Ladies and gentlemen, welcome to the Société Générale conference call. Frédéric Oudéa, Chief Executive Officer, and William Kadouch-Chassaing, Chief Financial Officer, will present the group's second quarter and first half 2018 results. Gentlemen, please go ahead.
Thank you. Good morning to all of you, and thanks for attending this conference call on our second quarter and first half results. What I suggest, as usual, is to go through briefly our slides. I will leave the floor in a minute to William Kadouch-Chassaing, our CFO. Then we will, of course, answer your questions afterwards. If we turn to the presentation and the first slide, let me just highlight very shortly the main items and characteristics. First of all, we have, in the second quarter, a progression of our revenues by more than 2% on a like-for-like basis. That's constant exchange rates. Thanks to a very strong discipline on cost and risk, we have also a profitability return on tangible equity above 11% this quarter, 11% also for the first half. Second, we have started the journey to complete the refocusing of the group.
Let me just remind you that we have a plan, I will comment on this. We see the first decisions regarding this plan in the second quarter. Third, we are progressively putting behind us our litigation issues. In the second quarter, we put behind us the LIA and Index IBOR cases. Regarding the late last significant regulatory litigation regarding OFAC, although the timing and the financial impact of a potential agreement remain uncertain, it is possible that the pending discussions could lead to an agreement in the coming weeks. Fourth, we have a solid balance sheet. We are complying to all regulations, including the MREL requirement that we just received. William will comment more in detail on this. If I turn to the next slide, let me just comment on the overall business performances. In the French retail, we are on track regarding our transformation plan.
You know how significant the transformation of the business model is, as in all Eurozone retail activities with the new technology. We have good credit flow. We are conquering clients. Let me, in particular, highlight that Boursorama has now reached 1.5 million clients in July. That we target the 2 million clients figure one year in advance. Regarding the revenues, commissions are up year-on-year. Net interest margin is still going down with still a low rate environment. We now have a slight decrease of revenues in mind for 2018, between 1%-2% for this year. Regarding international retail banking, all our activities, all our geographies confirm the capacity to grow with positive jaws and with good profitability. It's clear that having good franchises in these non-Eurozone countries is an advantage with good growth of retail activities as well as a more normal rate curve.
It is the same with insurance and financial services activities, where we have, across the board, good growth and very strong return on normative equity. When I look at these two categories of activities, it is very clear that growth is confirmed and profitable growth. Regarding global banking and investor solution, we posted a solid second quarter. First of all, with a rebound of our market activities versus the first quarter of this year, but also an increase by 2% on a current perimeter and on a like with constant exchange rates compared with last year, and still a relatively low volatility environment in Europe. Regarding financing and advisory activities, we have very strong performances with very solid origination. Again, we will come back more in detail. Next slide.
Let me just comment a little bit more about, again, the completion of the refocusing and optimization of our capital allocation. Let me just remind you that we have, as an objective, to refocus for the equivalent of 5% of our group risk-weighted assets through to 2020. That represents roughly a range between 50 and 60 basis points of Core Tier 1 equivalent. This quarter, we announced the disposal of four businesses, the signing of four disposals, the sale of two subsidiaries in Central Eastern Europe, Bulgaria and Albania, the sale of our private banking business in Belgium, and the sale of Self Trade Bank in Spain. These transactions will have an estimated impact of 15 basis points on the Core Tier 1. We expect these transactions to be closed in 2018, at least the vast majority.
Further to this transaction, in line with what we said, which is that we plan to announce, we have in mind to announce for at least half of this program, we will have further announcement. We expect further announcement in the second half. Let me mention that these disposals, which again, fit with a strategy to concentrate on businesses which have the critical size to compete going forward, and of course, the level of synergies which justify us to keep these assets. Let me just mention that the benefit will be used on one hand to size opportunities if they make sense. We have also, in the second quarter, announced a unique opportunity to strengthen two core franchises with the acquisition of Commerzbank EMC business, and of course, increase our capital ratio. Let me now leave the floor to William, who will comment more in detail our figures.
Thank you, Frédéric. Good morning, everyone. I will ask you to turn to page eight, on the group presence for the quarter. Let me point you first to the group revenues, which are up this quarter by 1% in current terms, 2% when adjusted for perimeter and foreign exchange. This is mainly driven by the international division, with an increase of 6%, in excess of 6% for the quarter when adjusted for perimeter and foreign exchange, 3% for the investment bank, and minus 2% for the retail bank in France. The second element I would like to point you to is the operating expenses. As Frédéric said, we have a very disciplined cost management this quarter.
You need to adjust the number we provide on the page, 1.3% growth from one quarter from last year, with the reversal of the provision we made in the international banking division for about EUR 60 million for the same quarter of last year. Adjusted for that factor, the costs are flat from one year to the other in Q2 2018. The third element is the cost of risk, and we'll come back on it later. It is down again this quarter, and we end the quarter with a cost of risk at 14 basis points. As a result, we have an underlying net income for the quarter of €1.3 billion, up nearly 9% year-on-year, and which translate into an underlying return on tangible equity of 11.2%. It's 11% for the first half of the year in total.
Turning to the next page on cost of risk, a few elements I would like to, again, point you to. The first one is, again, the cost of risk for the group, which decreases again, as I said, from 18 basis points last quarter to 14 basis points this quarter. The second element I would like to highlight is the further decrease in the non-performing loan ratio. We end up the second quarter 2018 with a 3.9% NPL ratio, below the 4% threshold, after a constant period of decrease over the past quarters. Thirdly, I'd like to raise your attention to our new guidance with regard to the cost of risk. We expect the cost of risk for the year to stand between 20 basis points and 25 basis points. Let me say that we consider this guidance still as a little conservative.
Regarding balance sheet, on the next page, a few items. First of all, on capital, we have a slight decrease in the capital for the quarter one of about 10 basis points. We end up the quarter with a quarter one at 11.1%. This is mainly due to a number of technical factors and adjustments, which I will comment if you have questions, including some TRIM adjustments. The leverage ratio is flat, adjusted for the recent decision of General Court of the European Union, which allows us to deduct some savings exemptions. The point which is very important for the quarter, as Frédéric highlighted, is the fact that we have been notified as the other banks, on the MREL ratio by the Single Resolution Board.
We can now confirm that this is 8% of total liability and own funds, the TLAC, that we need to comply with, which translate into a 24.36% RWA equivalent on the basis of the December 2016 balance sheet. The main information beyond the notification of the threshold is the fact that we are amongst the banks in Europe that are already compliant. TLAC, we already mentioned it the previous quarters. We're already ahead of the expected threshold for 2019 when it will be put in place, we should be at 19.75%. You can see we end up the quarter with 21.8%. The rest of the solvency and liquidity ratios are stable or up. I will not comment the next page on group presence with the detailed numbers. Should you have any questions, we obviously will be pleased to answer to them.
