Idea of the Week: Société Générale still looking stable amidst increased market uncertainty

Société Générale (“SocGen”) has continued to perform strongly with robust 2Q25 results ahead of their targets for FY25. The French bank continued to benefit from a strong rebound in French Retail Banking, solid performance of Global Banking and Investor Solutions and sustained activity in Mobility, International Retail Banking and Financial Services. Posting strong financial results, we see opportunities for its bonds.

Related article: USD Bank Bonds – Capturing Yield with High-Quality names

Financial Highlights

For the second quarter ended 30 June 2025 (“2Q25”), SocGen’s net banking income rose 1.6% YoY to EUR 6.8 billion from EUR 6.7 billion a year ago, driven mainly by its business segments such as 1) French Retail Banking and 2) Global Banking. The top-line growth was also accompanied by lower operating expenses which have fallen by -5.2% YoY.

The slight decrease in operating expenses in Q2 2025, excluding asset disposals, largely reflects the accounting of an exceptional charge of approximately EUR 100 million related to the launch of a Global Employee Share Ownership Programme in June 2025. Adjusted for this non-recurring item, operating expenses were down -2.8% YoY, confirming strong cost control at the Group level. Transformation charges also declined by EUR 93 million compared to Q2 2024.

As a result of top-line growth and stronger gross operating margins, gross operating income ballooned 16.4% YoY to EUR 2.5 billion (2Q24: EUR 2.1 billion). Operating income came in at EUR 2.1 billion, a 21.8% YoY increase compared to a year ago. Notably, the bank’s cost-to-income ratio (C/I) across all business segments has improved (Figure 1). The bank’s overall C/I came in at 63.8% for the quarter, lower than 68.4% a year ago and is on track to achieve its target for the year of less than 65%.

Moving forward, the bank's performance in 2Q25 suggests a positive trajectory, with strong profitability. Though, the bank expects provisions to increase and cost of risk to be in the range of 25 bps to 30 bps. Overall, continued focus on cost efficiency and risk management positions SocGen well to achieve its strategic targets for 2025.

Figure 1: Strong improvement in cost-income ratios across all businesses

Outlook

Following a robust 2Q25 result, the bank is ahead of its full-year targets. Management is forecasting net banking income growth of over 3% YoY in 2025 (after a 6.7% YoY increase in 2024), alongside more than 1% YoY reduction in operating costs, a cost/income ratio below 65% (initial target was less than 66% for 2025) leading to a target ROTE of above 9% (versus 6.9% in 2024). This momentum stems from disciplined cost control, asset disposals, efficiency gains, and a rebound in retail banking and equity trading, supporting the goal of achieving 9–10% ROTE by 2026.

Beyond corporate targets, macroeconomic concerns surrounding Europe looms. SocGen forecasts moderate Euro‑area growth in 2025–26, persistent fiscal pressures, and sticky inflation, with gradual monetary easing. Yet, policy divergence between the US and Europe may create tactical investment opportunities. In Asia, SocGen anticipates a “soft‑landing” in the US, a stabilising Chinese earnings cycle, and moderation across Japan, India, Korea and Taiwan.

SocGen expects its cost of risk to stay stable or slightly improve, aided by strong underwriting, adequate provisioning, and a relatively resilient European credit landscape. Stage 3 loan ratio held steady, and management reaffirmed their view that no material deterioration is expected in 2H25 barring unexpected macro shocks.

All told, SocGen’s 2025 and 2026 outlook is rooted in cautious optimism: strong operational execution, targeted cost and capital discipline, and strategic navigation of macro headwinds. The bank is well‑positioned to deliver on its 2026 strategic plan and generate sustainable, profitable growth into the medium term.

Credit Highlights

For asset quality, net cost of risk has increased slightly in 2Q25 to 25 bps (4Q24 and 1Q25: 23 bps) or EUR 355 million – comprises i) provision for non-performing loans (NPL) of EUR 390 million and ii) a reversal of a provision for performing loans of - EUR 35 million (FY25 target: net cost of risk of 25-30 bps). Gross NPL ratio was at 2.77% as of 30 June 2025, improving slightly from 1Q25 of 2.82%. After netting of guarantees and collateral, the net coverage ratio on the bank’s NPL stood healthy at 81% as at 30 June 2025 (1Q25: 82%).

