Ladies and gentlemen, welcome to the Société Générale Q3 2022 Results Conference Call. Gentlemen, please go ahead.
Hello. Good morning, everyone. Thanks for attending this call. I hope you are all well. As usual, with Claire, our CFO, I will try to make a short presentation, and then the whole management team will be at your disposal to answer your questions. Let's turn to slide 3, which is the summary of our performances in the third quarter. Obviously a strong quarter. EUR 1.4 billion of net profit in terms of underlying, and EUR 1.5 billion reported. Double-digit return on tangible equity. If we look at the first nine months, the underlying net result is up more than 11% compared with last year, which was already, as you know, an historically high level of results.
The underlying return on tangible equity is for the first nine months at 10.4%. During the quarter, revenues were up, slightly increasing in French Retail Banking, strongly growing in both International Retail Banking and Financial Services, Global Banking and Investor Solutions, and overall, a good performances of our businesses. Regarding costs, we continue to maintain the strict discipline, leading to an underlying cost income ratio, excluding the Single Resolution Fund of 60.7% in the third quarter and below 60% for the first nine months of the year. On that basis, we revised downwards our guidance of cost income ratio, including Single Resolution Fund now below 64% for the year. Regarding the cost of risk, obviously an important item, defaults remain very low at 10 basis points, with no sign of material deterioration of asset quality.
On the contrary, our NPL ratio is further improving, compared with the end of June this year. We have decided to remain prudent in this uncertain environment and to maintain a cautious approach by further strengthening the stock provisions on S1/ S2 assets. Overall, the cost of risk is at 31 basis points for the third quarter, and 66% is on S1/ S2 provisioning. On capital, thanks to a solid capital generation with our earnings, the CET1 remains strong at 13.1%, post provision for distribution, up compared with the end of June, and it is now 380 basis points above requirements. Note that the 2021 share buyback program is well advanced, and we expect to complete it by the end of the year.
Lastly, but importantly, we carry on making good progress regarding our strategic initiatives. In France, we have received all approvals from the regulator for the merger of the French networks, which will take place on the 1st of January 2023, and then we will have to, of course, manage the IT migration in the first half. On Boursorama, we have successfully achieved the migration of the ING clients with 2/3 of the eligible clients having migrated, and we have now more than 4.3 million clients. Regarding the acquisition of LeasePlan, the approval processes are on track. We expect the rights issue to occur before the end of this year and the closing in the first quarter 2023. Slide 4.
A brief word just to highlight that beyond, of course, delivering all these elements, we are also focusing on the longer term regarding ESG. We have announced an acceleration of the alignment of our credit portfolio towards NZE scenario and 1.5-degree increase in temperature scenario. We had regarding in particular the most polluting portfolio, the financing of upstream oil and gas. We had a few quarters ago commented, communicated a target of -10% reduction in absolute terms, in billions of euros between 2019 and 2025 of our portfolio. We have decided to basically double the reduction rate to -20% at least.
We've also a new target in terms of CO2 emission for this portfolio, -30% of the Scope 3 figure, between 2019 and 2030. We have also improved our target regarding our power portfolio. I will now leave the floor to Claire, who has a very sore throat, but I hope it will be fine. Claire, the floor is yours.
Exactly. I have terrible cold, and I don't have much of a voice this morning. I had the feeling to be a party girl, but for me, tomorrow rugby player, so I will try to end the presentation. As Frédéric just mentioned, in Q3, another very solid underlying performance in the continuity of the previous quarters. At EUR 2.5 billion, the underlying group operating income is up 2.9% versus last year. Which was already a very strong quarterly outcome. Compared to 2019, the increase of the gross operating income is even significantly stronger and close to 50%. It illustrates the very solid commercial performance realized by our businesses, while containing, at the same time, the evolution of their cost base.
Therefore, despite an inflationary context, those are positive, and the underlying cost income ratio, excluding SRF, continues to improve at 60.7% in Q3. It's 1 percentage point lower than last year and even 6 points below in 2019. Adding to a very solid first semester, the performance realized in the first nine months of the year is remarkable, and the shows are strongly positive. See Slide 7. Underlying revenues have increased in all our businesses compared to last year. At group level, they are at 10% versus nine months last year. In the meantime, costs remain under control with an increase of 5.4%. It's mostly explained by the contribution to the SRF for EUR 280 million, the variable compensation item for EUR 142 million, and the Forex impact for EUR 165 million.
Excluding these variable items, the other costs increased by a moderate 1.3% versus nine months last year. The strong outcome achieved so far leads us to revise downwards our 2022 guidance for the cost income ratio, excluding SRF, on an underlying basis, which is now expected to be below 64%. Turning to the cost of risk, Slide 8. It remains contained for all the businesses and is mostly composed of statistical provisions booked on Stage 1, Stage 2 assets, as we will see, just after. At group level, the cost of risk stands at 31 basis points in Q3, and 29 basis points since the beginning of the year.
It includes around EUR 69 million of additional cautious provision booked on the remaining Russian exposure, which has continued to steadily decrease to EUR 2.3 billion at the end of Q3 2022 from EUR 2.6 billion a quarter ago. We still expect the net exposure at risk on these assets to be below EUR 1 billion. The total amount of provisions covering this net risk now amounts at EUR 452 million. Overall, the asset quality remains very good, as illustrated by the continuous decrease of the NPL ratio, which is once again down and is now at 2.7%. The gross coverage rate is stable at 50%.
For 2022, despite the quality of our portfolio, we reiterate the existing guidance in terms of cost of risk between 30 and 35 basis points to maintain the cautious approach in terms of provisioning. Looking at the next page, slide 9, you can see that the cost of risk in Q3 is largely composed of precautionary provisions booked on Stage 1 and Stage 2 assets. They account for 66% of the total cost of risk in Q3. The stock of provisions on defaulting assets has, thus, further increased over the quarter and reaches now EUR 3.8 billion, which represents almost 3x the provisions on Stage 3 assets in 2019. Overall, defaults are still very limited, and the related cost of risk remains very low at around 10 basis points. Let's now turn to capital and liquidity. Slide 10.
