BNP Paribas SA's (BNPQF) CEO Jean-Laurent Bonnafé on Q1 2022 Results - Earnings Call Transcript
BNP Paribas SA’s (OTCQX:BNPQF) Q1 2022 Earnings Conference Call May 3, 2022 8:00 AM ET
Jean-Laurent Bonnafé - Chief Executive Officer
Lars Machenil - Group Chief Financial Officer
Laurent David - Deputy Chief Operating Officer
Bernard Gavgani - Group Chief Information Officer
Rim Tehraoui - Chief Data Officer
Laurence Pessez - Global Head of Corporate Social Responsibility
Yannick Jung - Head of Corporate & Institutional Banking EMEA
Conference Call Participants
Jon Peace - Credit Suisse
Tarik El Mejjad - Bank of America
Delphine Lee - JP Morgan
Jacques-Henri Gaulard - Kepler Cheuvreux
Giulia Miotto - Morgan Stanley
Matthew Clark - Mediobanca
Anke Reingen - Royal Bank of Canada
Azzurra Guelfi - Citigroup
Kiri Vijayarajah - HSBC
Pierre Chedeville - CIC
Omar Fall - Barclays
Andy Simpson - KBW
Stefan Stalmann - Autonomous Research
Flora Bocahut - Jefferies
Good afternoon, ladies and gentlemen, and welcome to the presentation of BNP Paribas First Quarter 2022 Results. For your information, this conference call is being recorded. Supporting slides are available on BNP Paribas IR website invest.BNPParibas.com. [Operator Instructions]
I will like now to hand the call over to Jean-Laurent Bonnafé, Group’s Chief Executive Officer. Please go ahead, sir.
Thank you. Good afternoon, ladies and gentlemen. I suppose you’re doing well and welcome to the presentation of BNP Paribas first quarter 2022 results. Today, Lars and I will present to you the quarterly results, illustrating the growth component of our 2025 strategic plan. It will be followed by the presentation of the last two pillars of our growth, technology and sustainability 25 plan. As usual, at the end of the presentation, we’ll be pleased to take your question.
So now I’ll jump to the results presentation starting on slide three. BNP Paribas on a solid trajectory in ‘22, thanks to robust start to the Europe, which illustrates the strength of our model and its continuous reinforcement. We delivered indeed very solid results in the first quarter on the back of our ability to adapt and accompany our clients and the economy. Revenues increased by 13.5% in the operating divisions, stemming from an outpacing CIB as well as a very positive drive of CPBS, both in commercial and personal banking as well as in specialized businesses combined with a good resilience in investment and protection services. As part of this growth stems, from the effect of the strategic developments realized in ‘21 and the first quarter ‘22, in particular in the equity business or in CPBS, for instance, with Floa, a leader in buy now, pay later solutions. But it is just a part of the growth. As you certainly saw it, eight growth revenues also strongly increased by 10.4% at constant scope and exchange rates, materializing the significant growth beyond these recent developments. Accompanying the double digit growth, cost increased, but more than 50% of this increase is actually due to the scope and exchange rates effects as well as the rise in the taxes subject to effect ‘21, which are, as you know, almost fully accounted for in the first quarter and 2023 strongly inflated by the contribution to the Single Resolution Fund.
So what you can see is that actually the group benefit is not only from a strong potential for growth, but also from a strong operational performance distributed by positive jaws of 3.4 points at concern scope and exchange rate excluding taxes subject to effect 21. It demonstrates the ability of our businesses to adapt on the back of the gains in operational efficiency and the successful development of leading platforms, allowing growth at marginal cost. Cost of risk stood at 20 basis points, a particularly low level, resulting from a release in provisioning of performing loans at BancWest. Excluding BancWest, the underlying cost of risk is still low at 30 BPs. As a consequence of our strong growth in operating income, the group’s net result came in at a solid level of 2.1 billion Euros, a significant increase year-on-year of 19.2% or even 3.4 billion Euros plus 37%, excluding exceptional items and contribution to the Single Resolution Fund.
The group’s core equity tier one ratio clocked in at 12.4%, as on one end, we accelerated organic growth and accompanied the development of businesses with bolt-on acquisition. On the other hand, the CET1 ratio was specifically impacted this quarter by changes in regulation, which were largely anticipated, and a temporary effect of the market environment which will taper off. In a nutshell, a strong first quarter, which stems the ‘22 trajectory.
Turning on to slide four, you can see that BNP Paribas diversified model has delivered over the past few years consistent growth of 5.9% annually, at the best higher than the underlying economy. Indeed, our model is providing a solid base for growth. First, we are favorably positioned in terms of sectors, geographies, and client segments. Our position was given as our leading platforms provide us with the ability to accompany our clients and the economy with a global approach and the long-term view. We’ve built a diversified and integrated model for all weather conditions, which is balanced in three suits, one CIB to commercial and personal banking men in Europe, and CBS and IPS specialized businesses. This client centric model, powered by the cooperation between businesses, is a critical advantage with around 27% of group revenues generated by cross selling.
As you know, with the ‘25 Strategic Plan, we continue to reinforce this model in order to create even more value. This is, I think, already evidenced by our results, and will sustain our growth trajectory by ‘25 starting in ‘22, but we consider that we can leverage our model a step further. Hence, we’ve launched street transversal initiatives around payments and flows, financial savings and mobility, with the objective to generate 2 billion Euros of cross selling revenues supporting the revenue growth by ‘25. Our value creation also stems from our ability to deliver positive jaws as you can see on slide five. I say it again, delivering positive jaws each year and in every division is at the core of our strategy and our main point of attention. It is driven from the capacity of our leading platforms grow at marginal costs and to continuously deliver gains in operational efficiencies. We have a strong track record in doing so, as illustrated by the continuous growth of the gross operating income, despite the growing share of the SRF contribution in our expenses. To sustain positive jaws over the period ‘21 to ‘25 with an average of above two points, major initiatives throughout our business lines will be implemented to adjust our cost to serve, increase cost variability, and generate 2 billion of recurring cost savings progressively by ‘25, out of which 500 in ‘22. It will sustain our ability to generate positive jaws each year in each division. It will also be amplified with a 1 billion decrease in cost in ‘24 visiting from the ramp up of the SRF, contributing by the end of ‘23. Hence, our potential for growth in the coming years is steady. As already announced, our ‘22 to ‘25 groups ambitions are summarized on slide six, are confirmed as well as the expected closing of the sale of Bank of the West.
