France’s banking sector: Facts & Figures
The French economic situation is improving steadily, albeit at a slow pace. GDP growth recorded a marginal acceleration of 1.2% in 2016, after 1.1% in 2015. Domestic demand has been the main growth driver in recent years, but signs of a pick-up in exports are appearing for 2017, on the back of stronger external demand and more dynamic industrial activity in France. Investment (by both corporates and households) is dynamic and supported by improving activity and employment prospects in a context of low interest rates and ample credit supply, as well as economic policy measures (the CICE tax credit and the Responsibility Pact have improved the corporate margins and therefore the investment prospects). Hence, GDP growth is likely to accelerate further in 2017. Brakes on GDP growth remain present, however. They relate to insufficient competitiveness compared to European peers and, high unemployment rate, high public deficit and, in the short term, to the impact on real incomes and consumption of slightly higher energy prices.
The banking sector is one of France’s main economic assets, according to the OECD. In January 2017, the French banking industry numbered 364 banks. According to the European Banking Authority (EBA), six French banks are among the Global Systemically Important Banks (G-SIBs). Financial firms account for 4.5% of total value added in France, of which approximately 60% comes from the banking industry. The banking industry employed more than 370,000 people at the end of 2015, representing 2.3% of the private workforce in mainland France.
The results of the combined asset quality assessment and stress testing, conducted by the EBA and the European Central Bank, demonstrate the high level of capitalisation of French banks. The aggregate common equity Tier 1 capital (CET1) of French banks, calculated according to CRD IV/CRR rules, stands at 13.6% at the end of 2016, which places them among the most resilient banks in the euro area.
The six largest French banking groups, which mostly operate according to the universal banking model, reported a strong financial performance in 2016, with total net banking income of €145.7 billion (down 0.3% compared to last year), of which retail banking activities account for 67%. The total cost of risk was €10.3 billion (down 20%) and group net income €24.3 billion (up 3.1%).
French banks are dealing with a growing number of international and European regulatory requirements and heavier tax burdens.
Regulatory changes and advances in technology are prompting banks to transform and adjust their models to finance the economy. Despite these hurdles, French banks continue to finance businesses and households. At the end of March 2017, outstanding loans to the economy stood at €2,203 billion, up 5.2% year-on-year.
Outstanding loans to businesses stood at €920 billion at the end of March 2017, up 5.3% year-on-year. In investment, outstanding loans were the most important segment, at €650 billion (+5.4%). Short-term loans rose by 6.0%.
SMEs are the primary beneficiaries of bank lending. Loans to SMEs accounted for 42% of total loans granted to businesses in March 2017. Total outstanding loans to these businesses rose by 3.1% year-on-year. Applications for loans by SMEs were very broadly approved, with nine out of ten SMEs obtaining the investment loans they requested and eight out of ten SMEs receiving the short-term loans requested in the first quarter of 2017. However, demand for loans remains low: only 24% of SMEs sought an investment loan and 6% requested short-term loans at the beginning of 2017.
French banks also actively finance the projects of French personal customers. Outstanding household loans stood at €1,112 billion at the end of March 2017, up 5.6% year-on-year. Most household loans were home loans, representing 914 billion euros (+5.4% year-on-year).
Businesses are increasingly using the financial markets and banks are actively helping them find new sources of financing. Out of total corporate financing of €1,522 billion as of the end of March 2017, the proportion of bank lending to market financing was 60%/40%, compared to 70%/30% at the end of 2009.
Considering their obligations under the Payments Services Directive 2 (PSD 2), the French banks launched a joint initiative to propose the best solution for connecting third-party providers (TPPs) and the Account Service Payment Service Providers at the end of 2015.
The French banks have decided to build an open API to propose a strong, secure, resilient and standardised solution for connecting TPPs and banks. This API is developed by STET and will be available in 2018.