, I thank you for your kind attention and I'll now be pleased to take your questions.
Thank you. Our first question is from the line of Jacques Henri Gaulard of Kepler Cheuvreux. Please go ahead. Your line is now open.
Yes. Good morning, Lars good afternoon. Sorry, it's been a long day. Two Questions, please. You've done quite well in equities versus peers.
And effectively, the question was how do you find the markets And do you find people retrenching? Have you gained market share necessarily there? So a little bit of color on your equities performance would be good. And the second question interestingly, going through your slides, you've been through quite a lot of bolt on acquisition now, which is good because the quality of the name you bought is effectively good. When I look back at your plan, I realized that the free cash flow It was 15% of the RWA, if I remember well.
So that would be about €4,800,000,000 to €5,000,000,000 of acquisition. How far are you towards your full plan Bolton acquisition towards the end of the plan. Those are the 2 questions. Thank you.
J. Gary, thank you for your questions. If I take the first one on equities, it is true that the environment for equities was different than the one in fixed income. In fixed income And particularly in Europe, there remained people or the institutionals and the corporates were having a bit of a wait and see attitude. However, on equities, on both sides of the Atlantic, there was a pickup in demand And we basically served our clients into that.
So that's on equities. When it comes to the redeployment of the free cash flow, And let's be very fair. This is a thing. I mean, there has to be opportunities. I cannot say how much exactly we will redeploy.
We haven't if there is for us a bolt on, it means that it has to be literally bolt onable. So it doesn't have to be Too large, it has to be complementary with activities that we have. And so as long as that is possible, We will announce these things. So there's not much more to say on that. Next question?
Okay. Our next question is over The line of Jean Francois Neuet of Goldman Sachs. Please go ahead. Your line is open.
I just wanted to ask firstly on
Can you repeat it? We lost you a bit.
Yes. I just wanted to ask you about the fixed income performance. Can you hear me better now?
Yes, I can.
So over the past few years, you had gained market share. And I understand that the environment was not necessarily all that great in the Q1, but you've underperformed peers fairly materially for if you take the industry as a whole and in constant currency, it was also the case in Q4 after a run of good market share gains. And I just wanted to What has changed in the fixed income side? And obviously, that has driven a bit of delay in the implementation of I didn't say the achievement of your targets, at least if I take a linear path. And I just wondered whether you could give us A little bit of color as to what you embedded when you raised your ROE target.
Did you take into account those Tougher conditions or is it somewhat of a headwind for the achievement of your plan? And the second thing I wanted to ask was about the jaws in the retail part of the business, which obviously is tough to achieve right now. And I wanted to understand whether the reduction of the cost is well implemented already or whether there is Whether you have more to come here because the jaws in the domestic market continue to be negative at this stage And Stavon Nissau in a sense.
Jean Francois, thank you for your questions. First of all, in fixed income, it's basically Let me answer along three axis. The first one is, if you look at the results evolution of BNP Paribas, you have to remember that We are focused for a big chunk on European activities, which when it comes to fixing up. And if you look at the evolutions And when you say when you compare to peers, you really have to make a distinction between peers which are mainly active in the U. S.
And peers which are mainly active in Europe. Because when there was indeed this pickup in volatility as of the end of January, beginning of February, there was intrinsically A different stance on both sides of the Atlantic. When you see the evolutions and the demands were really picking up On the U. S. Side and this is where you see some evolutions, which was not the case in Europe and that is why you see a different evolution for those serving the clients on fixed income in Europe.
That's the first thing. The second thing is, let's not forget that When we oriented ourselves on when we made our plans for each of the divisions, we had a bit of a different orientation depending on which division. For example, our International Financial Services, which was having the appropriate level of returns and therefore we said Growth is the main thing. When we looked at CIB, we said that growth would have to be accompanied by cost measures and by a reduction of capital employed. And so that is basically the key elements of what CIB has been doing.
And that is what we see when we look at the pretax ROE of CIB, which is above 18%. So that is where the evolution of what is foreseen is really, as I said, on track with the overall plan. So this being on track is what I said. We are basically the results that we have this quarter are in line with what we have in our trajectory reaching to 2020. So overall, if we look, as I said for CIB in general, if we look at the performance and let's not forget that in 2017, BNP Paribas was also a performance which was higher compared to BNP Paribas also an element which is ordered.
