BNPP puts digital heart in its three-year plan

Mark Baker
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BNP Paribas COO Philippe Bordenave tells Euromoney that the bank is putting digitization at the heart of its new strategic plan.

BNP Paribas unveiled a new three-year strategic plan on February 7, alongside annual results that showed revenues up 1.1% to €43.4 billion and profits up 2.6% to €14 billion. The new 2017-2020 plan, which succeeds the bank’s previous strategy for 2014 to 2016, puts technology firmly at its heart, according to chief operating officer Philippe Bordenave.

"What is very clear from the new plan is that this period will be characterized by digitization," he tells Euromoney. "The previous plan was about cutting costs and increasing capital ratios. The new plan again involves cutting costs, but on the capital front we are there and now we can focus on transformation."

Philippe Bordenave,
COO, BNP Paribas

Costs were in fact the one miss for the bank in the 2014 to 2016 plan, despite the efforts of its Simple & Efficient programme that saw €3.3 billion of recurring savings since 2013, some €500 million above target. The year-end cost-to-income ratio came in at 67.7%, above the hoped-for 63%. Bordenave attributes that to extra costs around taxes and contributions, and not just in Italy, where the bank's contributions to the resolution process for Italian banks amounted to €52 million during the year. A new tax in Poland dented results in that country, while a tax hike in Belgium did the same there.

On top of those, there were the costs involved in implementation and reporting commitments associated with the bank’s intermediate holding company in the US, as well as the €500 million annual contribution to Europe’s Single Resolution Fund, the bank’s biggest single extra expense.

As would be expected, the bank builds buffers into its targets to allow for unpredictable events. Bordenave will not be drawn on how much flexibility the bank has planned for with its new aims, but maintains that the bank is always confident about hitting the objectives it sets. Keeping its cost-to-income ratio target unchanged for the new plan will help.

The return-on-equity target also looks the same, at 10%, but is in fact based on a higher level of underlying capital (core equity tier-1 ratio of 12%) and so represents an increase.

In the previous plan, the bank was shooting for the 10% target on a 10% CET1 ratio. Its capital requirements changed in the period, with a fully loaded Basel III CET1 ratio of 11.5%, meaning that while it did hit its 10%/10% target, its final RoE came out at 9.4%, based on its higher CET1. The bank is aiming for a 12% CET1 figure by the end of the new plan.

Organic revenue growth is targeted at an average of 2.5% a year for the new plan, an increase on the 2.2% achieved through the previous three years (although this rose to 4% after stripping out exceptional items), while net income is targeted to grow by at least 6.5% per year. The dividend pay-out ratio is intended to increase from 45% to 50%.

The digitization element of the new plan comes with its own big costs. The bank says it will spend some €3 billion between 2017 and 2019 in this area, but adds that it expects to generate €3.4 billion of savings as a result. It will then see €2.7 billion of recurring savings each year from 2020.

Digitization, applied

Transformation and digitization has been all the rage for years in retail banking – banks have fallen over themselves to roll out ever-cosier branches that aim to make customers feel they are chatting among friends in a members’ club, or mobile apps that give people the ability to check on their personal finances wherever they are.

One senior executive at another European bank told Euromoney recently that an app it produces whose sole function is to display a customer’s account balance is consulted by each user an average of eight times every day. BNP Paribas launched digital direct bank 'Hello bank!’ in 2013 and has already notched up 2.5 million customers.

Applications of digitization beyond retail banking can be less obvious, but meaningful all the same. At BNP Paribas, the Centric platform already allows corporate treasurers to see all the cash management positions they have with the bank, to borrow money with a few clicks using pre-approved credit, and to use FX services. If they want something more complex, they can enter Cortex, the bank’s sci-fi sounding sub portal that opens up products such as currency options and interest rate swaps.

If such approaches to digitization sound rather corporate banking-heavy, this is perhaps unsurprising given the bank’s legacy as a commercial bank. The group has always been arguably overweight corporate exposure, even after the merger with Paribas in 2000, but part of the intention these days is to rebalance that.