I will now turn to the business performance, starting with the French retail. As said by Frédéric, the main message with regard to the French retail operations is the fact that we are progressing well in our transformation. Transformation is, on the one hand, the reshuffling of the business model, and secondly, the reshuffling of the distribution and the operating model. With regards to the business initiatives, many of them have been announced during our Investor Day. We are pleased to see progresses. As you can see, I will not comment all of them, but the main items on the pages are, we are progressing well in the selectivity of our client base and especially the growth of the wealthy and mass affluent client base, plus 5% over last year.
This is associated with a further increase in AUM for the private bank in France, which are up 2.6% relative to last year. The AUM for the private bank in France stands at EUR 63 billion. Another element I would like to point out, but I will come back to this, is the acceleration of the client acquisition of Boursorama, with 1.5 million clients by the end of July 2018. We are well ahead of schedule. The bank insurance progressed well on all accounts, be it life or non-life. One area we are particularly satisfied with is the consumer credit production, with a double-digit growth relative to the previous quarter of last year. Overall, we're making also good progress on professionals and corporate. With regards to the business mix, things I would like to highlight are twofold.
One, you can see that we have decreased discretionary the production of home loans, which is a sign of our selectivity, both on the client acquisition as well as on the risk. By the same token, we increasing the fees this quarter, they are up 2.5% relative to the same quarter of last year. If I turn to next page, transformation, as I said, encompass as well the distribution and the operating model. We're making there, again, good progress. We are very well in check with our plan, sometimes even ahead. We announced the further branch closure for up to 50 branches in the Matmut networks in the first half of 2018. We have closed one back office for the quarter. Out of the six, we have committed ourselves to close through 2020.
At the same time, we have opened 75 professional corners as part of our redeployment of the initiative related towards the professionals. The digitalization of the offer make also good progress. The dematerialization of the offer with electronic signature spread out very successfully towards clients. For the agents, we have developed a tool where allowing them through a digital interface to have a 360-degree view on their relationship. We're also making progress on the discussion with the Works Council, implementing the new legal framework in France in our company. I would like to point you to the cost development for the quarter. We are up 0.7% in the French retail network. Adjusted for the IFRIC, it's 1.2%. For the whole first half of the year, it is 2.5%. It is, as we stand, below the 3% cost development that we expect for 2018.
One point which I would like to stress is Boursorama on the next page. There are usually three questions on Boursorama, is Boursorama capable to keep its leadership? The answer is quite straightforward. Boursorama increases its leadership again in the first half of the year. As I said, we end up with 1.5 million clients by the end of July. We produce one client per minute, so we're confident that we should reach the two millionth client as early as 2019, one year ahead of schedule. The second question is Boursorama a full-fledged banking model? There we can reaffirm, stress quite strongly that relative to many of us, it is indeed more comprehensive to what you can find in the market.
We provide you, for the first time, with some data with regards to client outstanding with the saving or loans, as well as the growth pattern of the different products we deliver to these clients on the saving or on the loan side. You can see two-digit numbers from 14 to 16. Third question, is Boursorama profitable, and will Boursorama ever be profitable? Then we provide you with numbers that prove the efficiency of the model on the top of the page. More importantly, we would like to stress the fact that Boursorama has a positive net income excluding marketing expenses. Let me remind you that these marketing expenses, the majority of them are variable, so they're directly associated to the client acquisition. Should we stop, the model would be immediately profitable. This profitability, ex marketing expenses, has increased by 2.54 between 2016 and 2018.
Last but not least, on French retail, the numbers, most of it I've already mentioned. I pointed you to the revenues decrease of 2.1% this quarter, with a mixed composition, plus 2.5% increase in the commissions, minus 9%, around 9% on the net interest income. Operating expenses when adjusted for IFRIC are up 1.2% or 0.7% when adjusted for the quarter, 2.5% for the first half, I've already mentioned. Overall, despite the strong transformation, a resilient profitability. Let me turn now to the International Retail division. The story here, as mentioned by Frédéric, and as you can see on the page, is a story of unambiguous, widespread growth across all geographies.
You can see we provide this number traditionally on the left-hand side of the page, on the top, the very good dynamic with regards to production, whether this is on the loan side or on the deposit side, and across all regions. Let me point you to the, again, double-digit numbers for both Russia and Africa. European part benefits strongly from increase in volumes, but as well, more favorable rate environments than what we see in the Eurozone, particularly in France. We provide you with the rate curve for the Czech Republic and Romania. In Russia, as already mentioned, we have very strong production. In Africa, very strong production associated with good mastering of cost, which we intend to improve further by the launch of a new hub. We are just launching an IT hub in Casablanca for the whole operations in the region.
Overall, this translates in high return on normative equity. As you can see, close to 20% for the European business unit, 16% for Russia, and 15% or above 15% for Africa. You will find on the next page some data on the Financial Services division and insurance. Here again, you'll find evidence of the strong growth dynamic in these areas. Life insurance outstanding are at 3% with an improvement, further improvement in the share of unit-linked in the total portfolio. Personal protection and casualty are also up 7% Premiums, sorry, are also up 7% over the quarter. ALD fleet is up 10%, the loan and lease outstanding for our GEFA subsidiary, the vendor finance entity, are up 8% year-over-year this quarter. I would like to make a little point now on ALD.
The reason why we do it is because we are not only satisfied with the performance of ALD, which is one of the key growth drivers that we have stressed in our Investor Day. It's also because we are just one year after the IPO of ALD. I will start with the last comment. The market cap of ALD stands now at EUR 6.2 billion, which is up 7% from the IPO. ALD is experiencing since the beginning of the year, the best performance in this quarter in this sector and one of the best out of the SBF 120 companies. The reason why we like the story goes much beyond the IPO. It's because of the return. You can see the first half return on equity is above 26%, it's also this combination of return with growth. Here again, we provide you with three elements.
One, we reiterate what are the structural growth drivers of ALD, actually, we're quite satisfied to see that all of them materialized. The traditional one, which is a trend towards outsourcing of the corporate. We have seen it for a certain period of time, it continues to materialize with large corporate. We get stronger and stronger evidence that SMEs are part of the game through our partnership, which is a unique differentiation for ALD. A societal shift, which is a shift from ownership to use with the retail consumers, is something that we see very strongly through our private lease, which grows by 40%. We now see tangible evidence of the beginning of the mobility services economy with ventures we've launched in car sharing in Finland or Italy, different models of telematics, or pay-as-you-drive experiences we do in different geographies.
