Ladies and gentlemen, welcome to the Société Générale conference call. Frédéric Oudéa, Chief Executive Officer, and William Kadouch-Chassaing, Deputy General Manager, Head of Finance, will present the group's Q3 2021 results. Gentlemen, please go ahead.
Hello, everyone. Good morning. Thanks for attending this call. I know it's a very busy day for you with many communications. We'll try to be as efficient as possible. Before moving immediately to the results, let me just of course pay a tribute to William Kadouch, our CFO, who is going to leave the group to join.
I would like really to thank William for his contribution during his 14-year tenure in Société Générale, and in particular in the last few years, as deputy manager in charge of finance. Of course, I wish him all the best in his next position.
He will ensure a smooth transition with Claire Dumas who will take over. Some of you might know Claire. I've been working with her for many years, and she's going to take over, I think with exceptional qualities to succeed in this important position. That will be a smooth transition, and you can be guaranteed of continuity from that perspective. I will very shortly introduce the figures and then turn to William, who will enter a little bit more into detail.
While clearly a very strong quarter across the board, strong increase of revenues compared with the Q3 of 2020, where we had already a rebound of our activities compared with the lockdowns in the first half of 2020. I could mention exceptional performances in structuring as well as in financing and advisory. Very robust figures for capital markets and international retail and retail activities in France also, which are growing as you can see in the French economy, which is doing better. We'll enter more into the detail.
Let me just underline that we maintain a strong discipline on the cost, and we have a strong increase of gross operating income by 1/3 . The cost of risk remains very low while we maintain a very prudent provisioning as you will see. We keep our buffers going forward. It leads to EUR 1.4 billion underlying net profit for the quarter, EUR 1.6 billion published, and a double-digit return on tangible equity. Regarding the capital, strong capital generation.
We have a 13.4% Core Tier 1. That includes the impact of the share buyback program that we are launching today. We had the authorization at end of September, but you can understand that we wanted to comply with the market rules, having already information on our results in particular. We are launching that today, and we want to complete that at year-end. Knowing that we have also provisioned for 2021, EUR 2.03 per share for distribution, I mean, to pay the dividend and a potential share buyback, it corresponds to 50% of our underlying net profit.
I would say beyond the results of this quarter and following a very successful first half, the very positive element is I think the successful implementation of our strategy. It's true for the French network merger. We have presented just 2 weeks ago the detailed business model for our new bank. We are successfully obviously implementing our GBA strategy presented in May. Beyond, as we are also taking advantage of differentiation.
Bonjour.
Differentiating assets. Boursorama, ALD, we communicated a few days ago that there are ongoing discussions with LeasePlan to potentially create the indisputable leader in mobility services and, for example, KB in a very strong European retail market. That's what I wanted to say, and I will in turn, immediately turn the floor to William. I will for the sake of time not comment the slide four. It's the COP26. I will be happy to answer your question on ESG.
What we did this quarter is highlight all the ratings by many rating agencies, which acknowledge the leadership of Société Générale in this field. Joining the very selective AAA MSCI category in particular, but you see also Vigeo, we're in the top 1% bank. It's something we take very seriously. It will be enshrined in all the strategies of our businesses for 2020- 2025. Again, I will be able and happy to answer your question on this topic, but again, for the sake of time, I will move immediately to figures. William?
Thank you very much, Frédéric. Thanks for your comment. I take the opportunity to say how happy I've been over this 14 years and also working in the past year with my colleagues in the general management. They are a fine and a great team. I also would like to thank you all for the constructive dialogue that we had over the years. Some of you would remember that you had started off with some tricky questions. Now, coming to the results, page 6, you have the. Well, underpins the good net income that Frédéric just commented upon.
Just to remind everyone the figures, reported net income stands at EUR 1.6 billion, up 67% relative to Q3 2020. Adjusted for IFRIC and for a EUR 97 million CTA charge cost-transformation provision, and for the capital gain of EUR 185 million pre-tax, EUR 132 million post-tax linked to the sale of Crédit du Nord headquarters. The underlying net income stands at EUR 1.4 billion, roughly, which translates into a return on tangible equity of 10.9.
Now, fundamentally, the first big driver of this performance, as it was the case in the past quarters, is the increase in the gross operating income. You see that on the left-hand side of the slide, a +33% year-on-year increase in gross operating income. Compared to the same period of 2019 pre-crisis, it's a 44%.
This reflects the rebound in revenues, but it reflects also very much the effort on the cost side. I'll come back to that in a minute. You see positive jaws for the quarter and the cost-to-income ratio down at 64%, which is not only down relative to 2020, but also down relative to 2019, and I should also quote 2018. Fundamental work on the break-even point and operating leverage of the company, which you see illustrated in page 7 with the cost evolution and the comparison relative to last year. The costs are up 3.3% compared to last year in nominal term.
If you look at the details, what you would find is very simply put that the whole increase is explained by provision for variable compensation costs, including bonuses, but of course, profit sharing, and taxes. I mean, things we've already had the opportunity to discuss with you, such as the increase of the SRF charge under the IFRIC 21 accounting rules here.