So overall, I repeat the trajectory of the Q1 is totally in line with the trajectory we're going to 2020. And as I said, The 2020 ROE, we planned it to be above 10%. And if elements remain The evolutions of what we expect in GDP, evolutions of what we expect in rates and what has been put into tax, for example, We will be gravitating more towards 10.5% than 210%. And when it comes to cost reductions on domestic markets, Yes, of course, we are progressing with the things we have been doing for a while. We are optimizing our branch networks and delays of management and so forth.
But at the same time, let me remind you that the 3 axis of our 2020 plan are of course starting from customer journeys to changing evolving toward customer journeys that the customers really need. Doing this through digitalization And as a third consequence of all this, we will basically have further cost efficiency because you distribute products or you get in contact with customers via this more digitalized way. So this is the thing we are developing and which will be further levers as we announced of the jaws effect. So that will be my answers, Jean Francois.
The follow-up, how is the business environment compared to that of Q1? If you described that has lackluster in Q1, how would that be now?
I invite you, Francois, to come back to when 2nd quarter because it's not what we do, however, observe if you look at generic elements It's that there is the volatility that we've seen has picked up a bit. But as I was saying, we have 1 month out of 3 months going. So I do invite you on August 1, when we will publish our 2nd quarter results on this topic. And maybe the only compliment, I understood your question on the global market side. One compliment is that on the corporate banking side and maybe your question was on the corporate banking side is of course the corporate banking in general, Now that we are more moving into originate to distribute and other things, it's a bit more volatile quarter to quarter.
And so when we look at the pipeline for It is well filled and so I would assume that several of those will crystallize in the second quarter. So those we've answered.
We now go to the line of Delphine Lee of JPMorgan. Please go ahead. Your line is now open.
Good afternoon. Thank you for taking my questions, Lars.
So two quick ones. I mean, first of all, Would it be possible to get a bit of color on your performance in equities by geographies and by business, if that's okay, just to understand a little bit where The strength is coming from flow versus structured and geographies. And The second question is on costs. Could you remind us a little bit sort of now Your target for 2020 in terms of cost base was I think €29,900,000,000 but obviously there's been some acquisitions And maybe other moving parts. So if you could maybe
just give
us a little bit of
the contribution from Poland, for example, or anything else That has changed. Thank you.
Delphine, thank you for your questions. Now on equities, If you want on sectors or on regions, so overall we've performed well. If I would have to say U. S. Maybe that even more than Europe and institutional maybe that more than retail.
But overall, as I said, it has been performing well across zones and across sectors. When it comes to the acquisitions that we have done, as you know, What we basically foresee is that those acquisitions as they are bolt on, so that basically means that the cost income After those acquisitions should typically improve. So that's the trend you can take into account. There is not much more I can say about that. So that will be my answer, Stefan.
Okay. Thank you.
We now go to the line of Kiri Vijaraj of HSBC. B. C, please go ahead. Your line is now open. Yes.
Good afternoon, Lars. Just starting with the insurance business, you're doing double digit growth there in revenues and in So my question is really how sustainable do you think that is when particularly when interest rates might rise and the investment gains and realizations you're booking there on the bond portfolio maybe start to fade a bit. And secondly, actually still sticking with insurance on SBI Life in India, what's your latest Thinking there, what's holding you back from maybe selling down further tranches of your stake of what's really a I think you said is a non core asset for you in India? Thank you.
Kiri, thank you for your questions. If I take SBI Live, I don't recall that we said So it's something that we often do joint ventures where we can bring experiences and so forth and Grow together and it's because let's say the other party wanted to float part that we aligned on that So there is nothing much more to say on that. On generically, on insurance, let's be very fair. I mean, on insurance, the way it is presented in the accounts, And let's be very fair, just like on some activities in the bank, 1 quarter is not necessarily the trend for the full year. So that is what we should look.
However, if we look at how the volumes are going and how intrinsically The markets have evolved for them. As I said, it is off to a good start. For the further evolution, we should definitely be on line with what we had in the plan. And so I also invite you to come on August 1 to give you an update on it. So that will be my 2 questions.
Great. Thank you. Sorry, the next in the queue is Omar Ball of Mediobanca. Please go ahead. Your line is now open.