Second element, which proves again true, we expect to continue and last, is a profitability of the models, strong revenue growth, high single digits. You have here the numbers of the leasing contract margin and services margin, plus 7% in this half year relative to the previous year, a very satisfactory cost-income ratio of about 50%, which actually improves relative to last year. Last but not least, you know that ALD is a company that is innovative and has digitalized much of its process. You can see some examples here. I mentioned already the mobility. Remember that on the resale of cars, the process is mainly digitized with car dealers, we also launched the private lease through fully digitalized offers, whether this is in U.K., as provided by this example, or in France, via an offer provided for some days by Boursorama.
Overall, the numbers of the division are in sync with what I've just said. Revenue increase of 6.1% on adjusted full parameter and foreign exchange for the quarters. That's quite strong. Operating expenses up 4.3%, adjusted for this EUR 60 million reversal of restructuring provision I mentioned in Q2 2017. The cost of risk remains low. You see the number up on the page. In fact, you would need to adjust for reversal of provision in Romania, in the Q2 2017, for about EUR 34 million to go to the real number, which is more a decrease in the area of 20% of the cost of risk. As a result of these positive jaws, low cost of risk and high growth, we have a return of normative equity, which stands at in excess of 18% over the quarter.
Turning to the investment bank and starting with the market operations, I would like to point you to the growth pattern this quarter of the market operations. We are up for global market and investor services revenues, excluding foreign exchange impact, 2% over one year. We obviously have a much stronger growth even from a pattern to another, in Q2 2018. The fixed income operations are up 2%. Equities are slightly down 1%, but again, strongly growing over the quarter. We have different sets of revenue growth, obviously, between geographies. Remains very strong in Americas, in Asia. In Americas, through the whole spectrum. In Asia, a little softer on the fixed side, but overall solid revenues. In Europe, obviously, we suffer a little from the low volatility environment on the flow side. We experience very positive trends through better volatility in that segment in commodities, Forex, and rates.
Security services were very strong this quarter, such as prime services. I would like to provide you, I know this was well expected, with some more data points regarding our EMC acquisition, the market operations we acquired from Commerzbank on July 4th. I won't come back on the story. If you have some questions, we are happy to answer them, but you know that it is a very complementary platform. The point I would like to stress is the synergistic aspect of the platform and this acquisition. We expect the gradual transfer to happen between 2018 and 2020, with integration costs of circa EUR 150 million over the period. The important numbers are the fact that we expect GOI, gross operating income, above EUR 150 million after the transfer and the restoration of the operation.
In any case, we expect the acquisition to be accretive to the group ROE and obviously, the division ROE. I mentioned the market. I would like to point you now to the financing advisory. This is similar to what I've said on the international retail. Again, a story of strong growth over the quarter. Financing and advisory revenues are up 8% from one year to the other, after neutralizing for foreign exchange impact. This is still a hefty plus 5.2% at current exchange. What we can see, it is broad based across all financing categories, particularly strong in real estate, shipping, energies, and acquisition finance. I would like to mention to you the double-digit growth of our global transaction banking operations. You know this is a key element of our growth story that we have highlighted in our Investor Day.
For asset and wealth management, the picture is more muted. It's a little mixed. Let me remind you that we had a very good performance in private banking in Q2 2017. Overall, we continue to increase our AUM both for private banking as well as for Lyxor, and the margin for private banking remains in sync with the best standard in the industry, i.e., above 100 basis points of ROA. To finish on the numbers for this division, the revenues for the total global banking and investor solution division are up nearly 3% for the quarter, 2.9% when adjusted for foreign exchange impact. They are up 0.5% current. This is again, one area where we experience positive jaws. Operating expenses, adjusted for FX impact are up 1% in current term. They are down 1.3%.
We have obviously a strong jump in the net income relative to the past quarter and an underlying return on normative equity, which is very resilient at 12%. One word to finish on the corporate center. Two things I would like to mention. The first one is the new allocation of EUR 200 million to the provision for disputes. We have no, as of June 30, 2018, an inventory, a stock with provision for disputes on our balance sheet of north of EUR 1.4 billion. The second point I would like to point you to is on the gross operating income for the first half. As you can see, the number is EUR -200. Should you adjust for what I've just said about the provision, it means that the gross operating income of the corporate center equals to zero.
Let me remind you that we have given a guidance for the full year of gross operating income of the corporate center of EUR -400 million. I will finish there and hand over to Frédéric for the conclusion.
Thank you very much, William. Just to, again, say that when you look at the second quarter as well as the first half, I think that our achievements and performances correspond to our objectives in our three-year Transform to Grow strategic plan. First of all, again, growth of revenues, second quarter, plus more than 2% on a like-for-like basis, and that's constant exchange rates. Second, the transformation across all our businesses, it's, I think, a fundamental element, while at the same time maintaining a strong discipline on the costs. We work on that, and it's reflected in our figures. Also, strong management of risk.
We benefit from all the efforts in the last few years, we have a 14 basis point cost of risk across all the businesses, which I think is a good sign, we are reducing our targets for this year up to 20 to 25 basis points probably, still a little bit conservative. We should not, of course, forget, again, this refocusing and the item of responsibility. It's an important thing. Beyond putting the litigation of the past behind, it's also to enshrine a culture of responsibility across all the businesses and comply with our objectives in terms of contributing to the climate change. We are now at 50% of our objectives for the full period 2016 to 2020 in terms of contributing to the financing of renewable energy.
Last point before entering to Q&A, let me just invite you to a digital journey that we would like to organize on the 22nd of November. We want really to spend time to explain more in detail the transformation that we are implementing in our businesses. I think it is relevant. It's a revolution. It's a technological revolution, but beyond, I would say it's also a cultural revolution, and it is impacting all the businesses and the functions, and I think it's worth spending some time with you to explain exactly how we do that. We are now ready with our management team to answer your questions. Let me just remind you the good discipline, which is to limit to two questions per person. Now, the floor is yours.
Ladies and gentlemen, if you wish to ask a question, please press 01 on your telephone keypad. Thank you. The first question is from Delphine Lee, from JP Morgan. Please go ahead, madam.