Otherwise, you see, this is under the other costs, that the fundamental fixed cost base of the company continues to decrease, which is obviously the result of the plans we've put in place in the various areas, that French retail, CIB, international retail, where we have a strong cost discipline and central functions. You see positive jaws, strong positive jaws for the first 9 months.
Again, for the first 9 months, decreasing cost-to-income ratio compared to the same period of last year. The second element that explains the increase in the net income, as you would expect, is the cost of risk. Cost of risk remained very low across all businesses. It's, in fact, at a historical low, 16 basis points for the quarter, 16 basis points for the first 9 months. This is entirely explained by a low Stage 3 provision. You see, the non-performing loan ratio staying at a low level at 3.1%, combined with a very decent coverage rate at 52%.
You see, the illustration of what I've just said in terms of the dynamics behind the cost of risk in the next page, where you see, as we had commented in the previous quarters, Q1, Q2, very low level of Stage 3 and still a very low level of write-backs, effectively only EUR 70 million for the quarter. Which means that we continue to keep a very high level of Stage 1 , Stage inventory of provisions, close to EUR 3.5 billion, which is 2.7 times the 2019 S3 provisions, to give you an indication of what it translates into.
Capital, as Frédéric said, continues to be strong. It's fairly stable, 13.4% end of the first half, 13.4% end of September, despite the fact that we account fully in one go in Q3, the prudential impact of the share buyback, which will be executed in the next weeks, EUR 470 million, equivalent to a consumption of 13 basis points of CET1. Obviously, how do we get to that number? First and foremost, because of the organic capital generation. You see that the 9 months 2021 organic capital generation stands at 61 basis points.
To give you some points of reference, pre-crisis, let's say between 2015 and 2018, we had an organic capital generation in the area of 25 basis points a year. We increased that in 2019, and then we come back after the crisis of 2020 with an improved organic capital generation capacity because of what we discussed before, the lowering of the break-even point. Just on liquidity, I wanted to mention that the liquidity remains ample. We have, you see that in the group supplement, EUR 227 billion liquidity buffer.
One word going forward pertaining to Basel IV. As the European Commission has submitted its draft proposal for the implementation of the Basel agreement, so-called Basel III completion, contains 2 very important elements for us as well as for the industry. The first one is the delay in timing, so we will have 1 year in addition to what we had initially forecasted to create capital via organic capital generation.
Very importantly, what we see in the draft legislation is very consistent with what we had told you when we had done some computation. When we had told you it's approximately an impact that we would expect in the area of 115 basis points in terms of capital consumption. What we see comforts us that it is the right ballpark. Actually, it's probably a bit better than what we see than what we had forecasted. Let's say 110 max. Coming to the businesses. I will stay long on page 13.
It's been largely commented already by Sébastien a few weeks ago as well as by Frédéric. Just to remember that we have announced during the quarter that we had a new milestone on the merger of Crédit du Nord and Société Générale. We remind you of all the milestones going forward, and we reiterate the commitment on the cost decrease with some details which we were able to communicate a few weeks ago.
The dynamic on the front networks, and here I'm talking about Société Générale and Crédit du Nord, we talk later about Boursorama, is improving across the board. Although we continue to see that we are on the recovery mode for loans. Loan production is picking up both home loans and the production of mid long-term corporate loans. Consumer loans, it's improving, but not yet at the level of what we had seen pre-crisis. In total, you see loans outstanding down relative to last year, 9% up relative to same period of 2019.
But the important point I wanted to stress, and we'll discuss that with Sébastien, if we have questions, if you have questions, is obviously the dynamic is improving. Deposits outstanding continue to grow dynamically, and that it translates for us, unfortunately, mostly into a negative impact on the margin on deposits. Yet, what you see on the right-hand side is what you've seen in the past quarters, and this is another quarter that reflects that.
We are able to convert on-balance sheet savings into off-balance sheet savings with life insurance, particularly unit-linked or private banking net inflows. At the same time, we continue to progress in bank insurance with protection premia and P&C premia up 3%. Boursorama, another great quarter in terms of client acquisition ahead of plan, to put it simply, and that's combined with a strong capacity to monetize. You see that the loan outstanding and deposit outstanding are close to 30%.
This is a real banking model, as we had said. Just to give you, as usual, the indication of where we stand in terms of adjusted profitability for Boursorama, adjusted from the acquisition cost. It's roughly 15% of the first 9 months, consistent with what we had indicated to you a while ago now. As a total, for French retail, you see a revenue increasing at about close to 6%, return of 15%, 16% excluding Boursorama contribution to group net income EUR 451 million.
International retail banking, you see here a pickup in production as well. Loan outstanding, deposit outstanding, favorably positioned in each and every geography we operate. Deposit outstanding here obviously is beneficial to us. We operate in positive rates environment. Let me highlight the speed at which rates are increasing in countries such as the Czech Republic is not yet reflected totally in the numbers. It will yield in the next quarters.