Hi there. Two questions please. Just firstly, just wanted to understand when we would start to see real operating leverage In two areas in particular, personal finance and other domestic markets. I mean, more broadly, you told us that the cost savings we've seen delivered in CIB with this year start to be factored into the rest of the group. But I guess it hasn't really started this quarter or at least I can't see it.
And these two areas in particular, seeing Very strong revenue growth, but extremely sizable investments. So just to give us a sense more of timing rather than You know, the scope of jaws. And then again, just on other domestic, Arval is probably half the business. Are you not seeing the effects of lower car sales results Similar to some of our valves peers or is there something about the fleet that means it's less exposed The issues around diesel, anything you can tell us to help us get comfortable on what's the sensitive topic where sadly there isn't much Thank you.
Omar, thank you for your questions. If I take the operating leverage first, So you ask about so personal finance and you ask about other domestic markets. When you look at personal finance, there is one little thing You have to keep in mind, we are slightly shifting the kind of underwriting we do in personal finance, Shifting towards the better counterparty, that basically means that the top line basically squeezes a bit. But however, we recuperate on the cost of risk line. So if you look at just jaws between top line and cost, you might See some kind of pressure on personal finance, which has basically recuperated on the cost of risk side.
So that is the one thing I would like to say. So if look at the overall performance in the evolution of Personal Finance, it's intrinsically well, so it's up. Our pretax income is up 5.5%, But there is this dynamic, which shouldn't fool you, which at first glance might say that the jaws are not positive, but You have to take into account that we position ourselves slightly different on other products and therefore more on secured products and therefore have Leverage, if I can say, via the cost of risk. When we look at other domestic markets, other domestic markets, it is true that this is one of the elements Where we are investing in digitalization because it is where we believe that steps and are to follow rapidly. So there it is more of the on the horizon of more, let's say, next year 18 months to see these effects.
When we stay on the domain of other domestic markets in particularly on Arval, I remind you that Our valve for BNP Paribas is a very diversified activity. So when we provide The kind of service, it's not just the service of financing a car, it's a much wider series of services that we provide. On top of that, We are doing this in a very international kind of basis. So maybe you can be concerned of some issue in one country or one city One brand or whatever, which is in a diversified setup like ours, very manageable. So from that point of view, that's basically the color I would provide, Omar.
Next question please.
Next question is over to the line of Flora Benhakoun Deutsche Bank, please go ahead. Flora, your line is now open.
Yes, good afternoon. The first question I have is regarding the provisions in the Division Personal Finance and following on what you were just explaining regarding the change in mix, the negative impact on revenues, but positive on cost of risk. I had in mind that you were guiding for higher provisions under IFRS nine. I think you were guiding for 170 bps from this year Onwards and obviously it is much lower than that in Q1. So the first question is whether you could comment on the cost of risk in personal finance.
And the second question is regarding the put option you have with Agias, which as you know, you can exercise until the end of this half year. So what's your thinking there? Thank you.
Thank you for your two questions. So the first one is indeed on personal finance. So What we said is with the introduction of IFRS nine for relatively stable evolutionary businesses, The impact of IFRS 9 should not be that materially different from IAS 39 that we had before, except for businesses that grow rapidly. Why? Because we have to provision at origination those loans.
So if you have a lot of origination that is something that could add during the period of the ramping up towards additional cost of risk. And so that is what we've guided for that we expected In the 1st years of IFRS 9 to have a little bit of a pickup. And that's why we said that although we were gravitating around 150 basis points, We could go towards SEK170,000,000 Now if we look at today in an environment which where there is the Interest rates are very low. We still see that the cost of risk is indeed very low. So that is the main thing.
So we still believe that over the cycle when there will be a pickup, We would gravitate towards 170,000,000 but for the moment it is low. And so let's be very fair, the 170,000,000 we guided for, which is more a guidance Of what you should see over the plan in 2020, probably A fall remains the way it is. It's much more going to be 150 basis points in the year 2018. On your second question on the put option of ARIAS, There is not much I can say. I mean, we are as you know, we're very pleased with the way things are going.
And so there's nothing more I can add.
Thank you.
Okay. We are now over to the line of Jean Pierre Lambert of KBW. Please go ahead. Jean Pierre, your line is now open.
