BNP Paribas SA (“BNP Paribas”) intends to issue a new SGD 10.5NC5.5 Tier 2 subordinated notes at the initial price guidance of 4.20%. The new notes are expected to be issued on 15 April 2024, with a call date of 15 April 2030 and a maturity date of 15 April 2035. If uncalled, the coupon will reset based on the benchmark rate (5-year SORA-OIS) and the initial margin (determined upon issuance). The new issuance is made available only for institutional and accredited investors.
BNP Paribas is a France-based multi-national bank, also the overall banking leader across the European Union by market capitalisation. BNP Paribas has footprints across the globe, with ~182,700 employees situated in 63 countries (as of 31 December 2023). Within Europe itself, the bank oversees four key domestic markets for retail banking services – Belgium, France, Italy and Luxembourg. BNP Paribas differentiates its operations into three divisions – Corporate & Institutional Banking (“CIB”), Commercial, Personal Banking & Services (“CPBS”) and Investment & Protection Services (“IPS”).
BNP Paribas is a large, stable bank and we see this being reflected in its financial results. The bank reported a CAGR revenue growth of +3.0% p.a. across 2013 to 2023 – a slow but gradual upward trend over the past decade, apart from a small dip in its FY20 performance owing to the COVID-19 pandemic.
For the quarter ended 30 June 2024 (“2Q24”), BNP Paribas saw a slightly improved revenue (+3.9%), gross operating income (+3.4%) and net income (+1.6%) year-on-year (“YoY”) – a performance largely consistent based on its past trend. The revenue growth came mostly from CIB, which sees +12.1% revenue growth YoY. BNP Paribas remarked that the business unit saw a particularly good performance from Equity & Prime Services (+57.5% YoY against 2Q23), which offset a lower performance at Fixed Income, Currency and Commodities (-7.0% YoY against 2Q23).
BNP Paribas has also started to optimise its costs, which has worked well in helping the bank manage its overall costs. Despite seeing higher costs in 2Q24 owing to non-recurring impacts, it highlighted that most business units still saw positive jaws effect on a structural basis (i.e. excluding all the one-off expenses). BNP Paribas indicated that it would utilise a further EUR 400m to improve operational efficiency, increasing from the current planned cumulative amount of EUR 2.3b to EUR 2.7b by 2025.
On BNP Paribas’ asset quality, we noted an increase in the overall cost of risk against the previous year, up from EUR 609m in 2Q23 to EUR 752m in 2Q24. BNP Paribas highlighted that the cost of risk to outstanding customer loans is at 33 basis points, well below 40 bps due to good quality and diversification of the asset portfolio. The bank also reflected that it has limited exposure to sensitive sectors – only 3.9% of total gross exposure to commercial real estate, with ~45% of it being rated investment grade. BNP Paribas emphasised that more than 90% of the real estate exposure is in Europe, which has seen considerably more muted impacts within the real estate sector as compared to the US. We noted that BNP Paribas’ overall portfolio exposure is primarily in Europe (~80%), with North America at 9%, Asia Pacific at 6% and the rest of the world at 5%.
BNP Paribas has a stable capital position, with its CET1 ratio standing at 13.0% as of 30 June 2024, and holds about 270 bps buffer against the regulatory requirement. For BNP Paribas, its organic capital generation has largely been able to offset its distributions and usage of capital, allowing its CET1 ratio to remain relatively consistent. However, the bank currently anticipates a -80bps impact from the adoption of new Basel regulations with the CET1 ratio to fall to ~12% by the end of 2025, after accounting for further regulatory changes. Nonetheless, we believe that BNP Paribas holds a decent liquidity position, with a liquidity coverage ratio of 132% as of 30 June 2024, and immediately available liquidity reserves at EUR 468b – it reflected that this is more than one year to manoeuvre in terms of wholesale funding.
Overall, BNP Paribas has demonstrated its capability as the largest bank within the Euro area, with exceptional stability in its performances while still seeing slow but gradual growth. This bank is one of the strongest issuer amongst our banking coverage, and will likely remain attractive for the years to come.
Table 1: SGD Tier 2 issuances
Issue | Ask Price | Yield to Call/ Maturity | Years to Call/ Maturity | Bond Credit Rating (S&P/ Fitch) |
109.45 | 4.07% | 4.30/9.55 | BBB-/Baa3 (S&P/Moody’s) | |
105.48 | 3.71% | 3.87/8.88 | BBB-/BBB+ | |
98.77 | 3.67% | 2.37/7.38 | BBB+/ A- | |
105.83 | 3.64% | 3.92/8.92 | BBB+/ A- | |
106.80 | 3.64% | 4.47/9.47 | BBB/ A- | |
BNP 15April2035 Corp (SGD)* | 100.00* | 4.20%* | 5.50/10.50* | BBB+/ A- |
Sources: Bloomberg Finance L.P., Bondsupermart, iFAST Compilations. *Yet to be issued, and yield is expected to adjust downwards from initial price guidance. | ||||
BNP Paribas is rated Aa3 (stable)/ A+ (stable)/ AA- (stable) by Moody’s/ S&P/ Fitch respectively, whereas the new issuance is expected to be rated Baa2/ A-/ A by the respective rating agencies. Note that the Tier 2 subordinated bond comes with loss absorption clauses, which may not be suitable for risk-averse and conservative investors.
At the IPG of 4.20%, BNP Paribas’ new issuance is comparatively attractive against other Tier 2 issuances. Accounting for the potential downward adjustment in yield for the final pricing, the new issuance is likely to remain attractive against other SGD Tier 2 issuances at similar credit ratings (i.e. those from HSBC and Credit Agricole). We believe this will adequately compensate investors for the additional tenor to undertake with the new issuance.
As Tier 2 capital is amortised in the five years after the initial call date, we expect BNP Paribas to redeem the bond on the first call date – as the issuer would be incentivised to refinance with new bonds to maintain Tier 2 capital. Overall, the new issuance would be suitable for investors considering banking bonds, with BNP Paribas being one of the more stable banks across the European region.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a position in CMZB 6.500% 24Apr2034 Corp (SGD) and the analyst who produced this report holds a NIL position in the abovementioned securities.
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