All these deposits we're collecting will yield, combined with the rate hikes in the next quarters. That's a positive. Overall, you see, for international retail, good revenue dynamics and 17% return combined with a contribution at EUR 261 million. Financial services have another buoyant quarter. You see, at home, the profitability for the quarter at nearly 28%. Revenues are up 30%. Gross operating income up 53%. Contribution to group net income EUR 323 million. This is very broad-based. Insurance revenues are up 10%.
Equipment finance revenues are up 12%. Of course, ALD has a very high double-digit revenue increase. This is linked to its contractual gross margin for 12%. The core, the non-volatile part of the business, structural part of the business. You also have a sustained demand for used car with a record high level in Q3 and for the first 9 months in excess of EUR 1,126 per unit achieved in the first 9 months.
Overall, for IBFS, you see a high return at 22% ROTE and a contribution to net income at EUR 584. Let me point you particularly to the operating leverage in this division, because we operate in areas where you have in some countries already some inflation, and you still see operating expenses well mastered at 2.3%. Turning to CIB, you see that global market and investor services have another good quarter, +8.4%.
This is a bit of a tale of two stories of, as you've seen, with some peers that we benefited from our mix overall. Equities are very strong, up to 53%. FIC, obviously, softer, given the less conducive market conditions and also some elements linked to our own mix, which we, I'm sure we will have the opportunity to comment with Slawomir. As you can see, a very strong quarter at EUR 1.2 billion for global market revenues, which is above what we had indicated is the historical average.
Very strong quarter for financing and advisory as well as asset and wealth management. I think with financing and advisory across the board being IBD, A cquisition Finance, M&A, LBO, where we have an increase in revenues of 42%. Asset-backed product +673. Asset finance 48%. Transaction banking 23%. To give you a few cases in point, you can see that we have a very strong quarter. For the first 9 months, you see revenues up 13%. Asset and wealth management is also strongly up, both private banking.
I already mentioned the positive net inflows in France, but we also have positive net inflows in other jurisdictions. Actually, in each and every country we operate, and Luxembourg had a very good run. In a nutshell, for CIB, you see a strong contribution of EUR 563 million to the net income, underlying return at 12% and underlying return for the first 9 months at 14%.
Corporate Center, just to finish rapidly, I just wanted to highlight that we have in the Corporate Center two one-offs, one negative, one positive. Let me remind you that we have decided to simplify the communication. For the one-off pertaining to the CTA, which is a EUR 97 million transformation charge, all accounted for in the Corporate Center, but it may relate to business transformation. We have also a EUR 185 million capital gain on real estate disposal. The headquarters of Crédit du Nord had been sold.
The equivalent amount post-tax is EUR 132 million. Importantly, these two items are obviously adjusted from the underlying on the basis of which we calculate the payouts that Frédéric mentioned before. I'll stop there and leave the floor to Frédéric.
Thank you very much, William. Just a few words of conclusion. It is clear that 2021 will be a very good year for Société Générale and a year of strong achievements. I would say again, beyond the figures, the results, I also take comfort of, again, the successful implementation of all these strategic projects, which will shape the bank going forward, and will help us to address the structural challenges which remain on the European banking sector, as we all know. We are already embarking in the preparation of our 2022-2025 strategic roadmap.
As I've said, we previously with two main dimensions which will be taken into account by all businesses. The digital transformation to pursue the capacity to take advantage of the new technologies. As an outcome of the crisis, the usage of new technologies by clients is further changing across the world. Of course, ESG, which is a fundamental revolution. We have started this journey more than 20 years ago, but we have the advantage of exceptional expertise in that domain.
Of course, we have to further transform and we have the ambition to meet short-term ambitious commitment. Beyond, of course, implement the more specific activity initiative which relates to businesses. As I said, the merger of the two current networks, which is going on very smoothly, but which is a big project with a lot of ambition again. The growth of Boursorama, on the other hand, to complement a unique offering in the French market. The development of all our international retail and financial services franchise.
With this potential acquisition, which I think would be a very positive move for the group as a whole, and eventually the very successful implementation of the GBIS strategy in a market where again, market conditions might not be as favorable as it has been in 2021, but where we see opportunities to capture market share and where we have unique leadership expertise.
As you see, many hard work, we will pursue the same discipline in terms of cost and risk. I look at this period and considering that I've not seen as many opportunities as I see today in the past 10 years, I would say, following this crisis. The most agile bank will be the winner at the end of the day, and I think we are certainly moving forward on our side as quickly and in the most agile way as possible. That's what we wanted to say, and now we are open to your questions.
Again, let's try to stick to this nice discipline for everyone, two questions, if possible, per person, at least to start with. Floor is yours.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press zero, one on your telephone keypad. The first question comes from Delphine Lee from JP Morgan. Madam, please go ahead.
