BNP Paribas announces 10NC5 SGD Tier 2 subordinated bond at IPG of 5.10%

BNP Paribas SA (“BNP Paribas”) announced that it plans to issue a 10NC5 SGD Tier 2 subordinated bond at the initial price guidance (“IPG”) of 5.10%. This new issuance is available only for accredited and institutional investors.

The bond is expected to be issued on 15 February 2024, with a call date of 15 February 2029 and a maturity date of 15 February 2034. If uncalled, the coupon will reset with a reset rate based on the prevailing 5-year SORA-OIS plus an initial margin determined upon issuance.

BNP Paribas is a France-based multi-national bank, which is also the overall banking leader across the European Union. BNP Paribas has footprints across the globe, with almost 184,000 employees situated in 64 countries – and a majority of them are situated in Europe. Within Europe itself, the bank oversees four key domestic markets – Belgium, France, Italy and Luxembourg, while also tapping into the Eastern European markets and Turkey. BNP Paribas segregates its operations into three major divisions – Corporate & Institutional Banking (“CIB”), Commercial, Personal Banking & Services (“CPBS”) and Investment & Protection Services (“IPS”).

For the full year ended 31 December 2023 (“FY23”), BNP Paribas reported higher revenues, operating income and net income year-on-year (“YoY”) as compared to FY22. Revenue rose by 3.3% YoY from EUR 4.54b to EUR 4.69b, while operating expenses fell 1.0% YoY from EUR 29.9b to EUR 29.6b – providing a positive jaws effect for BNP Paribas. It reflected that the increased revenue was a result of sustained organic growth across the majority of its businesses, while the management of costs allowed for lower expenses, despite facing inflationary pressures in FY23.

Operating income and net income increased 14.9% and 14.1% YoY respectively to EUR 14.4b and 11.2b, with the sale of the Bank of the West in February 2023 contributing a significant portion (EUR 2.95b).

Asset quality at BNP Paribas continues to look stable as the cost of risk remains within the guidance level of below 40 basis points (“bps”) across 2022 to 2025, at 32 bps for FY23. Meanwhile, BNP remains well-capitalized with the CET1 standing at 13.2%, a slight drop of 20 bps from the previous quarter due to the payouts made across the quarter, alongside an increase in risk-weighted assets. The bank’s liquidity remains robust as well with liquidity coverage ratio at 148% and a liquidity reserve of EUR 474b, covering more than 60% of the total deposits it holds as of 31 December 2023.

Moving forward, BNP Paribas looks to further improve its Return on Tangible Equity (“RoTE”) to the range of 11.5% to 12.0% by 2025 and targets for 12.0% by 2026. Adjustments will be made to its deployment of capital, with the CET1 ratio expected to fall to 12.9% in 2024 and 12.0% in 2025 (based on finalized Basel III requirements).

Previously, we had provided a credit update for BNP Paribas based on its 1H23 results. For more information, please refer to the article here - Idea of the Week: Looking at EU’s banking leader.

BNP Paribas is rated Aa3 by Moody’s, A+ by S&P and AA- by Fitch, with a stable outlook across the three rating agencies. For the new Tier 2 issuance, it is expected to be rated Baa2/BBB+/A- by Moody’s/S&P/Fitch respectively. We would like to highlight the loss absorption feature on the new issuance, which might not be suitable for all investors depending on the risk appetite.

Table 1
SGD Tier 2 subordinated issuances

We find the new issuance by BNP Paribas rather attractive, comparing the yields of similar Tier 2 subordinated bonds. At comparable credit rating levels, other issuances are offering lower yields – especially for LLOYDS 5.250% 22Aug2033 Corp (SGD) - despite being one notch lower. At the same time, we would like to note that the final price guidance will likely come down from the IPG. We see BNP Paribas as a great option for investors, given the stability that it provides as a banking leader in the EU. The new issuance would be a great recommendation for investors seeking higher-yielding investment grade bonds in the medium term.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold a position in LLOYDS 7.086% 31Aug2033 Corp (AUD) and BACR 8.300% Perpetual Corp (SGD), and the analyst who produced this report hold a NIL position in the abovementioned securities.

Our podcast series, Yield Hunters, is available on Spotify, iTunes Podcasts and Google Podcasts. We share our thoughts on new bond issues and hold discussions on the fixed income space. Listen to our latest episode below and follow us!