The cost income ratio of the group has improved by 13 percentage points in Q3 and benefits from higher IT time saving in line with the increase in Stage 1, Stage 2 provisions. It lands at 13.1% at the end of September. The buffer over MDA is around 380 basis points. This increase in capital mostly results from a strong quarterly organic capital generation of 14 basis points and to a lesser extent, from the group employee share ownership program, which generated around 6 basis points. The positive impacts have more than compensated both the negative impact on the CI of 6 basis points due to the continued spread widening of sovereign debt and a 3 basis points impact on other items.
Note that we expect the impact related to TRIM and IRB repair to be postponed in the coming quarter between Q4 and 2023. Overall, the group can leverage on a solid balance sheet with all ratios comfortably above requirements. Note that the 2022 funding program for the year is now achieved. I will not comment the slide 11. Look, let's look now at business performance and start with the French retail activities, slide 13. The momentum remained overall satisfactory this quarter in France, despite more challenging environment, especially on home loans market, due to the impact on production of the still low level of usury rates. In detail, by 1.5% that is Q3 last year, notably driven by regulated savings.
Regarding loans, the total outstanding continued to grow in Q3 by 3.7% versus last year, notably thanks to a 4% growth in corporate loans. The growth on home loans outstanding is increasing by 3.5%. It's consistent with a voluntary selective approach in production we started a few months ago to limit the impact of the repricing lag effect due to the usury rate. On savings, and despite the volatile market environment, we experienced resilient life insurance outstanding and private banking assets under management. In life insurance, gross inflows amounted to EUR 1.8 billion, and in private banking, net inflows totaled EUR 1.3 billion in the quarter. We over-performed the banking funds market. Finally, premium in personal protection continued to rise by 8% in Q3, and P&C were up by 4% in the quarter.
When it comes to Boursorama, slide 14. We successfully ended the integration of ING clients in a short period of time with a 2/3 onboarding rate. Overall, 315,000 clients have joined Boursorama and funded around EUR 8.5 billion of savings. They are mostly composed of affluent profiles. In the meantime, Boursorama continues to acquire around 100,000 new clients a month organically at a marginal cost, which is continuously decreasing. Overall, Boursorama posts once again this quarter strong client growth with 365,000 new clients and now reaching 4.3 million clients totally. In the meantime, Boursorama continues to progress in monetization with a good growth in both banking assets and savings. Loans outstanding are up 21% year-on-year at EUR 15 billion, despite a voluntary slowdown in home loans production in Q3.
Regarding deposits, they are up by 37% and financial savings by 24%. To conclude on Boursorama, we also wanted to point out the continued growth in day-to-day banking operations with, for instance, a 45% growth in payments and withdrawals. It perfectly illustrates that contrary to several fintech, Boursorama is a real bank, which is used as primary bank by a high percentage of its clients. In terms of P&L, slide 15, despite an anticipated pressure on the net interest margin due to the specificities of the French market, revenues are resilient in Q3. They are up at 5%, that is Q3 last year, notably thanks to strong commission.
In retail, net interest margin and other is down by 4.5%, mostly due to the impact of the increase in the regulated savings rate and the lag effect on home loans repricing. On the contrary, fees increased by 6.5% with strong growth in service fees and resilient levels in financial fees. Regarding the underlying costs, they are moderately up by 2.2%, which illustrates the continued efforts made on the cost base. This increase in cost is indeed mostly due to the increase in the SRF contribution, variable cost, and client acquisition cost. Factoring a prudent approach on Stage 1, Stage 2 provisioning, as indicated by Frédéric Oudéa, the underlying ROTE come at 9.4% and 10.9% excluding Boursorama. Let's now turn to International Retail Banking, slide 16.
Business dynamics remain solid in most regions. In Europe, loans outstanding is up by 6% with an increase across geographies and client segments at constant perimeter and Forex rates. The situation is more mixed for deposits, which are up in Romania and Western Europe, but down in Czech Republic due to a shift towards financial savings. In Africa, we continue to see a very good momentum both in loan and deposit outstanding, respectively up by 7% and 6% at constant perimeter and Forex rates. Overall, our international retail activities posted another set of strong revenues, which are up 15% in Europe, notably thanks to, once again, a double-digit growth of the net interest margin, in contrast with the French market. In Africa, revenues are up 10% at constant perimeter and Forex rates on the back of strong commission.
In insurance and financial services on slide 17, it continued to perform very well with an NBI of EUR 966 million, which is up by 14%, that is Q3 last year at constant perimeter and French rates. On insurance first, revenues are up 2% at constant perimeter and Forex rates. Total life insurance outstanding are resilient at EUR 130 billion, with the unit link still high at 35%. In terms of production, net inflows in life insurance stayed at EUR 1.7 billion since the beginning of the year. We see this quarter a good momentum in savings partnership in France with double-digit growth. Production increases by 3% compared to Q3 last year, notably in P&C premium, which are up 6% compared to last year.
On Financial Services, they keep on delivering very positive results with a 14% growth in revenue at constant perimeter and Forex rate. We continue to benefit from a solid momentum at ALD with another very strong quarter. The selling fleet is still growing well at 5.2% growth versus last year and at constant perimeter and Forex rate, NBI is at 24%, notably on the back of both growth in margin and a still very favorable remarketing environment with a huge car sales result around EUR 3,149 per unit in nine months and EUR 3,014 in Q3. To a more limited extent, hyperinflation accounting in Turkey has a slight positive impact for about EUR 20 million in Q3. To sum up, IBFS has performed well again this quarter, see slide 18.
Revenues are up 14% at constant perimeter and Forex rate. Yields are positive despite the accounting of ALD of charges related to the acquisition of LeasePlan. Stripping out these specific elements, the increase is limited to a mid-single-digit number, despite high inflation, notably in Eastern Europe. Overall, the gross operating income is up 16% at constant perimeter and Forex rate, and the underlying return on normative equity, which is 23% with a net income above EUR 600 million. Turning to GMRF, slide 19. Total revenues are up 11% versus Q3 last year, with a continued solid contribution of market activities, whose revenues are up 12% versus last year at EUR 1.3 billion. This is the best third quarter since 2016 and the best nine months since 2019 at EUR 4.6 billion.