Yes, good morning. Thank you for taking my questions. My first question would be on revenues and the outlook. Clearly this year you've had a great bounce back with 10% increase in revenues from a low base. I'm just wondering sort of , how we should think about 2022. I think, Frédéric, you made some comments, I think, recently about more moderate growth going forward. If you could give us a bit more color around the moving parts, around how you're thinking about growth for 2022.
And then my second question is on Basel IV, just to clarify your comment that the impact could be a little bit better. Is it possible to get the billion number? I think I recall it was used to be EUR 39 billion. How much of that is FRTB? And where is the improvement coming from? If you just give us a bit more of the split of the impact, that would be quite helpful. And just so we know, when is the investor day next year, if I may ask? Thank you.
Yes. Hello, Delphine. I will let William answer your question on Basel IV. Regarding the investor day, I think you can understand that I would like to have clarity, for example, on the discussions we have with ALD, for example. You see that it's still a little bit complex for us to determine exactly the date it will be in the first half. We will try to clarify that as quickly as possible.
A short comment on your first question, and we will not give premature guidance for 2022, and I would like to highlight that I was commenting on the economic growth and not the revenue growth in a recent article. First of all, let me say we remain constructive for next year on the economy, the world economy, even if we are a little bit below most assumptions. We have a GDP growth for China of 4.9%, considering that the impact of this deleveraging can play a significant role. Four point nine is relatively low for China.
We consider that there will be still frictions in the supply chain. We are positive with figures which remain relatively robust, but nevertheless below most of the other public forecasts of different institutions. On that basis, we need to look at each activity. They have their own dynamic. We have commented a little bit.
A lot will, we will see how the interest rate development take place. It is a little bit unclear. We are going to benefit further, as we've said in international retail from hikes which have taken place. We are harvesting the benefits so far. We are positive on the financial services. There is the dynamic there. We will see on the car market whether there is still again this exceptional situation. It is likely that it might stay at least for 2022.
For GBIS, we will enter more into detail, we are still sticking to our figures that we've set in mid-cycle. We factor the very positive market environment. On the other hand, on the financial activities we are also very clear and we know that we have a capacity to take advantage of the leadership expertise, in particular in the investment in infrastructure finance, in the energy transition, et cetera. Again, premature to give you comments, detailed comments.
I think we are doing a fundamental job and we are reaping the fruits of a multi-year effort, which is also true on the revenues. We want of course to go through that. A word on Basel IV, William?
Sure. We have told you effectively, Delphine, hello, 39, sorry, as you, as you say, EUR 39 billion increase in RWA by 2024. No, again, 20, it would be 25. Based on our reading of the paper, it seems that there are a little more element that are fronted by TRIM, so probably more in the EUR 34-EUR 35 billion category. That will be clarified by Claire Dumas when the trajectory will be presented to you in the first half of 2022.
Let's call it, we are between 100 and 150 basis points going between 9% and 10% of increase in RWA, so that's the type of ballpark. On FRTB, we give them the split, the impact that we have provided a lot of detail ahead of many peers already. That includes FRTB.
An important point on FRTB, though, because I won't disclose again all the details at this stage, is the fact that the Commission has been quite vocal in saying that they would monitor very strongly the way other jurisdictions, namely the U.S. and the U.K., intend to implement or not FRTB. It means that potentially that one could be revised. I think if there is a surprise on FRTB, we would expect it to be possibly a surprise on the upside rather than the contrary.
Thank you. Next question.
The next question comes from Giulia Aurora Miotto of Morgan Stanley. Madam, please go ahead.
Yes. Hi, good morning. My first question is on LeasePlan and ALD. I guess, I mean, strategically the transaction could be interesting, but the worry from investors is probably on capital usage. Is there any comment that you can make at this stage in terms of how much capital could potentially be deployed towards this transaction? Or how you can think about structuring it?
That's my first question. Secondly, on costs. I understand variable costs increasing given the revenue performance, but what are you seeing in terms of underlying cost inflation in your exposure in Central and Eastern Europe but also in France? Do you expect that to probably impact your 2022 cost line? Thank you.
Giulia, hello. I will leave Philippe and Sébastien perhaps answer your question on the cost in the different retail activities. What I can tell you should not be worried on the capital. I cannot give you any figure, but the way we think about this transaction, which makes a lot of strategic sense and should be very positive in our view, is again to first of all maintain the strict capital allocation that we have in mind, 50% payout. That will not change.
It's part of the 50% we can dedicate to the growth of our activities and I think you can imagine structures which allow us to do that. Again, you should not be worried on the capital impact of this transaction. That's what I can say. It takes time precisely because we want to have a very strict discipline. We polish off potentially the structure among different things that we do, due diligence, et cetera. That's why it takes time, but don't be worried on capital. Perhaps Sébastien and Philippe, briefly, what you can say at least on the cost dynamic so far?
Good morning, Giulia. Maybe a couple of comments first on the evolution of the cost base as far as the French retail is concerned. We obviously have positive jaws on this activity this quarter again, and an increase in OpEx, which is explained by first investment in our growth drivers such as Boursorama or private banking activities. It's explained also by adjustment on profit sharing and incentive plan as a direct consequence of the group results improvement, with as a whole an increase of our net contribution to the group results.