Now, I would like to hand over to Lars who will take us through the group results. Lars?
Thank you, Jean-Laurent. Good afternoon fine ladies and gentlemen. If I can ask you to turn to slide eight, where you can see that the strong results for the first quarter do not rely on exceptional items; actually, the strong results of the first quarter did materialize not only with much lower exceptional items, but also on the back of a 400 million Euro step up in taxes subject to effect ‘21. I certainly don’t have to remind you that under effect ‘21 those taxes fall in the first quarter, covering the full year and by the way, a burden that will fall off for a last part basically the Single Resolution Fund contribution after next year.
So with this, if I can ask you to swipe to the next, to slide nine, where you can see that the solid performance of the group in the first quarter and if we start by looking at the bottom line, which clocks in at 2.1 billion Euros, up by a sweet 19% year-on-year. This growth rate has been achieved on the back of a strong performance of the operating divisions. You could say that this performance is somewhat flattered by Bank of the West cost of risk, which is low, or the outperformance of global markets. But let me remind you what I said at the start, is that at the same time, basically, this evolution is tempered by the significant step up into Single Resolution Fund contribution at a very low level of exceptional items. So, all in all, these effects broadly offset each other, which does mean that indeed the visual growth rate is a fair representation of the first quarter beat and this leads to a return on tangible equity of 13.5% and should give you some confidence in our ability to reach a target above 11% in 2025.
If we now look at the operating divisions and let’s start with the revenues, doing so by looking at slide 10, where I remind you they are presented according to the new reporting format, and with divisions presented in alphabetical order. So, revenues grew by 13.5%, 12.1% on a like for like basis. CIB revenues grew sharply at 28.1%, consolidating gains in market share and accelerating the reinforcement of the businesses. A strong momentum as well for CPBS with an 8.5 increase, mainly driven by a continued hike in fees, as well as an increase in net interest income margin of our commercial and personal banking combined with a very strong increase in revenues for our specialized businesses, I pick out for example, Arval. On a like for like basis, IPS delivered an increase of revenues of 0.8% and this in a challenging market environment.
If you could now flick to slide 11, we stay on the operating divisions and we look at the costs and we basically show that they have delivered growth at marginal cost. So the operating divisions’ costs are up 9.4% delivering positive jaws. These costs are mainly variable costs linked with a strong revenue growth, as such CIB saw its cost rise as a result of the growth in activity and changes in parameter, delivering highly positive jaws at 9.8 points. In a similar way, CPBS operated also with very positive jaws on the back of a positive evolution of revenues, outpacing costs by more than three points. Lastly, IPS costs were up 3.6% year-on-year, in line with targeted investments.
Now this cost evolution is impacted basically by two points that I would like to mention. The first, as I said, is the perimeter effect, so businesses have been added stepping of the cost and secondly, the Single Resolution contribution which stepped up. And as mentioned before, when we correct for these two effects, the revenues evolved by 10.4% and the cost by 7%. So again, very positive jaws. And if you look at it 7%, if you break it down, more than half of it, 4.5% stems from the variable cost at CIB to accompany the revenues, 1% is stemming from the international retail banking and their related growth, and 1.5% is basically the cost of all the rest of the group. So costs and jaws very well under control.
Having said that, if we now look at another line in the P&L basically cost of risks, so let’s look at slide 12, and we see the benefits of our long-term risk management policy. And given our strategic direction, and thanks to a strong selectivity at origination, on top of that diversification and long-term client relationship, as well as a proactive management of risks, we achieved through time a constant improvements over cost of risk, leading to our guidance at around 40 basis points over outstanding. As an illustration, our exposure to Russia is very low and concentrated on highly collateralized financing for local subsidiaries of non-Russian NMCs. Similarly, we oriented some of our businesses such as what we have in Italy, personal finance, oil and gas, and we completed a shutdown of our E&C specialized activities in 2020.
So with this, and if we refer to the chart top left on this page, we should emphasize that the cost of risk is particularly low this quarter. We see 20 basis points over outstanding and this due to releases on performing loans at BancWest. I would say that a 30 basis points underlying cost of risk, so excluding those Bank of the West write backs is more representative of the quarter and compares well with a full year 2022 cost of risk, which should be a tad below the guidance of 40 basis points that we’ve given. And if we take the business one by one, you will see the same pattern with low levels of cost of risk due to releases on performing loans, lower provisions on non-performing loans and a number -- a low number of new defaults.
So, with this, we basically looked at the P&L and if I can ask you to swipe to slide 15, where you look at the common equity tier one ratio, which stands at 12.4% delta of 50 basis points compared to the quarter before. And first, on this, as anticipated and now well known, the updating of models and changes in regulation resulted in a 30 base impact, as they all fall in this quarter, so, all of these changes, there are several of them, and they basically all fall now. And in the past, they have been better spread over time by the regulator. And as always, this will be handled by the ordinary daily capital management of the bank. Moreover, this first quarter of ‘22 is not a standard one and you will see with no surprise the effect of increased volatility on counterparty risk, but also the impact on OCI of market prices end of March as well as the ForEx effect. As you are well aware, these impacts will progressively taper off. And all this is part of the run of the mill and exceptionally, as I mentioned, they follow -- they fall in this first quarter.
Last, but not least, as we mentioned, BNP Paribas is very well positioned and we have accelerated our growth, supporting our clients and the economy [Phonetic], and reinforcing our business lines when bolt-on acquisitions as we announced, and hence, all of this is to create long-term value. And this resulted in a 10 basis point impact on the CET1. Last but not least, you can see that we have put into reserves 60% of our results in line with our increased ordinary distribution policy. If we then look at the leverage ratio, stood at 3.8% this quarter, so the group is well on track to operate at 4.2% in the context of its 2025 strategic plan.
So it is, if we turn to page 16, and look at the balance sheet, it is with no surprise that our net tangible book value per share has continued to grow year-after-year and this time it clocked in at 80.1 Euros at the end of March, up 5.6% compared to last year, and therefore an annual growth rate of 7.2% since 2008, highlighting our value creation, year-after-year, under all weather conditions. So I take it you can see the rainbow now.