Looking at its capital position, SocGen reported a Common Equity Tier 1 (CET1) ratio of 13.5% at the end of 2Q25, ~330 basis points above the regulatory requirement of 10.22%, reflecting a solid capital base (1Q25: 13.4%) (Figure 2). Moreover, when compared with the peer average buffer of 275 bps, SocGen’s buffer would appear slightly higher with ~330 bps buffer.

The bank also targets a CET1 capital ratio of more than 13.0% this year and 13.0% for FY26, with efficient capital usage through discipline in Risk-Weighted Asset (RWA) deployment which would help increase RoTE. SocGen also have no major share buyback planned for the remaining quarters, which should further supports its CET1 ratio.

Figure 2: CET1 capital ratio

Table 1: CET1 capital ratio versus other peers

Additionally, the bank’s funding profile is strengthened by having 46% of its deposits in French retail banking – a highly stable and granular source of funding that supports greater resilience and deposit stickiness compared to more volatile wholesale or corporate deposits (Figure 3).

Figure 3: Diversified deposit base as of 2Q25

Other ratios also showed various sizeable buffers against regulatory minimums. For instance, leverage ratio came in at 4.4%, higher than the minimum of 3.6%, total loss-absorbing capacity (TLAC) at 29.9%, above the minimum of 22.3% and minimum requirement for own funds and eligible liabilities (MREL) coming in at 33.4%, above the minimum of 27.4%.

Liquidity coverage ratio (LCR) is at 148% (1Q25: 140%) while net stable funding ratio (NSFR) stood at 117% (1Q25: 115%) (Figure 4) which are stable and above regulatory minimum of 100%. While the decline in LCR looks sharp relative to its 2024 numbers, we note that this was largely due to large bond issuances under its funding program that boosted liabilities but did not immediately reflect in liquid assets. Moreover, when compared to its peers, the ratios appear competitive, with BNP Paribas being the laggard (Table 2).

Figure 4: Liquidity coverage ratio and net stable funding ratio over the years

Table 2: Liquidity Coverage Ratio and Net Stable Funding Ratio across its peers

Recommendations

Table 3: Comparison Table

SocGen continues to demonstrate a resilient credit profile with robust capital buffers, adequate provisioning, and a stable funding base. While cost of risk has ticked up slightly, asset quality remains under control. Its proactive capital management, coupled with favourable liquidity and funding dynamics, positions the bank well to navigate a still-evolving macro environment.

For investors looking for shorter tenors, we think that SOCGEN 5.250% 19Feb2027 Corp (USD) is a good alternative, with 4.44% yield to call, to our previous recommended BACR 7.385% 02Nov2028 Corp (USD), 4.36% (Table 3). We think the slightly higher yield is reflective of SocGen’s slightly lower bond credit ratings but we are comfortable given the Group’s credit profile.  

For a slightly longer tenor, we like the SOCGEN 5.500% 13Apr2029 Corp (USD) with less than three years to its call date, with a yield to call of ~4.6%. We think it will be a good alternative to our previous recommendations (Related article: USD Bank Bonds – Capturing Yield with High-Quality names) like the ~4.4% yield to call for STANLN 5.545% 21Jan2029 Corp (USD) and STANLN 6.301% 09Jan2029 Corp (USD) (Table 3). We think the slightly higher yield is reflective of SocGen’s slightly lower bond credit ratings but we are comfortable given the Group’s credit profile.

For investors looking for a higher yield to lock-in, we recommend longer-dated bonds such as the SOCGEN 6.100% 13Apr2033 Corp (USD) which offers yield to call of 5.2% vs ~5% yield to call as seen for STANLN 6.296% 06Jul2034 Corp (USD) and BACR 7.437% 02Nov2033 Corp (USD) (Table 3). We think the slightly higher yield is reflective of SocGen’s slightly lower bond credit ratings but we are comfortable given the Group’s credit profile.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold a position in STANLN 4.300% 19Feb2027 Corp (USD) and the analyst who produced this report hold a NIL position in the abovementioned securities.

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