Regarding the recurring cost base, so to speak, i.e., excluding these specific costs, the recurring cost base is increasing by 1.6% versus Q3 2020, which is quite low considering the basis effect of 2020. Keep in mind also that, in the long term, our operating expenses have decreased -1.8% compared to 2019, whereas the NBI is above 2019. That's the global picture for the French retail cost base.
Philippe, can you elaborate on your side on the international retail, please?
Yes. Good morning to everybody. Basically, I'm going to make the same comment than Sébastien. Yes, there could be some impact on the inflation in some countries such as Russia, for example. But keep in mind that in all these entities, all these banks, we have very significant initiatives in progress, not only to improve the business model and to digitalize the client journeys and the processes, but also to reduce the cost base.
We will continue with this project. Maybe in some cases, we will reinforce them. I think that all these bank have demonstrated during the last quarter and years that they are able to reduce the cost to serve. Thank you. Next question.
The next question comes from Jacques-Henri Gaulard from Kepler Cheuvreux. Sir, please go ahead.
Hi, good morning. I just wanted to ask you a first question on the results themselves and the provision for dividend with EUR 2.033. I just wanted to understand that, let's say in a scenario whereby some of the nice ones that have happened this year, such as the really low cost of risk, which is good to see, for example, the revenues in the corporate center this quarter, or some of the second-hand car market or some of the strength in equities did not happen the same way next year.
By the way, they might be offset by growth elsewhere. Assuming all else equal, if this did not reoccur, how would you think about the dividend in absolute terms? In the past, I remember before COVID, but there was some sort of a floor or at least a way to manage that you had introduced. I'm only asking because you referred to your 50% payout ratio as the right level this morning, I think, in the headlines. My second question was just simply on the equities business.
I just wanted to ask if there was any way that we could quantify, if that's right, whether there is any mark-to-market gains that came back from maybe some of the inventory of last year, and what is the kind of the right commercial revenue level, if that's right. Thanks a lot.
Hello, Jacques-Henri. I will leave Slawomir answer your second question. On the first one, first of all, as you said, the idea anyway is if there are certain elements which might not be sustainable in the long term, as you've mentioned, and the car sales or exceptionally market conditions in certain areas. The whole purpose that we have in mind is precisely thanks to all the hard work in the certain strategic projects to compensate, to ensure a sustainable profitability and growth for activity.
What you need also to factor and not necessarily for 2022, but the benefit of all the merger of our two networks. Boursorama, which is growing more quickly than expected and which will come to profitability when we will reach maturity. The benefit of all the hard work that we pursue in international retail and financial services. The different saving plans that we are currently further implementing, et cetera, et cetera. I think the purpose is really there to compensate for favorable elements which might not again be there in the mid cycle.
Secondly, we will not go back to a floor. We prefer to stick to 50% where there is flexibility anyway, is also the split between dividend and share buyback. We are here very flexible because we consider two levers are very beneficial for investors. Pretty much safe to say we will again consider the 50% is really there to stay. No reason to change. I want to again come back to the fact that we can finance acquisition without touching this, so no worry on capital, and we will look at each year the best bid between the two. Slawomir.
Yeah. Hi. Thanks for the question. If the question is really what makes the performance of equities between commercial activity, pure position gains, and what's the share of this and whether there are some unique opportunities in terms of the hedging conditions that we took advantage of. The answer is the hedging conditions are favorable and have been favorable throughout the year, and we've been talking about this in past quarters. It's still the case, but it's not a material share of the total revenues of our equities business.
What's driving the performance is very high commercial activity in a top-ish market which has volatility, but which is stable, and where there have been no disruption or even minor dislocations throughout the year. From that perspective, I've already commented this in the past. It's close to perfect market conditions for this business, and it was still the case in Q3.
This is what's driving the performance, the fact that our broad, deep and now more diversified business is taking advantage of its l eadership position across its subsegments in the market, which is favorable. There is a component which is linked to optimal hedging conditions, but it is small. Thank you.
Okay. Thank you very much.
Thank you very much. Next question.
The next question comes from Amit Goel from Barclays. Sir, please go ahead.
Hi there. Just on French retail loan growth at mortgages is still quite good, but are you seeing signs of a slowdown on the SME side potentially already in Q4, or do you think we have to wait for next year for that? On that same basis, could you just re-update us on the NII sensitivity at the group which is mainly driven by French retail. Last quarter, you told us plus 10 basis points is plus EUR 60 million year one, and that's what's in your annual report. Does that still stand?
Second part of the question is just going back to ALD, just to confirm why spend any capital at SG level if you will be spending capital at SG level, buying these kinds of assets significantly above their book value when you could just buy your own shares at half of your book value?
Amit Goel, I will leave Sébastien to comment on the SME loan development. William can remind you the sensitivity. On your question on the ALD, can I say, first of all, we have an attractive dividend policy, and I think my role is also to think a little bit beyond and the strategic dimension of the group in the next 10 years. We have floated ALD now what? 6 or 7 years ago, or 17, sorry, 4 years ago. In having in mind that there might be at some point opportunity to consolidate a fragmented market, which was a fantastic growth market.