So turning to our ambitious policy of engagement with society on slide 17, I would like first to mention the humanitarian situation in Ukraine. An extraordinary mobilization has been rolled out through the group to call for solidarity. First and foremost, BNP Paribas has done everything within its power to provide for the security of its employees, notably, through the contribution of neighbor countries, such as Poland. In particular, we are housing more than 1700 persons among our Ukrainian colleagues and their families. I would like to take this opportunity to thank our teams and partners from the deepest of my heart.
Moreover, the group is mobilized around several social challenges, and actively supports clients in the energy and environmental transition. This is on slide 18. These are priority drivers of our day to day actions and strategy. Laurent and Yann will detail more our concrete actions and commitments in a few minutes. I leave you to peruse slide 19 on internal control and compliance, emphasizing, of course, the rigorous and diligent implementation of all the necessary measures to the enforcement of international sanctions. So, all is fine, no reason to check it out.
I will now kindly ask you to advance to the first quarter results by division starting on slide 21, with CIB, which saw a very sharp increase in results building once again on its diversification and leveraging on buoyant client activity. Indeed, with consolidated leadership positions in EMEA, a successful integration of the prime brokerage activities as well as BNP Paribas Exane, CIB strengthens its capacity to support its clients’ needs, step up market shares and step up in the US and in the APAC regions. First, if we look at a primary market, which was down 25%, the market as a whole, global banking delivered a very strong performance this quarter, outperforming the market by 10 points in terms of volumes across syndicated loans, bonds and equity. Hence, global banking maintained a solid level of revenues, up 2% on the back of this continued growth in loans, gains in market share and progress made in trade and cash management.
Secondly, there is a second division, which is supported by the very strong client activity with the new division for the platform global markets, so a very robust growth on the back of high demand for hedging activities on rates, currencies, and commodity derivatives. Equity markets and prime services clocked in at good levels, and there was a good momentum on derivatives as well as structured products. On primary markets, our number one position on bond issues in Euros has been confirmed. In this context, revenue saw a material increase of 52.8% with a good balance between fake activities and equity and prime service. Lastly, third, security services saw an increase in assets as well as record volume of transactions this quarter confirming the sustained growth of this platform. Hence, revenues increased by 5.5% a very strong performance. So in synthesis, all this resulted in very solid increase in CIB revenues, up 28%. Total CIB costs were up 18% in connection with this very strong activity. With revenue growth outpacing significantly cost evolution CIB operated this quarter with, what else can I say, very positive jaws, at close to 10 points. Gross operating income was up over 61%. Hence, CIB generated 1.3 billion Euros of free tax income; in other words, close to doubling results with a very low cost of risk. So to wrap up on CIB, very strong performance in revenues, as a clear illustration of the market share gains the dimension of the new platform with a long-term view, very positive jaws effect, and a sharp increase in income for CIBC this quarter, supported by significant client volumes, not mentioning a strong risk management culture.
If you can now turn your attention to slide 25 on what we call Commercial, Personal Banking and Services or in shorthand, CPBS; it witnessed a strong momentum on the back of a very good business drive across commercial and personal banking, so one part of CPBS on one hand, and these had a strong performance as well from the other part of CPBS specialized businesses. In terms of activity, if we look at loan growth, it was up 4.8% and deposits grew by 8.2% across all businesses. On the private banking front, we saw very strong net asset inflows of 5 billion Euros. So this is the banking front, if we look at the specialized businesses, our strong ability to grow was confirmed by Aval and leasing solutions with a good momentum at personal finance, as well as new digital businesses, which include the integration of Floa, I remind you, a leader in the buy now, pay later business in France, with 3.7 million clients and highlighting as well the continuous growth of Nickel with now 2.6 million accounts opened. Moreover, this division continued the transformation of its operating model for retail customers, and this to improve client satisfaction and step up cost variability. It materialized for instance, with the implementation of a distribution partnership with bpost in Belgium and first steps towards outsourcing certain activities at BNL in Italy. If we look at the P&L, and if we look in particularly at revenues, they were up 8.5%.
If we now focus on the commercial and personal banking side, the performance was very solid 7.5% up with strong increase in both net interest income as well as fees. It increased notably in the euro zone with 6.5%, supported by France, Belgium, Luxembourg, but also in Europe with a 46% on a like for like basis on the back of strong volumes in Poland and Turkey, as well as favorable interest rates over there. Then if we cross the Atlantic, in the US, BancWest saw a strong increase in loan production, including mortgages and equipment loans.
If now look to the second part of CPBS, specialized business, revenues, they were up 10.6%. Aval and leasing solution saw a sharp increase of 27% on the back respectively of high used car prices and volume growth. Personal finance revenues were up 2% on a like for like basis and we had loan production and volumes bouncing back 10.8% up on last year, and back to March 2019 levels at constant exchange rates. So that’s the top line. If we then look at the cost line, they were up 5.2%, reflecting the strong business momentum with very positive jewels this quarter of 3.3 points. The commercial and personal banking networks confirmed their capacity to contain their costs. Specialized businesses confirmed their potential to grow at marginal cost with an extremely high positive jaws for [Indiscernible] more than 18 points. And so hence pre-tax incomes to that 1.8 billion Euros this quarter, marking 59% [Indiscernible]. To wrap up, a very strong quarter for CPBS with very positive jaws effect and a steep drop in cost of risk mainly related to Bank of the West.
If I can now ask you to advance to slide 34 to 37, do see that our Investment and Protection Services, IPS, division maintained a good business momentum, despite an unfavorable environment, driven by market performances this quarter. And in this context, overall net assets inflow proved resilient during the quarter with contrasted evolution and a good momentum overall, on fee. If we look first, at wealth management businesses, the activity was strong on the back of very good net asset inflows, thanks to four European networks. In asset management, we saw the ongoing development of private debt with the finalization of the acquisition of Dynamic Credit Group. In tune with the market, net outflows towards quarter end were observed on monetary funds.