Yes. Good morning. Thanks for taking our questions. Two on my side. First of all, just wanted to go back on the French retail guidance. Would it be possible to get a bit of color around what you're assuming for fee growth versus NII growth? This guidance seems to be a little bit more negative versus peers. I'm just wondering if there is any, let's say, negative for this year that we should be aware of, which is explaining a little bit the difference. Also, in terms of your 2020 plan, if that's the case, if it's down -1% to -2%, it sort of implies 4% per year for 2019 and 2020. Is there any risk around the performance of French retail versus the plan for top line? My second question relates to capital. Just wanted to clarify, the 11.5% CET1 guidance for year-end.
Is that including disposal or is it not? How much of the 15 basis points disposals that you have announced is actually coming through by year-end? Thank you very much.
Delphine, good afternoon. I will let, in a minute, Philippe Heim comment on the outlook on the revenues. On the capital, let me just remind you, we target above 12% in 2020. We have effectively a target of 11.5%, around 11.5% year-end. That could include potentially, as I said, the bulk, if not 100% of the 15 basis points that we've just announced. Let me just remind you that we have in mind an accretion of CET1 by roughly 25 basis points a year, which is geared towards the second half because of the IFRIC accounting issue, which reduced the first quarter contribution. We stick to this guidance, and we have capacity, I think, to meet these objectives. Perhaps Philippe, on our guidance on the revenues and the dynamic on the two components.
Yes. Hello. First thing, as you noticed, the momentum on the fee, it's quite strong, and it reflects the shift of our business. We don't really want to focus on this kind of revenues. During the first half of the year, again, the momentum it's strong, notably on fees related to services, and this is really important because it reflects also the growth of our customer base. Regarding the net margin, and notably the ones related to deposit, that's true that there is a significant impact. We are sensitive to short-term EUR interest rate, and because a part of our current deposit is considered as volatile, but still it is reinvested in very short-term. That's why, and also taking into account very beginning of the year, which was a little bit slow, we have revised our guidance for the year-end.
We are still committed to deliver the 2020. As you know, we have many initiatives in progress. We are overall in advance, focusing on the key clients, focusing on the key segments. Again, coming back to my first comment related to the fees, we think that the shift of the business is working.
Next question.
We now have a question from Mr. Tarik El Mejjat from Merrill Lynch. Please go ahead, sir.
Hi, good morning, everybody. Just a couple of questions. First on the growth in RWAs. I understand why your capital wants to break backward, but one of the areas is really very strong growth of RWAs 2% quarter-on-quarter, and that's mainly deriving from CIB or GBIS +5%. My question is, do you really need to commit that much balance sheet to deliver actually what was good numbers in GBIS this quarter? Is there another reason that you might want to explain us here. Second question is on Boursorama. The growth is impressive in terms of client acquisition. That's probably twice faster than N26 or Revolut in France that they used to do 5,000 clients per week. It's very different from your growth just a year-ago.
Can you maybe clarify a bit how much of these are active users or just users getting there to take some welcome credit? Because I think in the past, Boursorama was very well known about, especially before you needed minimum income, so all the clients that would subscribe were actually large parts of them, active users. Is there a shift towards less profitable clients now? Is it not just a race to who has the highest number of clients? Any numbers or clarification would be very useful. Thank you.
Tarek, I will leave the floor to Séverin to elaborate on your first question. Philippe Heim also on the dynamic in Boursorama. I just would like to say one thing on these mobile banks. You cannot compare Boursorama with the kind of banks you've mentioned, whether they are neobanks or even other models. We are by far, and we have been able to have figures, the number one online bank, but with a full range of products and services. Philippe will comment, but we have effectively active client situation. It's much more than very specific and limited range of services provided, for example, by some of the neobanks you mentioned. I think really, it's a key competitive edge for us. Séverin, first of all, on the risk-weighted asset, and Philippe, on Boursorama.
Yes. Good afternoon, Tarek, and thank you for this question. It's fair to say that this quarter, the risk-weighted asset evolution has been a bit high. We have not taken that as a structural question. Now, [Dan], as you know, we had an NBI growth target during the next three years, which is much more or less in line in GBIS with the risk-weighted asset evolution. We have one quarter where we are consuming a bit more capital, but it's not structural, and it's really depending on the type of credit we are doing, and this quarter it's fair to say that we are a bit high. I remain committed, and we are committed to our plan, where the evolution of the risk-weighted asset will be on the line with the top line.
Philippe, perhaps qualitative comments on the clients in Boursorama.
Yeah. Of course, client acquisition is very important. We are also very focused to make sure that we equip these clients. One of the strengths of Boursorama, as mentioned by William, is that we do offer to our clients the full range of products and services. If we look at what took place during the last six months, for example, we have a significant increase of the exposure on consumer loans. We have also Well, by 40%, to be clear. We have also a significant increase on the deposits, on the life insurance contracts. We're also tracking many indicators that has the use of the credit cards, and all of them are moving into the same and the positive direction.
This is not only a race to acquire clients, but to make sure that we are also providing them all the services and products, and therefore developing the NBI.
Thank you. Next question.
The next question is from Jon Peace from Credit Suisse. Please go ahead, sir.
Yes, thank you. My first question is about litigation reserves, your EUR 1.4 billion. Would you be happy to see that run to zero, or do you think of having a sort of an underlying level of litigation provisions to cover ordinary day-to-day business plus any other sort of items you may have in the future? Then my second question was on costs in French retail banking. On one of the slides, you've got a sort of an indicative evolution of costs. I just wondered how literally we can take that. In other words, after the 3% growth this year, should we be expecting, looks like 1%-2% growth in 2019 and then maybe a 1%-2% reduction in 2020? Thank you.
Jon, hi. I will, again, leave the floor to Philippe on the cost side. On the litigation, let me just remind you that what we have done in the last three years has been a prudent, regular provisioning policy on the litigation, which allowed us effectively to close, settle for two of the three major regulatory litigations in the second quarter, in line with the provisioning. With this slight delay on the third one, as we've said, we are really exactly where we are. Let me just remind you what we've said, which is, yes, there's still some uncertainty on the financial impact and timeframe, but it is possible also that the active discussion we are having could lead in a settlement in the coming weeks. In line with this policy, we've decided this quarter to add this EUR 200 million.
Clearly, going forward, it's not a recurrent item. If we have this kind of timeframe, we will have put behind us these litigations of the past, which fundamentally come back to a period pre-financial crisis. These processes can take time. We are not the only bank where, again, there are still these remaining elements. After this, we don't, of course, have this kind of policy in mind, and we will have put all this behind us. Philippe, perhaps on the cost of French retail.