Thank you. Good afternoon. Two questions. The first one is on Italy. If we look at the Italian revenues, there seem to be a kind of deterioration versus the Q4 in terms of dynamics, both for NII and fees and commissions.
When do you expect some form of stabilization of the revenues in Italy, if you can How or if you can indicate what kind of dynamics you expect to recover? The second question is, In terms of economy in Europe, there's a bit of a debate if there is a slowdown and are we at a point where it is as good as it gets? Any sign you can see from parameters and metrics in your business that there's a sign of slowdown On your front. Thank you.
Jean Pierre, thank you for your questions. If we look at Italy, in Italy indeed if you look at If to look at the P and L, let's look at the balance sheet first. So you see that the volumes in particularly on credit side Basically stable even if you look at it. And so basically in that environment, it is also normal that The margins and the revenues we are making are a bit in line. So the question is, when will we be in a situation where there will be a material pickup in lending demand in Italy.
So we are staying present to our clients in the needs that they have. But overall, the growth is still a little bit subdued in the segments we are active. So we'll have to see when that one picks up. So one could assume that there is now what we observe is there is some Economic growth in Italy, which is forecasted to be around 1.5%. So one would assume that on the back of that, we would see over this coming quarters, We would see that pickup.
On your second question on if we see any indicators of European slowdown. As you know, when you look at our results of the Q1 and you look at the growth in several of the areas, you see The strong pickup, as I said, you have the 5% in Belgium, the 7% in France. If you look at our specialized businesses in Europe, it's a bit the same trend. So In the client segments where we are present, we see a strong pickup in activity as we mentioned, which led to our solid results. So that will be my answer, Jean Pierre.
Thank you very much.
We now go to the line of Karine Gen of Royal Bank of Canada. Please go ahead. Your line is now open.
Yes. Thank you very much. I just wanted to Ask you if you can help us a bit understand the FX impact in the quarter. Normally on your slides on the Revenues and cost of the operating divisions, you give an adjusted number at constant scope and exchange rate. And I was just wondering if you can please Help us out on the revenues Q1, Q1 and the cost Q1, Q1.
And then I just wondered about the investments. I understand you're investing quite obviously in line with your strategy for organic growth. But I was wondering would you say That Q1 is usually a seasonally higher rate in the investments or would it be slower relative to the rest of the year? Thank you very much.
Anke, thank you for your question. Just clarifying one for me on the second. When you mean investments, You mean investments like in transformation cost or you mean like investments like in M and A?
No, more like in the investments for business development, Like you mentioned for domestic markets, so you think the run rate on this is higher in Q1 than it would be in other quarters? Thank you.
Okay. If we look at ForEx, so indeed, if there is one thing, if you look at, for example, the euro versus the dollar or the euro Versus the Turkish lira, the euro strengthened quite a lot compared to a year ago. Depending if you look end of quarter, average of quarter and depending on which currency, but it's between 10% 15% of strengthening that happened. So just imagine that if we would have made exactly the same earnings as a year ago, Translating that into euro would basically reduce it by 10% to 15%. So that is Why we mentioned that the ForEx effect into the translation of our activities, which are for example in Doror or in YTL in Turkish Lir are a bit subdued by that and you have to look indeed for them at the constant scope and which is what we do.
If we look at our activities, for example, Obbank West, Well, if you look at our Europe Mediterranean, we do provide them the evolutions at constant change rate to give you the idea. So that will be that. On the question of and maybe one last thing, when we talk about ForEx, so this is the evolution that we have The translation of the P and L effects, of course, the ForEx also works on the equity. And so that is why, I mean, if you look at our common equity Tier 1, The impact of evolutions is basically limited, right. So that's the difference between those two.
When I come to your question of your investments, let's say, in overall business development or other elements, There is not necessarily that the Q1 is or there is any pattern specific for the quarter. It can be that if it's a new thing that Costs ramp up a bit in order to roll it out or to strengthen the setup. But for this quarter, there is it's not necessarily that the costs Of those investments are materially higher than what you would have otherwise. It is a bit different for the transformation costs. That's why I wanted to ask.
So the transformation costs, they clocked in roughly around €200,000,000 for the Q1, whereas we've guided that on a run rate, they would be more around €250,000,000 for the quarter. So there we could expect that it would pick up. So those would be my answers, Anke.