If we now turn to insurance, we saw a good business drive and you know, business drive that is looked at through gross inflows, for example, in savings above 20% year-on-year we saw in Asia, France and Luxembourg. And this combined with the announcement of new partnership with, for example, fintech Neon in Brazil and Cardif in Mexico. If we now focus on the P&L, IPS revenues stood at 1.6 billion Euros stable versus a year ago as a combination of strong revenues in wealth and asset management, plus 7.9%, and the negative accounting impact on insurance revenues related to the marking at fair value of part of the assets in insurance, which as you know, are reversible, and they will return when the markets recover. And so please note that revenues would have significantly increased this quarter without this, “accounting impact.” If we then look at the coastline, costs were up 3.6% on the back of targeted investments. As you know, IPS is a growth engine for the group. And wealth and asset management operated with very positive jaws at 2.4 points.
To wrap up the businesses and in particularly, IPS, a strong sales and marketing drive on the back of reinforced capabilities, which confirm IPS as a key growth engine, even if it does not yet fire on all cylinders, as a consequence of the adverse market environment that I talked about.
So this, ladies and gentlemen, concludes my presentation, and I will now hand back to Jean-Laurent for the conclusion.
Thank you, Lars. Switching now to slide 39, as key takeaway, I would like you to keep in mind first the prospect of a solid trajectory in ‘22 on the back of a very favorable commercial drive, sustained by strong first quarter. Being the strength of BNP Paribas distinctive model has supported our solid performance in revenues this quarter with high operational performance, resulting in strong positive jaws of 3.4 points of constant scope and exchange rates, excluding effect 21 taxes. Cost of risk remains low, thanks to a prudent risk management, delivering a very strong growth in net income. And all in all, this first quarter strong results and compares to the key ingredients for the successful execution of our strategic plan GTS ‘25.
This concludes the first quarter ‘22 results presentation. And now ladies and gentlemen, we’re glad to present the second part of our 25 strategic plan, gross technology and sustainability. It is the presentation today of the last two pillars, technology and sustainability. As usual, at the end of the presentation, we’ll be pleased to take your questions. So, Laurent, the floor is yours.
Thank you, Jean-Laurent. Good afternoon to all of you. My name is Laurent David and I am Deputy COO, in charge of technology and operational performance. As you know, in the GTS 2025 plan, T stands for Technology. It is well obvious that technology plays an always more central ongoing role in the development of most activities, including banking and banking services. It has to see with the capabilities that accelerating technological innovations are allowed to increase and it has to see with the growing need expressed by our customers getting used to new standards. It also has to see with the opportunities that technological developments offer in terms of enhancement of operational performance. This is why in this presentation, we will alternatively skip from operational performance enhancements to technological enablers.
Starting with slide four, if we give a look back to the former plan 2016, 2021, we shall say that the two main priorities in terms of technology were on one side to allow the digitalization of most of our customer relationships and internal processes and on the other side to build a more secure, robust, and resilient system. On the digitalization, benefits are made available for customers and employees, and at the same time allow an improvement of the efficiency of most of our back office processes through a front to back approach. The high multipliers observed on testimony, digitalized interactions are the most relevant figures to be noted during this plan. Other levers that were put in place are the continuous modernization of our premises, adapted to new ways of working, even before the COVID pandemic, mainly in head office premises, the development of global platforms for IT and back offices, mainly through our shared service centers in India and Portugal, and last but not least, the initial phase of development for robotics and artificial intelligence inside our processes.
On the IT system, it has benefited of growing attention and level of investment over the period besides the digital portion of it. We have indeed reinforced our platforms, in particular on cybersecurity, to increase the protection of our clients’ assets with today around 2700 dedicated FTEs. We also have reinforced our infrastructures with a thorough review of our data center setup to be more centralized, and our network infrastructures to be adapted to growing volumes and resiliency requirements, with for instance, a machine power more than doubled in these four years.
Skipping to slide five, at the end of the day, as you can see it, all the levers activated did allow 3.1 billion Euros in recurrent accommodated cost savings. Therefore we are ahead of the pre-announced figures by 400 million, with an initial investment, better than expected and cost of an investment ratio of less than one year in average. Hence, over the period, the group delivered 0.8% average jaws effect, despite the increase in taxes subjected to effect 21 demonstrating the effectiveness of the levers deployed to gain in efficiency.
Moving to 2025 on slide six, you can see that most of the levers in place would be continued, among which the most recent ones will be accelerated. The target set for 2025, as Jean-Laurent said earlier, is a 22 billion Euros commodity recurrent cost savings regularly split over the four years of the plan and proportionally split between the business lines. Besides these 2 billion Euros, there is around 1 billion Euro to be added to the completion of the Single Resolution Fund funding at the end of 2023. Hence, a total of 3 billion Euros total, sustaining our ability to deliver an average to effect bigger than 2%. The main difference with the former plan is that development costs for these initiatives are embedded in the plan of old business lines, and shall not require additional funding, while allowing the global jaw effect to be positive every year for every business division. The different levers on this slide, on the left hand part of it, will be subject to further detail in our following comments.
Let’s start on slide seven, integrating trends and working methods, in particular the development of remote working and flex offices, the optimization of premises will be continued in France and generalized outside of France with an increased mutualization of positions materialized by your target ratio of 0.75, therefore an improvement by 25% compared to 2021. Broadly speaking, all external expenses will be subjected to rigorous scrutiny in order to ensure growing yearly savings, including reaction to the likely surge of inflation. We will continue to pool resources and platforms in particular with the make by share strategy, which will be further enhanced. On one side, our shared service centers will concentrate a new set of activities either in IT or operations and grow by 25% over the period. On the other side, the creation of common technical platforms between different entities within the group will be encouraged, especially for emerging needs, for instance ESG steering or businesses with a global age, for instance, cash management and payments.
Further to these internal projects, mutualization with external partners and peers, which was not very developed on the market until now, will multiply, especially in domains where the evolution of regulation or client practices are allowed to pool resources across banks decreased the cost to serve, while increasing client satisfaction with no impact in terms of relative competitive advantage. To that extent, the projects around ATM pooling in different countries in Europe are emblematic.
If we move towards technology starting on slide eight, it is fair to consider on one side the fundamental changes that will impact our IT setup and on the other side the potential of value creation linked to data and artificial intelligence. Certainly, data and AI will be one of the main constituents of operational performance in the coming plan to the same extent that digital was in the former one. IT spending that grew in absolute, but also in relative numbers, will be for this coming plan maintained at the current level of 22% of the global OpEx. It shall allow to cope with new requirements, business projects, growing volumes, and continuous security investment.