Yes, on the cost. Maybe a first comment to mention that we are investing a lot on transformation. Not only, and I will come back on the improvement of back offices, but also in order to improve the client experience and the way the clients interact with us. Coming back with the transformation of the back offices, that's correct that investments are huge and are taking place this year or next year. We will have the full impact of all these projects starting 2020. Yes, we expect a reduction of the operating expense of more than 2% by 2020.
Next question.
Thank you.
This question is from Lorraine Quoirez from UBS. Please go ahead, madam.
Hello. Thank you for taking my questions. I have a few. The first one is on the capital structure. You are still at compliance well ahead of time. Your AT1s are now 2.5% of RWA, Tier 2 is 3.2%, you're well above the minimum requirements, and you actually issue some more AT1 in April. I was just wondering how we should see your AT1 issuance going forward and AT1 cost as they impact the profitability. My second question would be on Russia. The regulator is going for higher risk weights for new consumer loans above 10% lending rates, if I'm correct. I think this is starting from September, and I was wondering whether this actually reduces your risk appetite. Finally, on French retail, can you remind me a little bit what sits into the other income category?
Whether the benefit of the ALM transaction actually sits in the NII now or whether it sits in that other income category, and if you could quantify it. Thank you.
Lorraine. We will answer your three questions, by exception, if I may say so. First of all, I will turn to Didier again, who is supervising Russia, on perhaps taking some time to explain the activity and answering the specific questions. William on perspective in terms of AT1. I'm not sure to have fully understood your question, but Philippe might elaborate. The ALM, and it's not a benefit, unfortunately, the ALM that we've just described, which is a pretty conservative ALM stance and to keep a significant part of the new deposits in a very short-term way on the net interest margin, but Philippe will elaborate a bit. First, Didier.
There's no change on our risk appetite in Russia. I think that we have it very conservative already. We are taking into account all the impact of the sanction to adjust our risk appetite. Other than that, I think that some move of the regulatory capital from the CBR is not affecting our dynamics.
Let me just highlight now that we benefit from a good retail market dynamic overall. Mortgage is growing, We are mentioning that. We are really considered as the most reliable bank on the market. We remain very positive on Russia. William, on the AT1 insurances.
Okay, thank you. As you rightly pointed out, we have effectively a level of Tier 1 and Tier 2, which is above the regulatory requirements. Let me remind you that we have already issued a Tier 2 and an AT1 earlier this year for a total of about EUR 2.3 billion, which is in line with what we have announced in terms of funding program in our Investor Day. We don't need it. We will remain pragmatic. However, we obviously are very mindful of the cost of these instruments, and we only do it if we can match it with proper profitability on the leverage basis of our businesses.
Thank you. Philippe, can you answer?
Yes, on the other income. There is no ALM impacting this line of revenues. It includes various topics, for example, such as the part of the joint venture we have between retail banking and the insurance business. There is also the result of real estate subsidiaries, and we have also some financial operations dividends. Regarding the variance between this quarter and the similar quarter last year, the variances are coming from dividends, actually, notably from Crédit Logement. These dividends before were included in the net interest margin. We have also some specific financial profits regarding some investments.
Capital gains.
Sorry. Some capital gains, sorry.
Okay. Next question.
The next question is from Guillaume Tiberghien from Exane. Please go ahead, sir.
Thank you very much. I just want to know whether you're still committed to generate the six and a half EUR of EPS for 2020 and dividend cash of EUR 3.20.
Absolutely. We have not changed our dividend policy, Guillaume, and you can see that actually we have provisioned exactly that same ratio for the first half, and yes, we are committed to that.
Thank you.
Next.
We now have a question from Anke Reingen from RBC. Please go ahead.
Yeah. Thank you very much. The first question is on the disposals you announced here today. I just wondered if you can give us
An indication of the lost earnings as a result. Secondly, I wasn't quite sure, did you mention in your comments about the capital ratio being impacted by TRIM? Can you please clarify? Thank you.
Yes, Anke Reingen, on the second part, it's a relatively limited thing on the TRIM. William can comment more. Can I say that on the sale, there is a -EUR 27 million impact through IFRS 5, but fundamentally we will make, at closure, some capital gains from the sale we just announced. I'd like to highlight that, and I think you can acknowledge that we've been relatively effective in our sales process in the last few years, and the prices we get reflect definitely all the works which have been done to improve the resilient quality of these assets, and I think it's the right time to sell. Also because, clearly the growth perspective today is relatively good. Second, European banks, and you see we sell to industrial players. They have rebuilt capital base. I think really we are effective in these processes.
I think it was the right time.
Sorry.
Sorry.
Maybe I wasn't quite clear. I meant just like as you're getting EUR 150 million GOI from EMC, I'm sure the business you're selling will mean there are some earnings lost on an ongoing basis. I was wondering there.
Exactly right. If you look at the numbers, basically, with what we sell, the total package, it's less than EUR 50 million net income. If with what we buy, we're talking to you about EUR 150 GOIs, so net of tax, it's well above EUR 50. You can compare the 15 basis points to the 10 basis points. You can see it is not a stupid way to reallocate capital. I hope that answer your question.
Yes. Thank you.
With regards to the TRIM, it's four basis points. It's an ongoing process. We try to adjust our models on an ongoing basis, this is four basis point, mostly on the credit models spread across different businesses.
Okay. Thank you.
Thank you. Next questions.
The following question is from Azzurra Guelfi from Citigroup. Please go ahead.
Hi. Good morning. Two questions from me, both on capital. One is, when I was looking at the breakdown of the risk-weighted asset, the increase is mainly from credit risk-weighted asset. You had basically a flat-ish operational risk-weighted asset quarter-on-quarter, and some peers have shown growth in this area. Just wanted to know if you have any expectation for this to expand in the second part of the year. The second question is on the reshaping of the group with strengthening some area with targeted acquisition. Would there be any level of minimum capital that you would not be happy to go below in case you had a fantastic opportunity ahead and you had not yet had the opportunity to sell some of the assets that you're planning to? Thank you.
Azzurra, Séverin will comment on your first question on the perspective of the evolution of risk-weighted assets on the market risk. Now, there is no reason on the operational risk to change. On the second question, first of all, I don't see that many splendid opportunities. We've qualified EMC as a quite unique opportunity because the fit with our existing business, for all the existing EMC business, is absolutely perfect. I think we've put some figures which reflect how accretive, in terms of return on equity, this acquisition will be for us. If I may, I don't see that many opportunities like this. As I said, regarding the threshold of capital, I'm very clear. We want to stick to this 11.5 guidance for end of 2018 and the above 12% for 2020. We stick to that.