Equity has performed well given the current context, supported by sustained client demand both in flow and investment solution. NBI is up +1% compared to strong Q3 last year. On fixed income, we're still benefiting from a favorable environment to our business mix. As a result, we posted once again a very strong performance across products, thanks to a dynamic commercial activity. Overall, revenues are up 34%. Financing and advisory, slide 20, also delivered in Q3 a robust performance with revenues up by 7% versus last year at EUR 807 million. In global banking and advisory, dynamics remained strong in asset finance and natural resources, notably driven by strong demand to finance the ESG transition. The activity was resilient in asset-backed products.
On the contrary, in line with peers, investment banking has been severely impacted by the significant decrease in volumes in capital markets. In transaction banking, performance was excellent across all activities, offering an outstanding revenue growth of 50% compared to last year, notably thanks to cash management and correspondent banking. They totally validate the investments undertaking in this activity over the last years. Overall, GBIS, slide 29, delivered a very good quarter with quality positive yield. This is driven by a solid revenue growth of more than 6%, coupled with a strong cost discipline. In Q3, GBIS delivers an underlying ROE close to 13% this quarter and above 16% excluding FRS. On the corporate center, slide 22, operating expenses include, as usual, transformation charges for a total amount of EUR 160 million this quarter, mainly on Vision 2025.
I will hand the floor to Frédéric Oudéa for the conclusion.
Well, thank you very much, Claire, and for the effort, and we'll try to preserve your voice as much as possible during the Q&A. A few words of conclusion. Clearly, again, a very good set of numbers following the previous quarters that gives us confidence to carry on and deliver good performances and accompany our clients while being, of course, realistic. The environment is complex, is particularly uncertain, and next year we will have to see how things are developing, both from a geopolitical, economic, and financial point of view. That means we will keep till the end of this year a conservative approach, in particular in provisioning, the idea to enter 2023 with the maximum level of reserves. At the same time, priority also is to pursue our strategic projects.
They are moving ahead, we are confident to effectively achieve some critical milestones at the end of this year and in the first half, which will of course help to build the future of the bank. Last word, of course, the board has appointed Slawomir Krupa as the next CEO at the next annual general meeting. Of course, the objective also during these coming months is to ensure a smooth and orderly transition. I'm very confident about this. We know each other very well, and we are coordinating very efficiently currently. That's what I wanted to say, and we are now open for your questions. I suggest again, two questions per person, if possible.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. First question from Flora Bocahut from Jefferies. Madam, please go ahead.
Yes, good morning, and well done on the results today. I had two key questions really. The first is regarding the French retail banking revenues. They surprised positively this quarter, and especially the French NII, which is up versus Q2 despite the DFR rate hike. The question here is really, should we consider that the French NII reached the trough in Q2? Was this Q3 NII number clean, or was there any one-off linked, for example, to the TLTRO accounting? The second question is regarding the capital ratio. There again, it comes up stronger than expected, so you're now at 13.1%. We know there's 40 basis points coming from risk plan acquisition. There's still 30 basis points, I think, coming from TRIM.
Actually, pro forma of these elements, you are at 12.4%. You need to get towards 13%, thinking about the Basel IV impact in 2025. In other words, you're gonna need to build 60 basis points of organic capital in the next two years. Anything you can tell us here on your conviction that you can get there. Thank you.
Hello, Flora. I will let Sébastien comment on the net interest income for the French network, and I will take your question on the 41. Again, I was trying to preserve as much as possible, Claire, but she can complement if you wish. Look at just this quarter, we have created 16 basis points, 13 basis points, 14 basis points of organic capital with the results and of course, taking into account the reserve for distribution. Here you talk about 60 basis points on the pro forma for the next two years. We remain confident about the capacity to fare an uncertain environment in 2023 and beyond.
Yet, let me keep in mind, in 2024, 2025, we will get benefit of our strategic project, the merger of the French networks. We won't have yet the synergies on the cost on ALD and Spain, it's the same. We will have also drivers to help in cost income ratio, and very importantly, in terms of cost of risk, and that's why we will remain conservative. We have very strong buffers, if for any reason the cost of risk was to deteriorate with an environment which would be very challenging. At this stage, as I've said, the portfolio is improving, 2.7% NPL ratio.
Yes, we are very confident to be able to build this kind of organic growth, capital generation in the coming two years. Sébastien, on the French retail.
Yes. Morning, Flora. So as you said, regarding net interest margin, it's down compared to last year, but up compared to last quarter, Q2. Keeping in mind that there is no significant one-off in the French retail revenues this quarter. So that's the first answer to your question. Regarding the evolution of net interest margin, obviously it remains under pressure because the French market is clearly specific compared to other countries. You know, the increase in interest rates on the Livret A, which costs around EUR 50 million each 25 basis points of increase.
Another point, which is clearly different from other countries, is the usury rate which weighs on the margin for home loan and, to a lesser extent, on consumer credit. All of this will last a little bit in the coming quarters. It means that, on the French market, it takes more time than in other countries to have a strong and positive impact of higher interest rates on the net interest margin. It will materialize, obviously, but a little bit longer.
On the TLTRO, there was nothing specific in the first quarter.
No.
Last year, there was nothing.
Yeah. There was the base effect last year in terms of TLTRO revenues for rights. This quarter, slightly down compared to Q3 2021. Again, no specific significant one-off.
Thank you. Next question?
Thank you. Next question from Delphine Lee from JP Morgan. Madam, please go ahead.
Yes. Hi, thank you for taking my questions. My first question would be going back to net interest income. If you don't mind just sharing with us a little bit, again, your interest rate sensitivity, and I seem to recall that a lot of it is actually short-term, rather than long-term. Does that mean that you have started to take some impact, or when should we actually. They have not been visible because of the real and the usual rates, or when should we start to see a bit more momentum on net interest income from that repricing? Just if you could elaborate a little bit on the outlook for NII based on that sensitivity.
My second question is more on asset quality. You've beefed up a little bit your overlay, I mean, your Stage 1, Stage 2 provisions in a way. I was just wondering, in your scenario, in a recession, more of a severe recession scenario, where do you think cost of risk could go to, compared to your 30-35 basis points current level? Thank you.