I leave the floor to Bernard and Rim that will comment this perspective and I will conclude this presentation afterwards.
Thank you, Laurent. Good afternoon, all of you. My name is Bernard Gavgani, I am Group Chief Information Officer. The transformation program launched aims to offer a new customer and employee experience, accelerate digitalization and improve operational efficiency. Five levers contribute to these objectives. First cloud, to optimize our processes in the management of our projects, while offering us significant power in our evolution and guaranteeing the security of a private infrastructure. Two, the IT marketplace to adapt the bank as a service model to facilitate the integration of our services, and APIs to shift our IT infrastructure towards the new patterns adaptable to entities business models, and using standard data exchange principled to interoperability and economies of scale by reuse of capabilities, thanks to the group platform. Third, data, by taking the structure approach, leveraging initiatives launched to achieve the information of our -- transformation of our information systems and building a consistent group and digitalized services offer. Four, AI, which plays a key role in improving the digital experience of our customers and employees. We also use it to strengthen the group’s security by analyzing intrusion attempts and suspected data leaks. It is the powerful engine for growth and innovation. Five, technological watch, by anticipating coming turn and technology changes as a key to remain competitive by establishing industry partnerships to test new technologies and by having a voice in key digital communities, all while investing in technologies and information systems in a stable manner to support developments adapt the computation power and ensure digital confidence through a robust and the industrial cyber plant.
Turning to pay to slide nine, the development and deployment of the robust and long-term cloud solution is key to achieve the banking -- the group’s banking, transformation. BNP Paribas cloud strategy will foster end to end agility, enable streamline processes, and accelerate try fast learn fast paradigm. Therefore, to support the business lines and functions ambitious, BNP Paribas has adopt a cloud strategy fostering hybrid cloud, innovation acceleration, and IT risk control. On one hand, cloud technology usage within BNP Paribas group are structured in five type of cloud use cases, which have a role to play in the group’s cloud strategy. On the other hand, a progressive approach has been adopted focusing first on dedicated cloud investing in European locations. The BNP Paribas dedicated cloud is the best of both worlds, delivering benefits of public cloud with a security standards of a private cloud. Therefore, to address groups wide ambitious, virtual dedicated cloud are being gradually deployed in the US, LatAm and APAC regions to reach at least 30% of BNP Paribas information system on BNP Paribas dedicated cloud by the end of 2025.
Moving to slide 10, nowadays, the APIs are everywhere. They daily feed our online and mobile experiences. They share our data and provide a new enriched functionalities in our digital lives. The APIs are a key catalyst of our GTS 2025 plan, with the large deployment towards our information system. Within BMP Paribas Group, the APIs are becoming a standard way of exchange for internal and external communications between group entities and with our clients and partners. It is a new standard, there’s way to interface IT services, allowing the building of the modular and open architecture. Thanks to APIs, we will be able to easily share our IT services between group entities. The reuse of rationalization of those components will be prompt allowing the reduction of costs and efforts.
The new group to group API platform put in place in 2020 was carrying an average 2 million of transactions per month. We are expecting to an average of 190 million transactions per month by the end of 2022 and an average of 400 million transactions for 2025. The APIs are a level of growth and innovation for the bank. To better structure the delivery and the adoption of the digital levers within the group, BNP Paribas choose to build the IT marketplace. This platform is aiming to connect IT service providers and their consumers within a secure environment on which we target to adapt the way our employees are consuming IT services moving toward a you click, you get model similar to one already offered by the tech giants, such as Amazon. First, as previously said, this platform is at group scale allowing all entities, businesses and functions to consume and expose IT services.
Secondly, in regard to the accessible content, we will expose the digital levers cloud data API digital working and also provide an access to existing knowledge bases. As a third point, these platforms should encourage us to innovate more with a similar access to sandbox environments to experiment. Additionally, to share experience within our internal community, enabling the faster progress together and avoiding repeating the same mistakes. Finally, this platform will be controlled market being a key factor of success for the IT marketplace. The available services will be complying with the defined and shared standards and will be certified accordingly. Relying on these two levels, we intend to move from an information system, strictly organized in silo to an open environment which still remains secure for ourselves and for our clients.
I’m going to take over. Thank you, Laurent. So good afternoon to all of you. My name is Rim Tehraoui, I am BNP Paribas Chief Data Officer. As mentioned earlier by Laurent, we are all convinced that creating value from data and AI is going to be a key competitive advantage but in practice, not that many managed to go beyond the buzzword and the inefficient multiplication of proof of concepts. So to make it happen, we have spent the last two years deploying a comprehensive, systematic and industrialized data strategy centered around three types of enablers. First of all, we have invested in technology with data at the core and a strong focus on operational efficiency. Our goal was to simplify, to accelerate, and to industrialize access to data, exchange of data and value creation from data. For instance, we have deployed at scale data visualization tools for all BNPP employees. Similarly, we have developed two state-of-the-art group-wide data science platforms, one being built fully internally in our dedicated cloud, so our analytics teams can deliver AI use cases in a secure and industrial environment. And as a third example, we have built cloud-based data platform fully dedicated to ESG data and analytics.
Second, we are supported by end to end data management frameworks that ensure that our data is governed, curated, and protected over its entire lifecycle that it usage is safe and fit for purpose and of course ethical so that it always respects our clients, our partners, and employees’ privacy and interest. Finally, our technology and frameworks can only go thus far without a strong investment in change management and data at filtration. So we have focused on developing data valuing culture, along with technical trainings and in complement to democratized access to data tools. Now with those three enablers in place, we are ready to go at scale to support key GTS 2025 priorities.