It means the capacity of acquisition is also, of course, limited to that, but I don't see that many opportunities which would trigger any change of strategy. We are very clear. You will have, as I've said, definitely more disposal in terms of capital consumption definitely than in terms of acquisition. It's very clear. Séverin, perhaps outlook for market risk-weighted assets.
Is this regarding market risk or operational risk?
It's market risk and operational risk.
Operational risk.
For you, I think.
Okay. On operational risk, you saw that the level has been stable, and very much stable over the last quarter. On market risk, as you know, it's very much linked to mainly our value at risk and stress value at risk. As you saw during the last period of time, we maintain a very low value at risk for the market activities. This is clearly, for me, the current stand we have in term of risk appetite, and we don't expect to change our risk appetite significantly on the market risk. Thank you.
Next question.
I have a question from Kiri Vijayarajah from HSBC. Please go ahead.
Yes. Good afternoon, gents. I wondered, firstly, could you just go back on the rationale for selling the private banking business in Belgium? I thought the aim was really to offload RWA-intensive assets. Rather than things like private banking. Your thought process there would be helpful. Then more generally across your disposal program, does it not make sense to maybe wait till you settle OFAC before increasing your capacity to pay a potentially large U.S. fine? Again, your thoughts on the disposal program versus litigation buffers as well. Thank you.
I will let Séverin comment on the private banking business in Belgium, Thierry. If you wish, we had this debate in the last 3 years, we're trying to find the best balance. We have a general provision, at least that not a specific one which is flagged very easily. I think, again, we showed at least in the first 2 settlements that probably it was the right policy. I guess it could be the same also for the third one. You're right to find balance, and of course, we try to ponder and wait what makes the most sense from that perspective. Belgium.
Yeah. Thank you. Our position in Belgium is a limited one, as you should know. The market in Belgium, private banking industry is very well-established. We were in a position where we think we couldn't achieve our target in term of development and in term of return, that the reason of our decision. It is a EUR 6 billion assets under management in this Belgium subsidiary, and in term of risk-weighted assets, it's a bit of EUR 1 billion, and with a return which was nothing the way we want to deliver. It's really a refocus on the geography where we think we have the critical size, and we can develop and have the right return we want.
Okay, great. Thanks, guys.
Next question.
The following question is from Flora Bocahut from Deutsche Bank. Please go ahead.
Yes, thank you. Good morning. The first question is regarding the capital, more specifically, the regulatory risk. I'm thinking, for example, at the operational risk, where I'm sure you've seen that one of your competitors announced a move towards more use of the standardized method. Is it something that, for example, you will also need to do? More generally, with the recent settlements on the LIBOR and the LIA, could that translate into higher operational risk RWA, for example, at the end of this year? The second question is regarding the corporate center clean gross operating income guidance. Just to make sure I understood correctly, you reiterate today the guidance of negative EUR 400 million, right, despite the very strong performance in H1? Thank you.
Regarding, Flora, your first question, we don't expect any change on the operational risk calculation, any specific element coming also from the first two settlements. You know that, of course, the big reform is more related to the Basel IV-1, which will be something proportionate on the revenues, et cetera. That's not for tomorrow, nothing at least on our side. If I may say on the corporate center, probably the guidance remains a little bit conservative, even if there are some volatility elements which makes us speculate. William?
Yes. A combination of seasonality elements and volatility elements in the corporate center, which I think has been well explained to you over the past years, means that we want to remain cautious. Effectively, you're right, it's probably on the conservative side at this stage.
Thank you.
Next question.
We now have a question from Mr. Bruce Hamilton from Morgan Stanley. Please go ahead, sir.
Good morning. Thanks for taking my questions. Firstly, just a question on sort of capital allocation and the loan book. I guess, going back to the, I think, slide 42, your exposures or outstandings in GBIS have grown by 12% Q-on-Q. Yet French retail is shrinking. I know in mortgages you've stepped back, but in the corporate space, it also looks like you're undergrowing the market. Is that an intentional position given your perception of risk in those two areas? Is Q2 kind of extraordinary in terms of the opportunities you saw in your sort of structured financing unit? Secondly, in terms of the cost of risk, obviously you continue to beat expectations, and you've given us new guidance for 2018.
As we think a few years out and as we come towards the later stage of the cycle, could you help us think about the range in terms of what a good and a bad year might look like? Because clearly, if you are still trying to build to the right capital levels, that will become potentially a bigger concern. So versus the cross-cycle, what is the sort of volatility around the cross-cycle cost of risk you would expect through sort of good and bad times? Thank you.
Bruce, first of all, let me say, I am personally happy with the 3% growth that we see both actually for the corporate loans in France. Actually, when you look strictly at corporates and beyond local authorities, higher than that. Let us say we are happy, and it is not a I think a question of risk, but it is also a question of we want to focus on an allocation of capital which is profitable. Second, on the mortgage, we have effectively, yes, resisted to just book too much loans at very low fixed-rate when we felt the clients would not, in the long term, be that profitable, and where the cross-selling opportunities would be limited. I know that in other markets we have exactly the same thing. Some players are more conservative on the mortgage, and I think it is the right policy.
If you wish, it is not a risk perspective, it is more a risk-reward, a long-term risk-reward perspective, which is driving this attitude. Regarding on the GBIS that you just mentioned, Séverin already commented, we all look at the quarterly figures. Let me just say you can have things like more pipeline in terms of underwriting at some point. I think we need to take a step back. We are very confident strategically with our financing activities. We are one of the world leaders. We are again posting very strong leadership positions end of the second quarter, and Séverin can elaborate if you want to go more than that. These are very resilient activities, lower cost of risk because we structure well the transaction. We are happy with the strategic allocation of capital presented six months ago.
We need to be a bit careful at looking at every quarterly figures. Regarding the cost of risk, I would like really to highlight that, again, it is not just the result of the environment. The environment is good. Growth is good. Financing conditions are still very good. It is the result of a multi-year effort to improve the credit origination, to improve the recovery processes, and it is reflected in a low cost of risk everywhere, including in countries with higher rates. It is across the board, and I think we have effectively the benefit of all these efforts and a credit portfolio which is of good quality. We have said that, yes, we expect a progressive normalization while we reduce the guidance for this year.
If you take a more mid-cycle approach, we have said something like 35-40 basis points, if I remember well, at the group level, with, of course, some differences. We have here today a cost of risk in IBFS, which is more or less in line with the French one, which will go up a little bit more normally at 70 basis points. We stick to that. In French retail, something like still 35, probably, in mid-cycle. We'll see whether maybe there's some improvement, perhaps. Again, we have in mind some kind of normalization, taking also into account the IFRS 9 effect in a different cycle. It's something which will be moderate, and I would like, again, to highlight the high quality of the portfolio. This is not just for this quarter.
