BNP Paribas, France's biggest listed bank, trumped profit expectations thanks to lower loan provisions and strong retail banking, offsetting volatile financial market conditions that hit investment banking.
The second-quarter performance underlined an "improving" but "still challenging" macroeconomic environment in BNP's key euro zone markets, pointing the way to more growth in retail, Chief Executive Baudouin Prot said in a statement on Monday.
"Globally the outlook for retail banking is positive with significant potential for market share gains," Prot said, though he added that Italy was one market where provisions could buck the trend and rise.
BNP, which comfortably passed Europe-wide stress tests last month along with rivals Societe Generale and Credit Agricole, said group quarterly provisions halved to 1.1 bln euros, the lowest level in two years.
Resurgent investor confidence following the stress tests has brought down BNP's credit spreads and signals an improving environment for the third quarter, Prot told CNBC TV.
Still, the unit suffered a 30% fall in second-quarter revenue because of a slump in capital markets activity that has also weighed on results at Goldman Sachs and Deutsche Bank.
Equity advisory revenue — a key area of analyst concern and an important business line for rival SocGen — fell 60%.
"Overall, very healthy trends … The only real area of weakness was equities," one London-based analyst said. "BNP is highly geared to the credit cycle and showing improving trends."
Retail banking had a strong quarter thanks to rising loan demand and deposit growth, BNP said. Lower-than-average household debt levels in France have kept up growth in retail banking across the sector, analysts said, though there are concerns government austerity could brake activity.
FORTIS BOOST
Group net profit rose 31% year-on-year to 2.1 bln euros, the bank said, compared with the average forecast in a Reuters poll of 12 analysts of 1.7 bln euros. Analysts on average expected provisions of 1.5 bln euros.
BNP's acquisition of assets from crippled Benelux bank Fortis at the peak of the crisis has delivered 402 mln euros of synergies so far out of an expected total of 900 mln through 2012, faster than expected, the bank said.
BNP's Belgian and Luxembourg retail revenue rose 7%. Subsidiaries in southern and eastern Europe, as well as U.S. division BancWest, stayed profitable after stemming losses earlier in 2010.
Commenting on recent choppy conditions for bank funding, BNP said there had been obvious tension in May but that short-term financing was now abundant.
Credit market jitters had been part of the motivation behind stress testing Europe's banks, amid concerns they may be undercapitalised following the crisis.
BNP Chief Financial Officer Philippe Bordenave, a black belt in judo, has helped the bank defy market fears and secure nearly three-quarters of 2010 funding by mid-year. BNP issued 1 bln euros in unsecured debt during the quarter.
BNP and SocGen shares are down 1.7% and 8% this year, compared with a 1.9% rise on the STOXX Europe 600 bank index. BNP's market value is 63 bln euros.
French bank stocks have been weighed down by the potential threat of onerous capital requirements under "Basel III" rules and their euro debt exposure.