Hello, Delphine. I will leave Claire answering your first question, and then I will turn to Sadia Ricke, CRO, for your second one.
Regarding your question on net interest margin sensitivity, first, in Eastern Europe, as you see, the net interest margin is up, and we are in a position to capture immediately the benefits of the increase in interest rates. On the French market, it's slightly different. As Sébastien just explained, the net interest margin is structurally under pressure in an increasing interest rate environment, considering the fact that we have this Livret issue and also the lag effect on the repricing of the credits. This being said, we should be in a position to capture the benefit of the increase on the deposit side.
Considering the fact that we have, first, a medium long-term ALM position, considering the fixed rate and medium-term balance sheet in France, and second, a low recapitalization hedging policy, we do not capture immediately these benefits. We have a more than, at least on average, two years lag effect in our capability to capture the full effect of these benefits. We should be in a position to capture it at the beginning of 2024, on the deposit side. Did I answer your question, and were you in a position to hear me? Because I understand that we have...
Yeah, I think it was clear. Sadia, on the kind of level of cost of risk.
Yes. I think it's premature to give any estimation of the cost of risk at this stage for 2023. We will see where we stand by the end of the year. What we can say at this stage is that indeed, you know, the asset portfolio is very well diversified and of quality, as we see from the resilience of the portfolio, and that is illustrated this quarter, again, by the very low cost of risk for the non-performing loans which stand at 10 basis points. I would highlight as well that our risk profile has improved over the last years, and the origination criteria have remained strict, with particular attention given to collateral and to avoid concentration risks.
Finally, as you see, the amount of provision in terms of S1/ S2 assets have been further increased at EUR 3.8 billion overall. We will continue to have this prudent provisioning over Q4, as Frédéric Oudéa mentioned, and that should protect our books where the environment to deteriorate. We continue to run various scenarios, including the deterioration and the recession scenarios. Because of the resilience of the books and the amount of overlays that we have, we're confident to address this in 2023.
If I may, more generally, I think we want to stick to the same policy. We should have beginning of the next year after having completed the budget process. Hopefully having a little bit better visibility on the economic environment, on the monetary policy, we should be able to give you a little bit more clarity on certain guidances for the year to come. As you can see, confidence in the quality of the portfolio, but we prefer to wait a little bit before giving a more precise perspective for 2023. Next question?
Thank you. Next question from Jacques-Henri Gaulard from Kepler Cheuvreux. Sir, please go ahead.
Yes, good morning. I had one on asset quality, but you already answered comprehensively. I understand you're really confident. I missed the amount of overlay provision, the stock, if you can just remind that for me. It sort of went past me.
Yeah.
The only question I have left is really on the dividend at that point. You're provisioned on the underlying, right? I guess. How confident are you that the ECB is not gonna, you know, lead you into problem because you have this Russian provision at the end of Q2? That's the only question. Thank you.
Hello, Jacques-Henri. First of all, the amount of S1/ S2 stands at EUR 3.76 billion, roughly. It's above the peak of the COVID. I'm happy if you wish to further comment on it. I don't expect, I must say, an increase in defaults at year-end, and so to enter with the maximum buffer in 2023. Regarding the distribution, well, we, as you said, now we have been provisioning with an underlying basis in terms of distribution, which means a EUR 2.38 per share amount. We have provisioned for that, and of course we want to stay at good levels.
I think the ECB is going to look, as for all banks, at the capacity to, of course, prepare perhaps a more uncertain environment. At this stage with the kind of buffer we have, I have no concern, and we will make the final decision at year-end, as usual, like we did in the previous years. For the time being, we have provision on the basis, as I said, 2.38 EUR per share. Next question?
Thank you. Next question from Giulia Aurora Miotto from Morgan Stanley. Madam, please go ahead.
Hi, thank you very much. Can I just go back to the NII in French retail? I want to clarify a couple of maybe technical points. TLTRO, first of all, are you planning to repay when? And if you repay, will this affect how much TLTRO is booked in your quarterly revenues? My understanding is that you have spread it over three years, and actually, you know, the impact should be smoother, and we should still see some benefits over the next years, but I just wanna check that my understanding is correct. And on this note, you know, some other banks, for example, are indicating that they're gonna take some hit because of hedges, because they need to unwind the hedges on TLTRO, so is SocGen seeing any such impact?
Always on French retail NII, if I am not mistaken, Livret A could go up to 3.5%-4% next year. That will be a further negative impact. From what I can see, the French market is having negative mortgage margins. What is the driver for NII uplift next year? Is it basically loan growth and reserves at ECB, or what are we missing on this dynamic? These will be my questions all around NII in French retail, please. Thank you.
Yeah. Hello, Giulia. I would let both Claire answering more precisely on the TLTRO, and again, Sébastien coming back on the different bits and pieces which can influence. A lot of that is depending also on what kind of rate, what kind of inflation we will have going forward, if you wish. There are different elements. Can I just make one comment on the TLTRO? Because I personally consider the recent decision by the central bank as a disturbing one, if I may.
Because of course, beyond the financial impact, I think, having reviewed, if you will, the TLTRO, which was used for us to lend in the midterm and not just short term, and of course, price is an issue. From a methodology point of view, we would have been certainly more comfortable with a process of a kind of negative tiering. I regret it. Now, the consequences, we are still assessing the consequences. On the question of the TLTRO, can you elaborate, Claire?
There were a lot of questions in your question, so I will try not to forget any. First sub-question, how did we account the NII on this, TLTRO III? We did account it in a very cautious way, from my point of view, which we did. Of course, we accrue a TLTRO benefit on an accrual basis. It's according to accounting principles with an average rate. To assess this average rate, over the TLTRO, we of course computed the past period. Going forward, we took an assumption regarding the DFR, for the rest of the period of time. This is the way we did account the first benefit, which is, as you know, which will be a reality until November 23rd.
It's a conservative approach, which is in line with the way our auditors requested to account it. Second question, do we intend to reimburse? We are currently assessing this topic. The benefit from the TLTRO doesn't exist anymore because we don't have any more premium in the remuneration. We are currently assessing whether we will reimburse it and then pledge the collateral to get less expensive liquidity or maybe we will keep it. We are currently assessing the decision and then should we decide to reimburse for the reasons I explained, which is that we will use the benefit of the collateral for better purposes.