And are you able to give us like a specific number like you normally do for the operating divisions wouldn't be down 1%, but That would be up x percent at constant currency exchange rate constant scope and exchange rate? Or Should I follow-up later on with Investor Relations?
No, no, you can follow-up, but I can. If you look at the evolutions quarter on quarter for the operating divisions At constant scope and exchange rate, the NBI, so the top line would be down 1% and that's basically So do reach out to the Investor Relations if you want more detail or other elements, but that is basically the top line figure.
Okay, thanks.
We now go to the line of John Peeler of Credit Suisse. Please go ahead. Your line is now open.
Yes. Thank you. Hi, Lars. So my first question was just on the Equity Derivatives business and whether you'd seen any negative impact On the business from hedging the volatility in the quarter? And the second question was on the Europe Mediterranean division.
There was quite a large other non operating item. And could you just remind us what that was, please? Thank you.
Yes. John, thank you. There is nothing particular on equity derivatives to mention. On your second question had to do with the income in emerging markets?
In the Europe Mediterranean division.
Yes. As you know, I mean, our European Mediterranean division is a constellation of several kinds of activities. And in these several kinds of activities, they are sometimes structured in different ways. We are evolving those structuration. So yes, from time to time, we have some Contribution which are falling in different lines depending on the way they are.
So there is nothing material to be mentioned.
Okay. Thank you.
We now go to the line of Maxence LaGovello at Please go ahead. Your line is now open.
Hey, good afternoon, Lars. Two questions on my side. When we had the pleasure to meet you At the time post Q4, you confirm us that you were expecting some corporate loan growth in the range of 5% to 10%. Looking at what you've achieved, it's already 5.9 percent in the French retail and 6.5 percent in the corporate. Do you believe that you are more going to stay in that range or closer the 10% by year end.
And the second element is regarding your capital allocation in the market activities. It's been shrinking significantly over the quarter? Is it an FX impact or is going to be structural? Many thanks.
Marcel, thank you for your questions. When we look at corporate loan growth, as we said, the current environment loan growth is strong. If it continues The demand in the way it is, it's probably going to be somewhere in the middle of that range. So it is indeed Looking good. And as I said, it is a strong reflection of what we see in the loan demand.
And so as I said, I mean, if you look at it, if you look for example in France, The demand of loan growth is around the 7%. So it is indeed probably ticking up towards the higher end of the options. When it comes to your second question on the capital allocation in global markets, I remind you that indeed on global markets, we set out on saying, yes, We embark in following our customers in their needs, but at the same time we wanted to materially reduce the cost base at which we do that and also materially reduce the capital consumption. And so that is basically what we've been doing. I remind you that some of the activities that we had We're dating from pre the Basel III regulation and when Basel III came along, the capital requirement was stepped up in a very material way.
And that's the kind of business we basically stepped out of, which we have been announcing that for several 1,000,000,000 would reduce that and that is what we have been doing. And so that is why overall indeed, if you look at CIB, the return on This equity is basically, as I said, above 18%, even though there is some pressure on the top line, but we recuperated on the cost We recuperated on the positioning of the type of businesses that we do and therefore the capital allocation. So it's one of The things we focused on global markets.
Okay. Can I ask one last question?
Sure.
Just how you have been able to manage Your dollar funding through the LIBOR OIS crisis, has it been an issue for you? Or can you give us a bit more color because you seem to have been some difficulties from some
Yes. Thank you. No, let's not forget that. We are I was going to say we are a French bank, but you know that my story is that we are an National Bank, but if you look at our activity in the U. S, we're actually very balanced.
Let's not forget that we have just like we have in France, in Belgium, in Italy, we have a diversified set of activities from retail banking through bank West and then we also have corporate and institutional banking that we are active in. So that basically means that we have all the activities just like we have in all the other countries that generate The deposits that generate the loans and that generate an equilibrium growth for the activities. So for us, not really an issue. Thank you. Have a good trip.
Thank you.
Okay. Our next question is over to the line of Tarek Elhamjad at America Merrill Lynch. Please go ahead. Your line is now open.
Hi, good afternoon Lars. Just one question actually on the Digital Bank and Hello Bank. I mean, can you tell us, give us a bit of color on How competition was since October, November when Orange Bank launched and Revolut and other neobanks ramped up their activity in France? Clearly, you showed that actually you had 110,000 new clients in Q1, that's very strong, but can you just give us like a bit of the environment and competitive the competitive environment, sorry.