Firstly, we’ll lean on our leading position in Europe the BNPP as a platform strategy, which strives to unlock full benefits of our integrated operating models through simple, personalized and value creative user experience will be powered by shared data ecosystems, flowing data, and materialized AI assets in the IT marketplace. Second, our concept of an ESG data supply chain, supported by the ESG data platform I mentioned earlier, will be instrumental in accelerating our sustainable finance ambitions. By providing all business lines with curated best of breed ESG data, plus an enriched layer of AI and analytics, they will be able to assist our clients and partners in their journey towards a more sustainable economy. And third, BNP Paribas employees are of course essential for the success of our strategy, therefore, we will continue to invest heavily in building greater technology, AI and data expertise through both upskilling and focused hiring based on an ongoing tool, strategic workforce planning exercise
But beyond foreseeing talent, we do have two top priorities in this domain. First of all, fostering diversity as much as we can because we absolutely need the differentiated skills and abilities of women to shape an inclusive AI, and generally a more inclusive and sustainable digital future. Second, we want to develop a citizen version of the data and AI technical to make sure we onboard the bulk of our workforce, and to ensure user adoption. Last but not least, we are actively working at going at scale in terms of AI, again, far from the buzz word our priority use cases are firmly grounded in concrete day to day operation, and they have already delivered immediate and significant efficiency gains. For instance, we leverage on speech to text algorithms to optimize client experience through shorter waiting time, faster direction to the relevant expert, while also reducing costs to serve. We are also able to better protect the bank and our clients by optimizing anti-fraud and anti-money laundering processes and we deliver efficiency to optimize and therefore more profitable direct marketing campaigns. While this is a solid picture, we believe there is more to be achieved through greater industrialization of our existing portfolio and the development of new AI use cases, and in that respect, we have an objective to reach over 1000 value creating use cases in production by 2025.
I’m handing over to Laurent for the conclusion.
Thank you, Rim. I’m going to slide 12. As anticipating coming terms and technological changes, and establishing fruitful partnerships and collaborations are two key levers to remain competitive in the fast evolving world. As a first leg, on slide 12, we adopt an active technological watch, relying on our internal networks involving business lines, functions, and our IT community, but also external networks, for example, of a new partnership with IBM, or collaboration with academics such as [Indiscernible]. Our objective is to leverage on our competence centers to foster the operational integration of these new technologies to better serve our customers.
As a second leg sticking to slide 13, we partner in the Fintech Insurtech ecosystem, at various stages of its development and with different intervention models. First, acquisitions of majority stakes to acquire a relevant knowhow, for instance, in the recent past with Nickel, Floa, which are good examples of our ability to create payment and tech leaders, leveraging their specific syntax DNA, and at the same time, the group’s ability to support them in the acceleration and expansion in Europe with a long-term view, security expertise, and group local presence and market knowledge.
Second, dynamic organization for investments of minority stakes through VC funds or corporate development approaches, venture capital aiming at helping disruptors and financial industry innovators while corporate development strategy focuses on industrial synergies. Three, proactive open innovation with startups explore and adopt innovations coming into the market. Collaborative sourcing through acceleration programs such as stake up by BNP Paribas or plug and play at Station F in Paris. Since 2017, these programs have contributed to the globe digital transformation by completing more than 50 pilots, with selected startups, detecting emerging trends over the financial industry and build up new ways of working within BNP Paribas business ties and functions, simplified conceptual architecture to enable faster collaboration with dedicated infrastructures to facilitate sandbox approaches and proof of concepts. Enabling deep and successful operational integration with top notch fintechs, for example, Instanea is a payment solution developed by BNP Paribas with token or another example, data aggregation holdout with Tink over several countries. These various models of contribution foster our capacity of innovation while ensuring a strong financial discipline.
As a conclusion, I would remind the three main messages that we wanted to share with you today. Operational performance and technology are linked and are at the very heart of the GTS platform, which means the BNP Paribas strategy. This new step is following previous steps where the group has been able to simultaneously deliver strong discipline, increase its level of performance, consolidate the foundations of its platforms, and create space for investments for the future. In the period to come, we’ll see this transformation deepen. In some cases, such as artificial intelligence of cloud computing is an accelerated in the group wide framework that covers all functions and business lines. And now, I would like to hand over to Laurence Pessez who will take you through the presentation of the strategic plan, including and fostering sustainability.
Thank you, Laurent. Good afternoon to all of you. My name is Laurence Pessez, I’m the Global Head of CSR for BNP Paribas. So I’m on slide 15 now. Contributing to responsible and sustainable economy is at the heart of BNP Paribas company program. It’s a result of a long lasting conviction. Sustainable finance is part of a continuous strategy that started more than 10 years ago. As you can see on the slide, during those 10 years, we have demonstrated our leadership for strong commitments, exemplary policies, and leading positions on financial products and services, participating in the improvement of society and the ecological transition.
Focusing on climate, we started decreasing our support to the most emitting sources of energy as early as 2010. And we send a strong signal to our counterparts in the energy sector by seizing dealings with shale oil and gas and tar sands companies in 2017. In 2020, we chose to phase out the whole thermal coal sector value chain by 2030 in the EU and OECD countries, and by 2040 in the rest of the world. As a result, as you will see later in the presentation, our Co2 emissions reduction targets are more ambitious than our peers on the power generation and oil and gas sectors, as our baseline already reflects the active monitoring of our portfolio we have implemented during the last five years.
In addition, we’ve decided to pursue in this direction by restricting our support to energy companies significantly involved in the Arctic and the Amazon regions, and in shale oil and gas and tar sands. Additionally, we will soon disclose our finance emissions scope free based on 2022 data. Sustainability requires a lot of expertise and know how, it takes time to build. Being an early mover as such has given us the ability to answer the needs of our clients, and also a solid competitive advantage. As you can see, with leading positions on green and sustainable bonds, and on ESG link loans, globally and EMEA, steadily increasing our market shares. We’ve been front runners, as illustrated by the role we’ve played advising North Ford on raising the debt needed to finance its battery factory or the launch of the First Real Estate Fund in Europe consistent with the Paris agreements.
Moving on to slide 16, as you have understood, sustainability is a key pillar of our 2022, 2025 growth, technology and sustainability plan. We will upscale the support to our clients in a transition towards a sustainable and low carbon economy, mobilizing resources across all businesses. In line with our commitment to contribute to the achievement of the UN SDGs, we have prioritized five topics on which we can bring added value, thanks to our integrated model, climate action, biodiversity, circular economy, social inclusion, and sustainable savings, investments and financing. They are part of each business entities development.
In addition, we’ve set robust and ambitious commercial KPIs that reflect this business strategy. First, mobilize over 350 billion Euros for loans and bond issues tied to environmental and social issues by 2025. Second, manage over 300 billion Euros in sustainable and responsible investments by 2025. As you can see, the group is fully mobilized to accelerate on sustainable finance and ESG.