We have, in the last quarters, regularly posted a low cost of risk in absolute terms, but also in relative terms.
Great. Thank you. Very helpful.
Next question.
The following question is from Stefan Stalmann from Autonomous Research. Please go ahead, sir.
Yes, good morning, gentlemen. Thanks for taking my questions. I would like to come back to the French retail cost base bit, please. Thank you very much for the helpful disclosure and the breakdown of where the growth is coming from. I'm wondering a little bit why the run part of your cost base is still growing at almost 1%, given quite a lot of the cutbacks that you have already made in 2017 on your branches, on your call centers, et cetera. If this underlying run part of the cost base continues to grow at 1%, how do you want to get back to the kind of dynamics that will make you reach the 1% cost CAGR target for the four-year period? Related to this, thank you also for the Boursorama disclosure points.
If I make some really high-level assumptions about what it costs to attract a new client, it would be possible probably to explain all your run rate cost growth by the growth of your acquisition cost in Boursorama. Do you think that's fair, or do I overestimate the acquisition cost in Boursorama? Thank you.
Let me highlight the second question is a request for short answer. The marketing costs are actually deducted from the revenues in Boursorama.
All right.
That reduce the revenue line, at least the bulk of it, not all of it, but the significant part of it. As we've said, it's very important to understand that these marketing costs are very flexible, and fundamentally will decrease and are decreasing the last quarters regularly. We are again very positive on Boursorama. It's just to say the mix of Boursorama today in the retail deteriorate to a certain extent overall the figures because we are in this acquisition mode. Regarding the traditional networks, if I may say so, on the run, again, we will not keep the same figure, but Philippe, perhaps you can explain at what stage we are exactly in the transformation and the benefits of the cuts today.
I think we have to be clear. We have not, as I said before, captured yet all the benefits of our transformation. Yes, we are adjusting our platform. Just taking the example of what we have done regarding branches closure during the first half of the year. We have closed again, 50 branches in Société Générale and in Crédit du Nord. But all the efforts regarding back office, as I said, will really come within the next 18 months to two years. Yes, really, the turning point will occur in 2020 and 2021. Regarding the running cost for this year, you have also to take into account that we are including some regulatory cost, remediation on Basel issues, which of course are kind of exceptional and will not continue in the future.
Okay. Thank you very much.
Next question.
We have a question from Pierre Chedeville from CM-CIC. Please go ahead, sir.
Yes, good afternoon. I have one question regarding your positioning in shipping, because I was surprised to see that you mentioned shipping as one of the best performing loans you did this quarter. In my view, we are withdrawing more or less from this activity, sorry. I have also a question regarding ETF and smart beta. You said that you had a little less performance this quarter, if I'm correct. When I heard the conf call of Amundi, I understand that they have a good inflows regarding ETF, but bad ones regarding smart beta. Is it the same for you, or is it different? Thank you very much.
Pierre, good afternoon. I will turn to Séverin. He has all the answers on your question. Séverin.
Regarding shipping, we are, as you know, a small player in the shipping industry.
Yes.
We have been very focused on some specific sub-segment of this industry for a very long period of time. We're still there. Today, keeping those focus on more the best-rated counterpart and the more specific ships we are ready to finance, we had got some opportunities. It's fair to say that this quarter, we had a good dynamic in term of shipping financing. That's the point. It's not a big business for us, as you know. Regarding your second question is regarding ETF, and it's fair to say that the revenue on our ETF activity has been a bit [amuzed] this quarter. It's not really in term of new money collection, but more in term of market evolution. Thank you. Next question.
The next question from Jean-Francois Neuez from Goldman Sachs. Please go ahead, sir.
Hi, good morning. I just wanted to ask on the pricing environment, the competitive environment in France. We are seeing from the data from the Banque de France, that pricing is under renewed pressure at this stage. I just wanted to try to understand that from your vantage point, how are you seeing this developing, and are you seeing either increase or decrease in that competitive environment? Essentially, where I'm coming from is that with 5%, 6%, 7% volume growth at industry level, it's very surprising, I find, to see this amount of pricing pressure of loans. I just was trying to understand where we are in the cycle of pricing, essentially of front book pricing. My second question is on the investment bank.
In general now, your global peers, almost all your global peers, if not all your global peers, have a quarter one ratio which is above yours. It's the second quarter where in capital markets, you've been lagging the broader peer group in terms of progression, even including in US dollar to be comparable for everyone. I just wanted to know what you would choose if you had to meet your capital objective versus maintaining your market share going forward, whether you believe that maintaining those market shares would require putting down more balance sheet commitment from here on. Thanks a lot.
Jean-Francois, good afternoon. I will let Philippe answer. I don't think that the French market is that different from other European markets, where some players are fundamentally having a policy of volumes. We, as I said, want to keep a selective origination, because probably we focus more on the profitability, yeah, and the optimization of the capital allocation. Philippe will comment more. On your second question, first of all, let me just fundamentally highlight that we see exactly the same thing in the second quarter than the first, which is that U.S. markets are more dynamic and provide more opportunities today than European ones. It's very clear in terms of the volatility parameter, it's true in terms of IPOs, et cetera. The level of activity is overall better.
Depending on your business mix and geographical mix, of course, you have more or less dynamic, and we see ourselves in our own portfolio of activities. Will it last forever? I'm not absolutely sure. We will maybe discuss that in 12 months time, but depending on how the growth outlook in the U.S. will be, what I'm just saying is that here there's this strong influence of the immediate time. We try to build for the longer term, as I've said, with the view that in Europe, the whole regulatory framework, the whole political objective is to have a better balance between bank and capital markets to finance the economy. That there are not so many players which can take advantage of that.
I'd like to highlight that, I think in terms, as I said now, of league tables, we probably have the best ranking that we ever had in the last years in different DCM markets and others. We stick to this strategy, and I think, of course, the monitoring of the capital ratio is the strong commitment that we have. We adjust and we monitor our risk-weighted asset, and capital allocation to ensure that we stick to that. We delivered in the last few years on this, and of course that remains the main objective, and we are not market share driven for the sake, generally speaking, of being market share and volume driven. Clearly we are disciplined, I think, in terms of attaining our capital ratios. Philippe, perhaps where do we stand more precisely on the cycle in pricing?