Sure. Thank you, Tarek. Now, as you know, What we are doing, we're basically focusing on providing value added digital kind of services. So this is what we do with HelloBank. We don't come in with one product.
We basically provide the full banking service in digital. And as you said, it basically we attracted 110,000 new clients. And the same is true, for example, if we take a LifePay, LifePay where it sounds like Pay and people can think of it's a payment system, but it's much more than that. It's a value added system where we basically manage coupons, where we benefit both parts before and that we've added an agreement with the casino, for example, in France, which will add another 500 distribution points while this value added can be distributed. So that is the key focus that we do.
Yes. So we're providing The full value added of the banking services and even when we go in specific items, even there, we really focus on the value added. So that is what we keep on doing and we see that the pickup by clients and future clients is very strong.
Okay. Thank you.
Would that have been the last question, operator? Operator?
Yes. There's currently two questions. I'll send you over The first one which is Louraine Croix of UBS. Please go ahead. Your line is open.
Hi. Hello, Lars. Good afternoon. I have a question regarding Belgium. I The revenue actually are holding quite well, particularly the net interest income and that despite the low interest rate environment.
And you did show that the loan growth was actually quite strong and supportive, but I was just wondering whether there was like anything else in there like or something and whether you expect the trends we are seeing now to actually sustain this year. My Next question will be on First Hawaiian Bank. I was wondering whether it's more like the deconsolidation is more something that Will be a next year story rather than this year story. Thank you.
Lorraine, thank you for your question. So if we look in Belgium, as I said, I mean, if you look at the driver for evolution and growth, you see that loans are picking up by 5%, which is fine. And as indeed we are in an environment of low interest rates, low interest rates. And so this basically means that one has to reprice. As we said before, We basically come to the end of the repricing on the deposits.
So we have to reprice on the other side. Now the other side, it takes more time. When you reprice deposits, you reprice the stock. When you reprice loans, you don't reprice the stock. So that is where this is the thing we keep on doing.
We've been doing Now for several quarters, we'll see how that evolves. And when it comes to first Hawaiian, as we said, we are not in a rush. So You will see when these things evolve. So we're not in a particular rush. We'll see How market evolves, how things evolve, how demand evolves and we'll act accordingly.
So that will be my answer for him.
Okay. Our final question is from the line of Pierre Cheuviel of CMCIC Market Solutions, please go ahead. Your line is open.
Hello. Good afternoon, Lars. Just Two quick questions. First question is regarding Slide 31, where you mentioned regarding asset management, Specific project of transformation, could you remind me exactly what you mean there? And what would be the impact of these specific projects on the cost in this division?
And regarding the insurance business, could you give us maybe you give us, but I didn't see it, The part of Unit Link in the commercial development this quarter in order to compare with peers? Thank you very much.
Pierre, thank you for your questions. And when it came to the transformation in asset management, It's a project called Aladdin. So it's one of the things when we Okay. With BlackRock and so that's basically the change that we announced. Could you repeat your question on insurance on Unit Linked?
What I didn't fully grasp your question.
What is the part of Unit Linked regarding the sales of general account Savings. In your production for $100,000,000 of savings, how much is related to unit linked products?
Yes, the big book, it's around 80%.
80%. Yes. No, it's not possible.
Unit Linked, that's what you asked, right?
Yes.
Inflows, right? That's what you basically asked for, right?
Yes, yes. 80%. Yes. Okay.
Sorry to surprise you.
No, no, it's very it means that you mainly sell unit linked products
Operator, back to you.
We have a final question and that's over the line of Alex Cormier of Natick. Please go ahead. Your line is open.
Sorry, my question has been answered. Sorry for that.
In that case, please pass the call back to you for any closing comments at this stage.
Thank you. So all of you, thanks again for the time you spent with me. And as I just repeat the main messages, you've seen the business growth In the context of economic recovery in Europe, we continue to strengthen our commercial positions. We have a solid bottom line of €1,260,000,000,000 We The Q1 of 2018 is fully in line with the trajectory of ramping up towards our 2020 objectives. So with it, I thank you very much and wish you a very good day.
This now concludes today's call. So thank you all very much for attending and you may now disconnect your