If I may, we might, again, it's not certain, but we might see effectively this opportunity to take place and to build a world leader by far. With, as I said, a capacity to structure the transaction with a relatively small impact on the capital, I think it makes a lot of strategic sense for the shareholders, and it will help going forward to find dividend for the shareholders. I think really there's no doubt that this transaction, if again, it meets our criteria, our discipline criteria, would be very positive. Sébastien, on the SME.
Yes. Good morning, Amit. Regarding loans outstanding evolution quarter-over-quarter, as we said, it's down versus Q3 2020, up versus 2019, with an evolution penalized by short-term activity. Very good credit production for mid- and long-term credits to corporate, including SMEs. It's +47%, excluding state-guaranteed loans, which is a very good, very solid number.
Having said that, please keep in mind that we do have a selective approach in terms of credit production, the objective being to protect our margins with, as you can see, a positive impact on our NII and a low risk approach, again, with a positive impact in terms of cost of risk. Having said that, we do expect a very good level of credit production for corporate and SMEs mid to long-term in the coming months.
Am I last?
Yes. Very simply put and rounding the numbers, for a 10 basis point increase or decrease in rates, in parallel increase in the curve, the short and long term, the impact is roughly EUR 50 million in the first year and roughly EUR 100 million in the 7 years. So that's the order of magnitude.
Thank you, William. And just as a cheeky follow-up, could you give us specifically any sensitivities for Komerční of these policy changes? I guess we could ask for that.
Yes. That's what I gave you is group levels, and that includes the Czech Republic. As for the Czech Republic itself, I know that the point of reference that people tend to use in the Czech Republic is 25 basis points. For 25 basis points, it's about EUR 15 million equivalent up or down in the first year, which means EUR 6 million for 10 basis points.
Thank you, William, and I wish you all the best.
Thank you.
Thank you, Amal. Next question.
The next question comes from Matthew Clark from Mediobanca. Sir, please go ahead.
Good morning. A couple of questions, please. Firstly, on French retail, could you quantify the component of the net interest income this quarter that came from catch up of previous unaccrued TLTRO bonus benefit, i.e. that's won't be there in coming quarters to help us get a better idea of the run rate. As a related question, could you give us a kind of mark to market for where your TLTRO-eligible loan growth is versus that second hurdle, just given the corporate lending in French retail banking has slipped backwards a bit.
Presumably, you're still very comfortable that you're gonna meet that hurdle if you're booking that benefit already. Second question is on the financing and advisory division, where there was quite a big uptick in capital allocation this quarter. Is that something, i s that just a lumpy increase this quarter that will slip back? Do you expect to continue to see the capital allocation grow in that division? Any comment there? A final question just on overall capital levels. I think you've guided to a 200-250 basis point buffer over MDA.
Given where you are currently, given the lower Basel IV impact, given that your MDA as a ratio, or your SREP requirement as a ratio should be going down in absolute, in ratio terms, when will reconsider what to do with what seems to be a fairly healthy surplus over that prospective level? When do you think is the right time to take a step back and think about whether you have more capital to play with, whether it's capital return or investment? Thank you.
Hello, Matthew. I will let William answer your question on the TLTRO impact. Let me just remind you, it's not by business, it's we look at the whole legal entity, SG Personne Morale. We decided to account for TLTRO because when we look at the different components within SGPM as a whole, we are now comfortable with meeting the target. Second, I will let, perhaps, Slawomir comment on your question or specific question on the capital allocation.
Regarding, I think it's we will comment that when we will present for 2022, 2025. We stick to this 200-250 basis point buffer. We have to digest fully Basel IV. We have to take into account the way the supervisor will reflect upon its own requirements. We will have to reflect upon how the sector thinks about it. It's also a relative gain, et cetera. I think it's premature, but at this stage we stick to the same figures. William, on TLTRO.
Thank you, Frédéric. Just, as Frédéric said, we have the way we account for the bonification is taking on the one hand, Société Générale SA, for which we have EUR 61 billion outstanding, and on the other hand, Crédit Lyonnais. What we refer here in terms of the catch up is Société Générale SA or SGPM in our language. And the math are very simple. You have roughly 60, roughly 50 of bonification, and so that translated to a rounded number of about 300 that will be spanned across 2 and something year in terms of duration.
The catch up for that bonification is EUR 120 million in the quarter, of which you can assume that 60% goes to retail, French retail. That's fundamentally what happened. To your question, which I'm not sure I understood completely, so correct me if I'm wrong, which is on meeting the criteria, I think the answer I've just given means that we are very comfortable that we will meet the criteria at group level. It can be that in some areas we are short of in terms of provisioning, and in those areas we overshoot.
Overall for SGSA, we are very comfortable that we will meet the criteria to get bonification, which is why, in accordance with our statutory accountant, we decided to account for it in Q3 as far as the catch-up is concerned.