We will use the year, the new date that has been put in place. Last question about the hedging. We have quite a conservative approach regarding risk management. We have no risk, no huge risk appetite regarding interest rates. We have globally a kind of holistic approach regarding our interest rate hedging policy. We will have to adapt our interest rate management in November. Please keep in mind the fact that we are in line with some of our peers that did communicate on their impact. We have EUR 72 billion outstanding in TLTRO. We're in line with what some of our peers already communicate.
Thank you. Sébastien?
Yes. Yeah, Giulia, as I said earlier, some key elements which are weighing on the net interest margin will last in the coming quarters. You pointed out the Livret A's evolution in the coming months. I think it's fair to say that we could expect another increase in February based on the formula applied by the French regulator and the Minister of finance. It depends obviously on the evolution of wages and inflation, but I mean, something around 3% is possible.
Regarding credit production, again, there is a lag effect which prevents the market from a quick repricing on credit, and especially as far as home loans are concerned because of the usury rate mechanism, which is clearly specific to the French market. Having said that, it's fair to say that this pressure will last before having the full positive impact of the increase in interest rates on the net interest margin. It takes longer than in other countries.
Thank you. Next question?
Next question from Jon Peace from Credit Suisse. Sir, please go ahead.
Yeah, thank you. Could I ask two questions, please, about your 2025 plan? So firstly, it was very conservative in that it assumed zero ECB short rates. Based on today's curve, I mean, how would you think about that now? Some of your peers have given a figure in terms of additional NII that they might recognize versus the 2021 run rates, or how would you consider that 3% revenue CAGR with today's interest rate outlook? Then on the flip side, I guess inflation has probably already or also surprised on the upside versus when you first laid out the plan. You had a 62% cost income target for 2025 rather than a cost CAGR. How about that with the net impact of higher rates and higher inflation? Thanks.
Hello, Jon. We basically have not made this precise calculation. You are right to say we have taken a relatively conservative scenario in terms of rate, and that remains our central scenario, right? It's maybe a bit difficult, when we see the level of inflation, level of interest rates, to imagine that rates could go down. I would say end of 2023, beginning of 2024, with a normalization of the inflation, related also to slow down of the economy, but that remains our central scenario. There are obviously other scenarios, but if I may say, taking that conservative scenario, gives effectively a buffer in terms of revenues.
In terms of cost, let me highlight, first of all, well, we have been able, I think, to monitor well the cost, as reflected in the 2022. We will have the benefits of the different strategic project. If I may, we have a little bit of visibility on the, for example, the wages in France. We have signed an agreement, to give you figures, remind you of figures. First, we will pay a lump sum, which will be actually provisioned in the fourth quarter, of EUR 1,700, for people, I think, below 80 EUR in terms of fixed salary. And it's a specific mechanism, and it will not weigh in 2023 onwards. It's more 2022 impact.
A 3% increase for salaries up to 60,000 EUR and a 2% increase between 60,000 EUR and 80,000 EUR. That's all for the general increase. On top of that, we will have also some individual increase. If I may, as you can see, something where we remain disciplined, given an inflation rate, which might stand at roughly, I would say 6% in France at year-end. It's a little bit the same elsewhere, and we try to, of course, monitor as well as possible the cost. I think you can carry on with the objective. We are not reviewing this objective. It's a long-term objective, but we think we have a margin of maneuver, if you wish, to comply with this objective. Next question?
Next question from Tarik El Mejjad from Bank of America. Sir, please go ahead.
Hi, good morning. I'll just switch gear from French retail to maybe the CIB. You had a good performance from a very high base already. How should we think about next year? Especially in the equities and fixed income, where clearly you have restructured and stabilized the revenues, but it's quite high level. Any outlook there? On the ALD's plan, why there's been this delay by a quarter for the closure? Is it just because of the rights issue? Or maybe you can give us an update how the approvals in each country are ongoing. Thank you very much.
Hello, Tarik. I will turn to Slawomir on your first question, and then Jean-Charles Lebeau on your second one. Slawomir.
Yeah. Hi, good morning. Thank you for your question. Listen, the easiest way to talk about this is to refer to our guidance, the long-term guidance that we gave in August of a level of EUR 4.7-EUR 5.3 in terms of revenues across the cycle, right? The variability being linked to obviously the question of how conducive the market conditions are in a particular quarter or a particular year. Right now, you see, I mean, the math is there. We would probably most likely exceed this top range of the guidance this year, given where we are on the nine-month mark. We had a year which was particularly conducive for our mix. Of course, we have done a good job, right?
If you compare our performance to our peers, you can definitely say that we have done a decent job, but we have had market conditions which were conducive to what we do and to a particular business mix. I mean, that's how I think about the guidance for next year. If you have volatility trends, needs for hedging your commercial or industrial value chain risks for our corporate clients, you know, and no major dislocation like this year, we should expect something towards the upper range upper side of the range. If the markets are either much calmer or, you know, go through bigger dislocations, you should expect us to be closer to the lower range. The range itself, I think, is still relevant.
Thank you, Johnny.
Yes, hello. Thank you for the question. Well, overall, the project is progressing quite well and in line with our plan in terms of preparation. Just to remind you, we have as conditions to receive regulatory approvals, first from the ECB to become a financial holding company and some related approvals, and then from various antitrust authorities. While things are progressing quite well and we are overall confident on the process, some of the filings have been slightly delayed. Having said that, we believe that we are on track for the rights issue before year-end, and then there are some technical delays for closing to happen in Q1. Overall, we are quite confident and pleased with the progress in preparing this transaction.
Thank you. Next question?
Thank you. Next question from Azzurra Guelfi from Citigroup. Madam, please go ahead.
Hi, it's actually Azzurra Guelfi. I don't know if you can hear me. Sorry.
Yes, we can hear.
Apologies.
We can hear you, Azzurra. Yeah.