I will now leave the floor to Yannick who will present how we are going to implement the strategy.
Where Thank you very much Laurence, and good afternoon to all of you. My name is Yannick Jung. I’m in charge of the global banking business within CIB. Again, thank you, just had a problem was the mic. So you just heard it with low Laurence, sustainability was at the very core of our previous plan and that gave us a significant headstock. I will spent the next couple of minutes telling you how we intend to double down on sustainability, our GTS 2025 plan, and how we will ensure that ESG permeate at all levels of the group. So to do so, we have set ourselves three simple strategic priorities that are very much intertwined with one another. The first priority that you see on the left hand side of the page 17 is to deliver on the net zero commitments we have taken. This is about making sure that the Co2 emissions of our clients that are being financed by our lending books will be reducing over time at the required speed to achieve carbon neutrality by 2050.
Our second priority is on supporting those very same clients to achieve these carbon reduction goals and to do so, every single part of BNP Paribas is working relentlessly on assisting our clients with transition towards a more sustainable, low carbon economy. Our third strategic priority that you see on the screen there is around our own people. It’s about fostering a group-wide sustainability culture. It’s about training our teams and equipping them with the right skills, the right knowledge, giving them the right monitoring tools, and the right governance and the ideas.
Now, each of these three priorities are closely interlinked with one another, our Co2 emission reduction targets are fed by the constant dialogue we’re having with our clients, meeting the targets depends on our working hand-in-hand with those clients on the execution of their condition strategies, which in turn depends on the competence and effectiveness of upkeeps. Each of these three priorities are also translated into how the objectives at the level of every single business line in the group. It is also important to mention that ESG-related performance indicators are used to determine part of the valuable compensation of our key employees.
I will now spend the next three minutes to walk you through in greater detail all of what we are doing to tackle the fight against global warming. This is one of the five ESG priority areas that Laurence just told you about. After I am done, Laurence would then take it from there to this kind of how we deal with the remaining four priority areas. And I invite you now to move to page 18. Now I appreciate this is a bit of a dense page, so please bear with me. The left hand side deals with our net zero portfolio alignment works and I will start there. We had this idea to focus the first phase of our works on the oil and gas, the power generation, and the car making industries. And this is because the fossil fuels and the energy sector account for about 75% of the global greenhouse gas emissions. I will share you the details of the science based methodologies that forms the basis of our work. If you’re interested to find out more, I invite you to look at our Climate Analytics and Alignment Report, the first edition of which is actually being released today.
I would however like to make three important points. My first point is that we have elected to set for ourselves near-term reduction targets for 2025. This goes for concrete and immediate action and it calls for a lot of disciplinary goal. My second point is that our production targets are demanding targets. Our objective is that by 2025, we would have reduced the Co2 intensity of our lending activities by more than 30% for the power generation industry, 25% for the automotive industry, and 10% for the oil and gas exploration and refinery industry. On top of this, we have also elected to set us ourselves hard lending exposure reduction targets of minus 12% for oil and gas upstream and of minus 25% for the oil upstream segment only. And that takes me to my third and final point, which is that the methodologies we have developed aim at being transparent and easily comparable with our peers. But more fundamentally, they are built using our clients’ data sets and the objectives that are linked to their own transition strategies. I’ve stressed already how important that link is; simply put, to hit targets we must be by our client site to facilitate their low carbon transition, notably by providing advice but also access to capital and this is where the right hand side of page 18 kicks in.
The advice we will be providing to our newly created low carbon transition group. This is a super-group that we comprise over time 250 professionals, which puts together all of the expertise we have in the field of energy, of renewables, as well as transition technologies such as hydrogen or carbon capture. But our clients will also need significant capital to finance the decarbonisation of their business models, as well as their shift to greener energy sources. These CapEx will be funded from a part out of the balance sheet, and for much bigger part by leveraging on the whole leading capital markets platform and by pulling on our deep institutional and client base. This is, as you know, at the very core of CIB strategy to bridge the supply and the demand of capital between its corporate and its institutional client base.
But beyond banking, our specialized subsidiaries will also play their part. For instance, Aval will increase its fleet of electrified vehicles, while personal finance can extend loans to help individuals install EV chargers or solar panels into their own houses. Now, by combining all of these areas of strength, we are confident we can play a central role in supporting our clients’ low carbon position. And to do so, we are aiming to help them access in aggregate over 200 billion Euros of capitals through to 2025.
With this, Laurence over to you.
Thank you, Yannick. Moving to slide 19, as we have now extensively talked about what we’re doing to transitioning towards carbon neutrality, I would like to focus on the other four priority topics presented on slide 16. Indeed, our purpose is to globally contribute to the achievement of the UN SDGs. Starting with social inclusion, which has been at the core of our strategy for years, and is today even more relevant. By 2025, we aim at having 6 million beneficiaries of our products and services supporting financial inclusion through Nickel and the loans we grant microfinance institutions. The group has also increased its philanthropist budget back to 200 million Euros by 2025 ultimately to support and integration program, refugees, and the new solidarity plan. We will continue to encourage social enterprises and female entrepreneurship, as we believe they are game changers.
Since preserving natural capital and biodiversity is bound to be as important as finance in the energy transition, we are commit to dedicate 4 million Euros by 2025 to finance companies contributing to the protection of terrestrial and marine biodiversity, which is based on the actions we’ve already taken to help fight against deforestation. Biodiversity is a complex topic, global coalitions are needed to move the needle. That’s why we’re actively involved within the TNFD, which is currently defined in the reporting framework.
On slide 20, our objective is to become the reference player in Europe for sustainable savings and investments. In that extent, our financial savings initiative embeds ESG by design at all levels, starting from SFDA regulatory implementation to customer profiling and product offering. As regards, private assets and thematic funds, the objective is to lead innovation in ESG and impact investing. And of course, we’re committed to the net zero relevant alliances. Finally and essentially, we want to encourage our clients’ transition to circular models by, for example, financing and providing insurance or recycling of electronic devices or secondhand goods. Many business line within the group have already developed offering related to circular economy; BNP Paribas Leasing Solutions, BNP Paribas Personal Finance, BNP Paribas Cardif, and BNP Paribas Asset Management.