Thank you.
Slawomir?
On the capital allocation to F&A, very simply, the change that you see quarter-on-quarter is not indicative of a run rate. It's indicative of us being strategic and agile in allocating the capital where it serves best our clients in a given quarter and eventually obviously the institution as well. It's not indicative obviously of a run rate. What is more indicative of the run rate is what we discussed in May, which is a gradual incremental shift between the global markets business and F&A, but something more progressive.
Again, the rate you see this quarter is not indicative of that. It's really us taking advantage of existing client opportunities in the market.
Great. Thanks very much.
You're welcome. Next question.
The next question comes from Kiri Vijayarajah from HSBC. Sir, please go ahead.
Yes, good morning, everyone. A couple of related questions on global markets, if I may. I guess mainly for Slawomir. Firstly, just with all the kind of post-Brexit trade tension we're seeing, I wonder if in recent months you're seeing increased pressure from European regulators to move more of your trading activities back into the Eurozone, away from London.
Secondly, linked to that, how are you finding at the moment kind of global market staff retention and wage pressures, particularly in Paris, because I imagine all the other big U.S. international banks may be moving more of their front office staff to Paris. Presumably, kind of you guys are one of the places those kind of competitors want to hire from, particularly , they've got, they're also having buoyant revenues at the moment. What are you seeing in terms of wage pressures, staff retention in global markets, please? Thank you.
Hello. Kiri, pass Slawomir on the different elements of the question.
On the Brexit question, I mean, I personally, I'm happy to hear your follow-up if you have one, but I personally don't see any uptick in pressure from that standpoint. I mean, the Brexit triggered some structural changes in the allocation of staff throughout the region. Remember that for us, typically, this was more a smaller issue, I guess, because we are headquartered in Continental Europe anyway. The topic was an easier one for, I think, all the European Continental European banks.
Even for the industry, I don't see a major uptick in the pressure that you're referring to. In terms of staff retention, let me put it this way. Is the market in Paris changing and different from what we've experienced in the last decade? Yes, it is. Do we see levels of turnover which would be beyond standards in most developed, active, financial centers throughout the world? No. It's actually still much lower than what you would experience in the U.S., for instance, as a matter of course in the last decade. It doesn't have us worried at all.
At the end of the day, it's really matching the market as you deliver performance, and this is how we think about this, how the staff thinks about this, and we do have so far a decent performance which doesn't make this equation difficult to solve.
Thank you. That's very clear.
Thank you. Next question.
The next question comes from Guillaume Tiberghien, Exane BNP Paribas. Sir, please go ahead.
Good morning. Thanks for taking the question. The first one relates to capital and LeasePlan. You have about 340 bps excess capital above MDA, if I restate for Basel IV. And your target of 200-250 at all times leaves roughly 100 bps of excess. Would you consider spending as much as 100 bps if you did decide to go for a LeasePlan transaction?
The second question relates to the corporate center, pre-provision loss before restructuring charge. Can you remind us what's the budget there? You used to give a guidance, and I'm not too sure I remember the pre-provision loss guidance, ex- restructuring charge. Thank you.
Hello, Guillaume. Again, I know you try to have figures, but what I can just tell you, I have said I think just a limited impact. I would not qualify 100 basis points a limited impact. That's the only thing what I can say. After this, on the Corporate Center.
Yes. Guillaume, hello. You're right. We used to give guidance for gross operating income, an underlying gross operating income, as you described it, for the corporate center. We did note that in 2020 and 2021, given the fact that there are some volatile elements which we expect would impact the corporate center the guidance was EUR 400- 500 minus in a normal year. You should expect that in a normal context, that this is the type of things you would get given what we account for in the corporate center.
Then going forward, it without giving a guidance, of course, it could improve a bit. As we have said already, we would exit from some remediation on the cost side, and we benefit from a lower funding cost. That being said, what's happening here is we have strongly in 2021 the reversal of some of the negative volatile elements that pertain to the corporate center that we had seen in 2020. Remember we had some things linked to accounting mismatch, particularly linked to either spread or rates. This is what's happening now.
For example, this quarter, with higher rates in the Czech Republic or Russia, that has a positive impact on the corporate center. When all that is stabilized, the negative for 2020 reverse, pretty much in 2021, you should expect that the run rate should go back.
Okay, thank you very much, and good luck for your new adventures.
Thank you very much.
Thank you, Guillaume. Next question.
We have no more question for the moment. Ladies and gentlemen, I would like to remind you that if you wish to ask a question, please press zero, one on your telephone keypad. We have a new question from Pierre Chédeville from CIC. Sir, please go ahead.
Yes. Good morning. I have one question regarding consumer credit. You don't give any information regarding production, and I was curious to know if you observe a rebound there, both in your international consumer credit activities, Germany, Italy mainly, but also in France at Franfinance because some of your peers seems to have less buoyant revenues in this activity. I was curious to see that it's not the case at Soc Gen. Another question regarding fixed income in Asia.