Yeah. Thank you. Two questions from us. One is on French retail. Can you give us some updates on the integration process between the franchises and the merger? What do you expect for next year? The other one is on Boursorama. Could you share with us some profitability metrics at operating level, if it's possible? Or when are you planning to disclose some numbers on this? Thank you.
Yes, Azzurra. Well, I will turn to Sébastien on your first question and Philippe on your second question. Sébastien.
Yes, Azzurra, good morning. The merger is progressing according to plan with legal merger, which is confirmed for January first, and an IT merger divided into two waves of migration, which will take place in March and May 2023, before having the operational merger, which will start after January and between 2023, 2025. In 2023, only one headquarter by the merger, the effective merger of the two headquarters of Crédit du Nord and Société Générale at central level and in the regions. We would start in H2 2023 to merge branches on the ground also with the objective to have 80% of the cost synergies secured before the end of 2024.
Philippe on Boursorama.
Yes, on Boursorama, we don't share financial metrics, but I can remind you the targets for which were communicated in the last August. So two targets, net results of EUR 100 million net profit in 2024, EUR 200 million in 2025, with a return on equity in 2025 above 25%. From an operating standpoint, there are really two metrics which we are monitoring very precisely and carefully. The first one is the acquisition cost, and it has been divided by two since 2016, and it's also down by 30% since 2021. It demonstrates the efficiency, I would say, of the marketing tools of Boursorama.
The second key criteria for us is the new clients payback, and it has also been significantly shortened for two reasons. The first one is, of course, the decrease of the acquisition cost, and the second one is higher revenues generated per client. Again, we strongly believe that this customer base has a lot of value and that we have the capacity to sell to these clients many products and services.
Thank you. Next question?
Next question from Stefan-Michael Stalmann from Autonomous Research. Sir, please go ahead.
Yes, good morning, everyone. I have two questions on the topic of French home loans, please. The first question is that if I look at the usury law constraints, usury laws seem to allow for much higher interest rates than what the banks are actually currently charging on new business. And that has been true for most of the year. Why do you think that is? The second question is, if you look at your new home loan business, year to date and the way that you fund it, has this been positive from an NII perspective for you or negative? Thank you very much.
Stefan, hello. Keep in mind, the usury rate does not just include rates, it's the full cost, with the insurance, the brokerage cost. It's a total amount and which leaves a limited actually space for rates. The rates themselves have been increasing, but with clearly constraints. It is likely that we will see a further increase at year-end because again, this time effect, the time lag in the way it's calculated. To come back to all the comments we made, this year there has been a time lag, and we will have a time lag. The question for next year is, are we going to have a stabilization of the interest rate or not.
That will also, if you wish, leave us more or less margin of maneuver in terms of pricing adequately, if I may say, the home loans. The second point, yes, in terms of NII, it was negative. I think we've commented, Sébastien.
Yes. On your first point, just keep in mind that between Q2 and Q3, the increase in the usury rate was 17 basis points. The increase in rates, if we take the 10-year swap, it was +100 basis points. It clearly shows the difference and the consequences. Regarding margins on the home loans, it's a negative impact, and that's why we have decided to cut the production of home loan quite significantly. I mean, since Q2 2022 to protect our margin.
That's the reason why we have decided to be very selective and to grant home loans to our clients, and we decided to stop using a brokerage and third parties in the home loan process.
Thank you. Next question?
Next question from Amit Goel from Barclays. Please go ahead.
Hi. Thank you. Maybe just coming back, I suppose, on NII. I know there's been a lot of questions asked, but, I'm just really trying to get a sense of, I guess how much pressure there could be, in the coming periods, from the various effects that you've highlighted before we kind of start to see that positive contribution coming through in 2024. Just really trying to size that. I guess with a bit of pressure there, what you're thinking about the cost-income ratio, into next year and whether you think, you would be able to achieve a similar, level to the kind of target for this year now. Thank you.
I mean, hello. I understand again, but as I said, we will be able, I think, to give more clarity beginning of next year. There are so many parameters which can play a role. As we've said, I can just repeat what we've said. It's in line very much with what Claire was saying, a benefit, a full benefit after two years of the increase of interest rates fundamentally started mid-2022. You take two years, it's mid-2024. Meanwhile, there is again this specificity of the French market with Livret A, which reacts immediately, negatively on NII and the usury rate, which grows step by step, but with a time lag. We will have probably a further increase at year-end, but then we will have to see also how rate develops going forward.
On top of that, with the easing policy, that's where we are saying we need to wait a little bit to see the benefits of interest rates. We can't give you more figures. If you wish, we need to finish the budget process, have a clear understanding of the volumes we have in mind, both on deposits and loans to give any more precise figure. We will have actually a better view also on the interest rate environment in two or three months time, where we see whether central banks are pursuing the increase of interest rates or on the contrary, stabilizing given the fact that they see already a significant impact on the economy. Sorry about this. I think we can't say more than qualitative elements. Next question?
Next question from Pierre Chédeville from CIC Market Solutions. Sir, please go ahead.
Hello. Can you hear me?
Yes, Pierre. Hello. We can hear you, Pierre.
Can you hear me now?
Yes, sir. Yeah.
Yes, yes, we can hear you, Pierre. Can you hear us?
Okay.
Yeah, fine.
Okay, thank you. Regarding Africa, I was quite surprised by the rebound you mentioned, considering the current geopolitical and economic environment. I wanted to know, how do you see things coming in 2023? Is it a structural rebound, or is it a conjuncture rebound due to a favorable comparable basis, for instance? How do you see the evolution in Africa? Because we know that Africa may be hit a little bit more than other continents due to the situation. My second question relates to the consumer credit. We know that you don't talk about consumer credit, but you have quite a significant outstanding there. I was wondering how you see things evolving.
I see that in this quarter, revenues are decreasing in Western Europe, which is mostly a consumer credit, but also in France with Franfinance. How do you see things regarding the cost of risk and also the scoring? Thank you very much.
Yes. Yeah. I will turn to Philippe Aymerich, who will comment on both topics.
