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In 2020, the activity in France showed a historic drop: GDP fell by 7.9%, after +1.8% in 2019 and +1.9% in 2018. This downturn is mainly a result of the health crisis linked to Covid-19: the economy has been greatly disrupted by the epidemic, while the measures aiming at limiting its spread (lockdowns, curfew, closing of retail shops, etc.), taken both in France and in various countries, also slowed the activity down. The French Government largely supported the fall in activity, through policies aimed at supporting the economy (furlough scheme, solidarity funds, etc.). Despite the reduction in non-financial corporations’ income, their profit ratio remained at a level comparable with previous years. The moderate increase in households’ income (+1.0%), combined with a fall in consumption (−6.5%), led to an outstanding increase of their savings in 2020.
Against this unprecedented backdrop, the French banking industry demonstrated a deep sense of purpose in carrying out its core duty of serving society. Rising to the challenge of the health and economic emergency, the banking profession took action to ensure the uninterrupted delivery of the services needed for the country to operate. Launched on 25 March 2020, the State-Backed Loan (SBL) or Prêt garanti par l’Etat (PGE) is an unprecedented measure devised by the banks and public authorities to improve the liquidity of companies and professionals reeling from the shock of the health emergency. On 1st January 2021, nearly €131 billion had been granted to more than 638,000 businesses among which 90% very small companies. Furthermore, €20 billion in business loan payments have been deferred in 2020.
This massive economic support was made possible thanks to the strength of the French banking system. The banking sector is one of France’s six main economic assets, according to the OECD. As of January 2021, the French banking industry counted 337 banks. According to the Financial Stability Board, four French banks are among the eight Euro area Global Systemically Important Banks (G-SIBs). Financial activities accounted for 3.7% of total value added in France in 2020, of which approximately 60% for the banking industry. The banking industry employed 354,000 people at the end of 2020, representing 1.8% of the private workforce in France, and recruiting more than 35,300 people in 2020. Their network of bank branches providing access to banking services and cash is among the densest in Europe (one bank branch for 2,086 inhabitants in 2020 versus 2,888 in the eurozone).
The results of the combined asset quality review and stress testing, conducted by the European Banking Authority and the European Central Bank, demonstrated the high level of capitalization of French banks. The aggregate common equity Tier 1 capital (CET1) of French banks was 15.4% at the end of 2020.
The six largest French banking groups, which operate according to the ‘universal banking’ diversified model, posted a resilient financial performance in 2020. Total net banking income reached €147.8 billion (down 1.9% compared to 2019) and total group net income was €20.3 billion.
Amidst the Covid-19 crisis, banks are supporting companies and individuals with tailored solutions while complying with health regulations. At the end of December 2020, outstanding loans to the economy stood at €2,752 billion, up 8.3% year-on-year. This sharp increase reflects the wide diffusion of the State-Backed Loan (PGE).
Outstanding loans to businesses stood at €1,200 billion at the end of December 2020, up 13.3% year-on-year, while the euro area rose by 6.5% on average. Outstanding loans to investment were the most important segment, at €807 billion (up 6.1%).
Loans to SMEs accounted for 44% of total loans granted to businesses in December 2020 and rose by 20.5% year-on-year. Access to credit is high: 98% of SMEs investment loans and 90% of cash credits applications were accepted in the fourth quarter of 2020.
French banks also actively finance French consumers. Outstanding household loans reached €1,359 billion at the end of December 2020, up 4.5% year-on-year. Most household loans were housing loans, representing €1,137 billion (up 5.4% year-on-year).
Lending activity remains both dynamic and sound. The level of non-performing loans is very low (2.2% at the end of December 2020) as the cost of risk (as a proportion of average total assets it declined from 0.41% in 2009 to 0.2% in 2020).
Diversification of corporate financing is developing in France. Markets account for 37% of corporate financing, compared with 30% in 2009. French banks also have a large and diversified investment banking activity.
French banks’ investments, innovation, and leading role in the fintech ecosystem make them the natural leaders of the digital financial movement in France. 66% of French people, more than 33 million, have downloaded at least one banking app, and 92% of French people, or nearly 47 million, consult their bank’s website according to the study FBF/IFOP conducted in 2020. Moreover, thanks to the raise of the limit for contactless card payments from 30 to 50 euros, the number of contactless payments edged high: 4.6 billion in 2020 (after 3.4 billion in 2019) accounting for nearly 60% of card transactions in retail stores.
It is worth mentioning a French Initiative which is a world first, pursuant to which the large French banks have decided to exit the coal sector (with firm exit dates) and have published an indicator that will be updated annually to evidence such exit, as well as the related methodology in order to be as transparent as possible. As of 2019, their exposure to coal amounted to €2.3 billion, representing less than 0.2% of their corporate portfolio.
Such publication was launched on the website of the “Observatory of Sustainable Finance” on 29 October 2020 to mark Climate Finance Day. This tool tracks all the French financial institutions progress on Sustainable Finance and involves all the French financial institutions, the French Government and the French financial regulators (AMF and ACPR) who will oversee the reality of the commitment made. This multistakeholder approach is unique in the banking world.
Contributor: Hugo Valla email@example.com