You mentioned that your activities there was not very good due to market conditions, and I was wondering what are exactly your activities there. I don't remember if you could give us a little bit more color regarding FIC activities in Asia for Soc Gen. Thank you very much.
Hello, Pierre. Good morning. I will give the floor to Philippe and Eric first, and it might be his comments might be complemented by Sébastien on the pure French retail network activity, and then Slawomir. Philippe.
Yes. Regarding consumer finance, specialized business, so in France, in Germany and Italy, it's true that there is a slight decrease of production compared to the Q3 of 2020. The most important explanation is that last year, we had a very strong rebound in the Q3 after the lockdown, and also because there is an important part of our business which is related to car finance and there are still obviously some headwinds regarding new cars.
Yes, production is slightly down. On the contrary, we have increase of the outstandings in all the locations. As you can see in the presentation, the profitability it's still quite good for the quarter. There is also, as everywhere, a very good cost discipline, so an activity which remains quite profitable.
Any comments? Otherwise, okay. Slawomir.
Specifically on fixed income activities in Asia, they are fundamentally linked to both some flow activities and investment solutions on the rate side mostly, right? I mean, this is the focus that we have. We have some other activities. Because of the rates markets outside of Asia, the demand for the kind of products that we are offering there and solutions that we're offering there was subdued. Generally speaking, the market conditions in Asia have been poor and leaving people on the sidelines a little bit on the flow side.
Basically, the mix of the 2 realities, the specific Asia market conditions and the fact that the rates underlying, U.S. rates underlying in particular, was not a great client flow this quarter explains why Asia was a drag. I would not, for the entirety of the FIC performance, focus too much on Asia. It's a component. This is why we mentioned it. Again, at the end of the day, you have to think about this as a mix specificity. We do not have commodities. We are geared towards rates more than anything else.
We have a much smaller credit business, especially as some of the so-called exotic credit business has been put in run-off in the past. We have all the ABS related business, so structured credit, the way it's referred to, especially in the U.S., in our company, reported under F&A because it's part of the F&A business. As William said earlier, this particular business, which is , often again, reported in the fixed income elsewhere, has been growing at a 70% rate.
With all these facts, you can get the sense of what's going on and how business mix driven this is. If you basically adjust for the business mix, it's a fairly mainstream performance, not something that we should be overly proud of. I think we can always do better, and we're focused on doing better. It's also more mainstream than it seems when you look at the headline figures.
Thank you. Next question.
The next question comes from Azzurra Guelfi from Citi. Madam, please go ahead.
Hi, good morning. Sorry, I have been disconnected a couple of times, so I hope this question has not been asked already. Looking at your cost of risk guidance for this year, it's clear that it's gonna be a good year. Could you give us some color about 2022 and the use of macro provisioning when and if you are planning to release some of it? The second one is on the IFRS 17. Can you give us some color on the potential impact on this? Thank you.
Hello, Azzurra. I will turn to Jenny for your first question and William for your second one. Jenny.
Yes, hello, Azzurra. Cost of risk, as you are saying, we have revised the guidance. It's based on the fact that we've been quite conservative in terms of provisioning. As you saw, we kept all our buffers very limited reversals. Actually, we have canceled the reversals the models were leading to. We have a very limited actual defaults, and the cost of risk Stage 3, as you saw, is low. It's mostly adding provisioning on existing files, but a very low number of defaults across the board.
Definitely a combination of a strong risk profile, a good portfolio mix, and effectiveness of government measures, which have allowed to absorb the shock in most countries we operate in. Based on the quality of our portfolio, the conservative provisioning and the outlook which Frédéric has commented on, where we remain constructive on the growth for 2022, but still prudent as the pandemic is not over. We are not giving a guidance for 2022, but what I can say is that we don't see a return to the mid-cycle cost of risk any time soon.
William.
Thanks. Hi, Azzurra. It's a bit early stage to give you a lot of details on IFRS 17, sorry, and any final conclusion yet, as you may expect. We started to work on that very carefully together with Claire. It will be clear in the next quarters that we'll be able to give you more detail. There are two components . One is it should have an impact on the way we report P&L for insurance as well as the distributors. Here in our case, in terms of distributors, French Retail first and foremost.
Not necessarily a big impact as we see it now, but of course we have to fine-tune the analysis on the bottom line over the years. I mean, there are some sequencing element given the new methodology, and also as I said, there is some element of the cost as we go in the revenues and the reversal. But don't necessarily expect big impact on the bottom line overall. There is a component on the capital side. There I think we have clearly come to the conclusion that we will have a very manageable impact on the capital in 2023 when the norm is fully put in place.
Thank you. Next question.
The next question comes from Guillaume Tiberghien. He left the Q&A session, so we have no more question for the moment. I would like to remind you that. Yeah. If you wish to ask a question.
No more?
No more question.
Okay. I guess you have plenty of things to do during this day again. Again, thank you. Thank you very much for attending the call. Have a very nice day and speak to you soon. Thank you. Bye-bye.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.