Hello. Thanks for the question. Regarding Africa, maybe three comments. The first one is that yes, the environment is complicated, but it has improved since May. There are still some people, some investors who are in a kind of wait-and-see mode. We have also identified and seen a clear rebound of the activity, notably with corporates. We are speaking about, you know, short-term financing. We are speaking about Forex, trade finance, and even a rebound on the medium-term loans. My comment is related to the countries where we operate, and notably sub-Saharan countries. That's my first comment.
The second one is that keep in mind that we have in this region very solid franchises with leadership positions, and that definitely we have been able to capture this positive momentum, notably taking advantage of you know all the synergies we have created between Africa and the rest of the group. So that's the second part of the comment. The third comment is that you know I would say that our hard work is paying off. As you know, during the last years we have restructured or set up. We have focused the resources on key countries. We have started the digital transformation. We have launched key initiatives to restructure and to mutualize IT on operations.
Finally, you know, we have also implemented a very strict cost discipline and credit risk origination. So all this combined, you know, I think there is for us in Africa a very interesting momentum. Of course, we will continue our efforts and make sure that we are able to capture this growth, and again, in the countries we have selected, in the countries where we operate.
Regarding the second point regarding consumer finance, yes, that's true that the production has decreased during this quarter. As you know, a big part of the production is related to car finance and you know the market is quite slow. We have also been quite careful regarding repricing. You know, we want to make sure that we operate with good prices. Well, this being said, the results are still you know quite good, and with return on equity, which is still very satisfactory. Regarding asset quality, frankly, we see absolutely no sign of deterioration for the time being.
Of course, this is very tightly monitored, but for the time being, it's still under control. To make it short, a weak quarter, but still, you know, a very good franchise and very profitable franchise for the group.
Thank you. Next question?
Next question from Chris Hallam from Goldman Sachs. Sir, please go ahead.
Yeah, morning, everybody. Just two questions on one on capital and one on leasing. Just first, on capital, a quick confirmation on TRIM. I may have missed it. I may have missed this in the answer to Flora's question earlier. But are you still expecting 30 basis points impact from TRIM? And should we assume that's split across Q4 and Q1? That's my first question. Then in financial services, you spoke to the strength of ALD in your prepared remarks, and I just wondered if you have a view on the degree to which ALD is sort of overearning currently from a residual values perspective. You know, used car indices have obviously fallen quite a bit but are still around 40% above pre-pandemic levels.
I think BMW flagged a EUR 1,500 residual premium per vehicle yesterday on their call. I just wondered if you could help me understand how that dynamic should normalize through, I suppose, 2023, and what assumptions we should embed in revenue forecasts.
Yeah. Hello, Chris. First of all, yes, TRIM is going to be around 30 basis points.
Yes, it's 30 basis points, and it will take place between Q4 and 2023. We expect now for Q4 between 10 and 20 basis points, the rest for 2023.
Johnny?
Yes. Well, as you know, the used car sales have been quite high and supported by limited supply of used cars over the last quarters. We expect this to continue in the coming quarters, taking into account the reduction of sales over the last two years. As you know, this quarter our car sales results remain quite high. We are at over 3,100 for the nine months, which is a record high. It's also due to quite a prudent policy in terms of provisioning for residual values. Again, quite supportive market, which should continue still taking into account that this is really at a record high level.
Okay. Thanks very much.
Thank you. Next question?
Thank you. Next question from Kirishanthan Vijayarajah from HSBC. Sir, please go ahead.
Yes. Hello, everyone. A couple of questions, if I may. Firstly, I wonder if we could just get your latest views in terms of the risk of a new wave of any windfall taxes. Do you think you're fairly safe now in France? Or if you actually keep, you know, showing improved profitability like this, is it a risk that's still lingering there, in the back of your mind, with regards to windfall taxes in France for banks? And then specifically on the ING customer base that's been migrated over, you know, once we look through the upfront customer acquisition costs, any other noise, are you able now to give us a bit more in terms of the recurring revenues, recurring costs that we need to factor in for, say, 2023 or 2024? Thank you.
Yeah. Hello, Kiri. Listen, on Boursorama, really, I think the best answer is what Philippe said on the guidance, and effectively to turn into profitability, as we've said, around EUR 100 million in 2024 and EUR 200 million in 2025, getting of course the full benefit of this migration of clients with a good level of deposits and good level of activity overall. I don't think we can give at this stage more. Listen, in France, well, we've been commenting on the French market to a certain extent. As you can see, clearly, consumers are protected in this market, and we do not benefit immediately from the increase of interest rates.
I don't expect any specific tax on the banks in France compared with other markets, where probably you can see more obviously some immediate impact in terms of profitability in France. Some of the debate is more on energy companies, and that remains certainly the center of attention for potentially the government, but not the banking sector at this stage. Next question?
Next question from Matthew Clark from Mediobanca. Please go ahead.
Good morning. I'm afraid my questions are also on net interest income. Apologies for that. I just want to try and understand the sequential TLTRO impact in French retail and elsewhere. I mean, am I right to think that you must have had a more favorable impact in Q3 versus Q2, as the ECB deposit rate started rising and the amount that you're budgeting to pay for the TLTRO didn't change too much because of the averaging calculation. Am I right to think there was a bit of a tailwind third quarter on the second quarter.
Did I understand rightly from your comment around same impact as peers that we should be wary there might be some hedging loss taken in the fourth quarter?
My second question is just on your overall interest rate sensitivity that you give in your registration document, which I think is something like EUR 150 million per 10 basis points. I mean, obviously, we've seen much larger moves than 10 basis points, so I just want to understand whether you stick to that guidance, and whether that scales to, you know, moves of 100 basis points or more, if we think about it that way. Also that we should expect the deposit tailwind that you talk about in 2024 to continue for several years after that.
I mean, it seems it, that you have a longer duration structural hedge or replicating portfolio, and so really, 2024 should still be only the start of the benefit that you get from the gradual repricing of your balance sheet. Thanks.
Matthew, first, if I may, yes, a slight improvement in slight increase of the benefit of the TLTRO from Q2 to Q3. Second, in terms of hedging, again, the portfolio is hedged globally. It's a little bit premature to comment on this, and it's not clear that we will have effectively any impact. We have to work on that, and see what it means effectively. Yes, there is this component which normally should be out of the hedging, if I may say, because of the decisions of the central bank. We have to see how what it means. Third, again, yes, we have this hedging policy.