Well, that's true that there is definitely a lot of liquidity on the market. On the day-to-day, we definitely feel this pricing pressure. As explained by Frédéric, we are really trying to find the right mix between the volume and the pricing and also, of course, taking into account both for individuals, professionals, or corporates, the fact that we want to develop long-term relationship with our clients and sell the full range of our products and services. That's why we are definitely focusing on our target clients. The pricing is especially the pressure is significant, notably on mortgages. Just to give you a number, that's true that our margin, for the second quarter on production was 19 basis points, so 20, approximately 25 basis points below last year.
There is also a pressure on corporates, but again, we are trying to maintain the right level of margin and taking into account the full life of relation with the clients. Of course, the risk appetite for example, we have been very cautious on some LBO deals.
Thank you very much.
Thank you. Next question.
The next question is from Maxence Le Gouvello du Timat from Jefferies. Please go ahead, sir.
Good afternoon, gentlemen. I will have two questions. The first one is regarding the Originate-to-Distribute. You said, previously in a few quarters, that was the reason why the growth in corporate activities in France was more limited than the others. Can you give us a point on that element? Can Séverin give us more color of how is it implemented into the investment banking? Second question will be for Didier in Russia. You did a very strong, one of your best performance in terms of profitability at 16% ROE. Can you give us more color? Is it a one-off or can we expect more in the future? Thank you.
Hello, Maxence. I will turn to Séverin and Didier. Séverin, origination and distribution, how do we manage this?
As you know, we have, now since last 6 years, completely equipped in terms of Originate-to-Distribute. We are monitoring our risk-weighted asset consumption through the level of distribution, clearly. We are moving on that also leveraging on our other target we have is to increase the fees and commission. We have some quarter, and in the case this quarter, probably some more exposure, and we earn more on the writing fees and more advisory fees, and then we can adjust our consumption of capital through our OTD processes. I don't know what is specifically your question, but we are completely operational in that process, and we can vary, and today we are probably keeping more on the balance sheet, for this time being than we were, for example, some time ago.
That was my question is, in terms of piloting more or less. Which means that if you keep more, the yield that you have is much interesting than previously, or you have less constraint on the capital side from the group?
No, we are monitoring and managing our capital consumption through this OTD ratio. Fair to say that in our current origination, we have good return, and that is why we keep [on the button]. We can adjust that very quickly.
Okay. Thank you.
Didier?
Yes, Maxence, there is in fact no exceptional items in this performance. It's in line with our plan, and I think that it's fair to say that during the crisis we have invested a lot in the platform to make it a better bank, and it's paying off. Basically this brand is getting attractive on the labor market when we can tap talents, and it's getting attractive vis-a-vis clients. That is dynamics that are taking place. You can see it on the taking off of the retail production. You can see it on the attraction of deposits, as we have double-digit rate growth. You can see it also on the digital profile of the bank. For instance, out of 350 outlets, already 86 of them are equipped with biometric recognition for clients.
As this bank is one of the pilots of this very unique initiative from the central bank.
Thank you.
Thank you. Next question.
The last question is from Lorraine Quoirez, from UBS. Please go ahead, madam.
Yeah. Hello, sorry. I have one last question, it is regarding the book value per share. I can see it declined this quarter. Can you perhaps give some explanation? Thank you.
William, do you have the explanation on the book value decline? Is it OCI or things like it?
Yeah.
The dividend, maybe.
IFRS 9 impact. We get the EUR 1 billion hit from the first half.
IFRS 9 is probably the explanation right now. We can come back to you with a more detailed situation.
Okay, because I thought IFRS 9 was the Q1 story.
What I suggest is we will review that with you more in detail, okay?
Okay. Thank you.
Okay.
We have.
Yeah, sorry.
We have a question.
I understood that there was no more question, yeah? You told me it was the last one.
Yeah, because it was. Are you ready to take the next one, or do you want to conclude?
Last one. Yes. Okay. Is there still a one? Yeah, okay.
The next one is from Nicholas Davey from Redburn. Please go ahead, sir.
Good afternoon, everyone. Sorry to hold everyone up. 2 last questions from my side, just to wrap things up. The first on operating leverage. Part of the key pillar of the plan was always to do revenue growth above cost growth for the group and each of its divisions. Just looking through the trend in the first half, cost growth is outpacing revenue growth in all of the divisions. Just a high level question maybe, and to summarize, when you think the turning point is where that positive operating leverage will be evident across the business? The second one, maybe also just to wrap up on this capital debate. I suppose your target for 12% CET1 by the end of 2020 means 90 basis points from here to there.
I just suppose was just struggling a bit with the equation, that if you do this 10%-ish return on tangible, I'm seeing credit growth accelerating in France, 6% credit growth in the international business. I just can't quite get the math to work with a 50% dividend, that growth, and 90 basis points of capital. Do you feel you have all the capital you need to support the lending growth you're seeing in your businesses? Thanks.
Yeah, Nick, perhaps let's link the two, because it's not fair to say that the costs are increasing more, and actually we demonstrate a strong cost discipline. As we said, putting aside the one-off effect based in 2017 from this write-back of provision, we are basically, we have costs which are flat. When you look at the divisions, you have a different picture. You have French retail, where, yes, we still see a decrease of revenues at a time where we feel we have absolutely to invest to transform the business. We will again explain, and we have explained the dynamic of the cost base. We will get the benefit in 2020 and beyond. I think it's important to understand this, of these investments, which are critical just to maintain the business going forward.
In terms of return on normative equity, we stand at still 12% regarding this French retail, with a credit increase of 3% of the outstandings. The idea is to maintain this. I don't think that there will be an acceleration. I would like to insist, we are driven here by a risk-reward element. Just booking, as we've said, very low margin credit for 15 years on mortgage with a limited upside going forward in terms of cost-saving for us does not make necessary sense. Second division, international retail financial services. Here we have positive jaws. I'd like to insist, positive jaws, growth drivers, and very strong return on normative equity, which effectively can finance its growth. The CIB, slight increase this quarter. First half, overall stability on a like-to-like basis. The costs are not increasing, neither.
We have effectively a more dynamic risk-weighted asset increase this quarter. As we've said, also, there are quarterly elements. Yes, we are confident with the kind of management we do of our capital allocation, risk-weighted assets. With the operations we have in mind, yes, we are confident to meet our targets in terms of capital ratios, which are 11.5 at the end of this year, and 12% above 10% in 2020. We think that with the business mix we have, it's a kind of ratio which makes sense.
Okay, thank you.
Okay, I suggest that we stop here. Thank you for your attention. I wish you, if you have the opportunity to take some holidays, a happy holidays, relaxing holidays, and we'll see each other very soon going back. Thank you very much.
Ladies and gentlemen, thank you all for your participation. You may now disconnect.