The sensitivity, I'm a bit surprised by your figure because, for me, it's more around EUR 80 million for an increase of 10 basis points in two years' time. Now, a very mechanical calculation on the static balance sheet with the curve moving up, short and long. That's the kind of sensitivity. That's not for the French retail as a whole, it's for the whole group. You have a significant portion of the French retail, but not just on the French retail. Again, yes, the ALM policy means there is some kind of progressive evolution. As we've said, 2024 will be more dynamic, clearly, if you stay with the same kind of rate.
As I've said, also, be careful because depending on the scenario, I don't take for granted that you will necessarily have a stable curve as we see today in two years' time. as I said, our central scenario is a decrease of also short-term rate. That's where there are so many parameters which play a role, and it's a little bit, I think, in my view, premature and a bit imprudent, I think, to give figures in two years' time, depending on the scenario. Next question?
Thank you. Next question from Anke Reingen from RBC Capital Markets. Please go ahead.
Yeah, thank you very much for taking my question. The first is, I think Amit asked this before, but I must have missed the answer. In terms of going into 2023, given your somewhat more cautious or not so certain impact of higher rates. If we look at the costs, and inflation is certainly going up, is there any room for you to accelerate or to initiate any additional actions on costs? Secondly, just in terms of the management change, obviously, it's some time to go. How does the handover work in practice? I mean, is there a risk that no big decisions are taken? Thank you very much.
Hello, Anke. Listen, on the French retail, I've given you the content of the agreement in terms of wages. That give you a flavor of the kind of cost increase we could have on wages. After that, we make, of course, all our effort to make savings, but it's hard to say. The benefit of the merger is in 2024, 2025. It's difficult to anticipate it, and let's be frank, but it will be there. In terms of the change, listen, we are working exactly in the same way. There's a management team, a collegial one, and Slawomir, he's currently head of wholesale.
He's part of the management team, and we share we carry on sharing, you know, for example, typically for the appointment of a new CRO, it was a collegial process. I think, yes, you could not. I don't know what kind of big decision you have in mind before the 23rd of May, but it would be a bit awkward to take big decisions. The idea again is to complement the roadmap, the very short-term roadmap on the project. Then Slawomir is getting ready to take over on exactly the 23rd and 24th of May and carry on. I don't know what kind of big decision you have in mind.
Honestly, the idea is to carry on and focusing on what we have just communicated, and Slawomir was part of the management team, and we will focus on these elements. That worked very smoothly. Again, these months are good to close this cycle, if I may say, and to enable Slawomir to prepare fully to take over without losing any time. Next question.
Thank you. Next question from Guillaume Tiberghien from Exane BNP Paribas. Sir, please go ahead.
Good morning. Thanks for taking the question. It's actually on capital. I've got three sub-questions. One is, can you confirm whether what has been agreed so far on the increase in countercyclical buffer will cost you about 50 basis points on your MDA? Secondly, if countercyclical buffer continues to rise in a number of countries, how confident are you that 12% Equity Tier 1 is actually enough for you? Thirdly, your 120 basis points Basel IV impact fully loaded, what is the room for mitigation that you can achieve in the 120 basis points?
Hello, Guillaume. I will leave Claire answering on the capital buffer, countercyclical capital buffers. There might be some mitigation. At this stage it's a little bit premature. Let me just remind you also we are a bit conservative by taking the 120. 100 probably better estimate for the real 2025 impact. Some will be further beyond the 2025. It's premature. We don't even know whether it will be applicable in 2025. At this stage, we stick to this figure. You know, there might be some adjustments, but it's probably better to take that into account. On the countercyclical buffer, what can we say, Claire?
Currently our CET1 is at 9.27%. It will increase up to 9.75% by the end of 2023, based on an assumption of an increase in the French capital buffer by 24 basis points. We will have some increases in the UK on the Komerční banka on the Czech side on the Romanian side and so on and so forth. Should the French countercyclical buffer be upgraded or increased up to 50 basis points, then our CET1 would reach 10%. We have quite a conservative approach in our capital trajectory. As Frédéric Oudéa said, we have some mitigants regarding our capability to have room for maneuver in the capital.
It's always the same levels such as sell-off portfolios, more originate-to-distribute, a very selective approach in RWA allocation, in line with our strategy. This is the main data and the main levels.
Thank you. Next question?
Thank you. Next and last question from [Mateusz Nemeth from UBS. Please go ahead.
Yes, good afternoon, and thank you for your presentation. I have two questions left, please. The first one is on cost of risk. So you reiterated the 30-35 basis points guidance for this year, but it's clear that the underlying cost of risk is significantly lower. I think you mentioned 10 basis points. Just for Q4 and perhaps the next two to three quarters, should we expect that you keep putting in place additional Stage 1 and 2 provisions, i.e. overlays, even if there is no real pickup in defaults? That's the first question. Second question is on Boursorama. The organic client acquisition, I think you mentioned was around 100,000.
Could you elaborate whether you expect a similar pace in the next two to three quarters? If you could comment on the cost of client acquisition today versus a year ago. Thank you.
Hello, Mateusz. Yes. Listen, you see how generous I am with Slawomir. You know, yes, we can expect still a low impact of defaults. I will effectively prepare as when possible the ground for 2023 and add additional S1, S2. I think it's prudent, and it makes sense with all the uncertainty still of this environment in 2023. Yes, it is very likely. On Boursorama, same thing. You know, it's part of the budget process to see exactly what kind of pace of growth we want to have in 2023. Philippe, I think the cost of acquisition per client has gone down.
Yes. Yes. Cost, you know, acquisition costs per client, as I said, has been reduced during the last year by 30%, 30, so it's quite significant.
The more and more, if you wish, also the franchise grow, I mean, the more and more we have this capacity I think to reduce the cost of acquisition per client.
Are we done? Any other question?
We have no more question.
Okay. Well, thank you very much for your attention and your presence at this call. Have a very nice day. Thank you. See you soon. Bye-bye.
Thank you, ladies and gentlemen. This concludes the conference call. Thank you all for your participation. You may now disconnect.