On slide 21, delivering everything we’ve presented and supporting our clients transition towards sustainability will require a strong involvement from all BNP Paribas business lines as such. A new governance is set up at the highest level of the bank to follow strategic issues and progress on our commitments. It will ensure a high level industrialization of the processes dedicated to sustainability. There will be as strong focus on the reliability and integration of sustainability data, especially for risk management purposes. Of course, people are key to be the trusted sustainability partner by clients. The strong efforts will be performed on staff upscaling and expertise sharing for the Sustainability Academy, which will be working in synergy with the Nest, an internal network of 400 sustainability experts. As sustainability require to test and invest in new models, BNP Paribas dedicated 450 million Euros to invest on our own accounts in new projects dedicated to innovative solutions and impact projects that will target the ecological transition, natural capital, and local development. BNP Paribas integrated model will be a strong asset to provide simple solutions to complex problems. Today, more than ever, we’re deeply convinced that working together with our clients and society is the only way to bring a sustainable model to our businesses, particularly in light of the challenges ahead of us. This concludes my presentation on our strategic plan 2025 for sustainability and our vision of the 2025 strategic plan.
We now will be pleased to take your questions on the first quarter 2025 and our 2025 strategic plan for technology and sustainability.
Thank you, Laurence.
[Operator Instructions] First question from Jon Peace from Credit Suisse. Sir, please go ahead.
Yes, thank you. So my first question is, you said with the Q4 results that in the 2025 plan, you are expecting a 4% CAGR in global markets revenues. I just wondered how you feel about that today in a sort of post-Ukraine environment of higher volatility. Do you see some upside to that or do you still expect it to normalize lower after a few quarters? And then my second question, just to clarify, a remark that Lars made, did you say that you expect to the cost of risk this year to come in a little bit below the 40 basis points you’d indicated in the 2025 plan? Thanks.
So on your first, as you’ve seen, I mean, the business model as global markets within CIB is now completed, is unbundled in a number of new dimensions over the past years. So the new platform is, let’s say, comprehensive, full-fledged, and we’re addressing a number of -- an increasing number of counterparts quarter-after-quarter. So, we believe this machine, this platform will deliver a better than average growth over the quarters and years to come. We believe -- because we saw that the first quarter, we believe that we are making a real difference. And looking at the situation today, even if obviously there will be some impacts on, I’d say, level of the economic growth, maybe number of transaction. We believe that we can not only confirm the targets we publish for the plant but probably the machine, the platform is strong enough even to grab again additional market shares. And so we’re quite confident in the future of the platform, of that business.
Knowing that is very much based on a mix of, I would say, comprehensiveness of the platform, ability to serve our counterparts and a growing market share, considering that we are increasing, enlarging the number of counterparts we’re dealing with everyday. So this is the way we’re looking at the situation. Of course, ‘25 is a long time, but we believe because we can see that, especially in the first quarter, that we’ve reached a level that is very different from the level we used to be two, three years ago and that good could prove good evidence that the machine is running quite well and efficiently.
On the cost of risk and we published the guidance at 50 BPs -- at 40 BPs, sorry, we said we were, I’d say, on the safe side. So looking at the current environment, including the situation in Europe, we believe that, still, we have a certain room to maneuver, looking at the 40 BPs. So in theory, yes, we should be able to deliver a better job, knowing that within BNP Paribas still that two dimensions we are continuously improving, I mean cost of risk at personal finance, cost of risk at P&L. Cost of risk at personal finance is quite simple to understand, where growing anything that is, I’d say, car loan financing, and decreasing the revolving consumer lending, so the mix is for better quality.
We have, I would say, concluded a number of important deals recently, partnerships, one with the Stellantis, the other one with Jaguar Land Rover. We’re on the verge of, I would say, concluding new partnerships, so this is the way personal finances is moving. And again, the business model, the underlying franchise of P&L, it is continuously improving. So again, they are the reserve, I would say, a potential upgrade in terms of risk profile, meaning downsizing the costs of risk at P&L. So on average, yes, even after the recent events and based on, I would say, current scenarios, we believe we can deliver a better job than 40 BPs.
Thank you. Next question from Tarik El Mejjad from Bank of America. Sir, please go ahead.
Tarik El Mejjad
Hi. Good afternoon. Two quick questions, please. First one on the usage of the 7 billion excess capital from BancWest. Do you believe that the moment, given some lower valuation than two months ago when you presented -- three months ago when you presented your Q4 numbers, do you think valuations now are more attractive and you would potentially accelerate your acquisition or bolt-on acquisition plan? And if yes, what are the areas that you think are a priority? And second question is on the Italian strategy. Today’s presentation was very useful to understand a bit the spirit of your plan. But if you can touch a word on Italy, I mean, a few competitors in Italy are positioning growing. I know your aim is not only retail, but distribution is important. How do you see your growth strategy in Italy in the next plan? Thank you very much.
So looking at the 7 billion, I would say, flexibility we will get from the disposal of Bank of the West. We stick basically to what we sell, I mean bolt-ons, if they are relevant, technology, new business model, accelerating organic growth. So these are the four dimensions, we stick to it. And we don’t believe that what happened recently in financial markets is going to change dramatically, I would say, the type of targets we might consider for bolt-ons. Bolt-ons are only considered if they can bring us a kind of acceleration in the number of businesses, complementing, I would say, Pan-European platforms and that it’s also is nothing new in that dimension.
Looking at Italy, we’ve not only P&L, P&L is only basically half of the total we have in Italy in terms of top line, so P&L is only half of it. We are, I’d say, present in Italy in all the businesses, investment banking, large corporates, insurance, asset management, car fleet leasing, consumer lending, leasing. So we have good efficiency, it’s a powerful platform, well-integrated. We’re not considering external growth and we believe the organic way is really the best way for us to continue to grow in Italy and that’s it. So we are not looking at any specific transaction. Of course, every day we’re building new partnerships with large counterparts, it can be security services, it could be consumer lending, could be a number of dimensions, but, basically, we believe for us, Italy is the organic way and so far, so good.
Thank you. Next question from Delphine Lee from JP Morgan. Madam, please go ahead.
Hi, good afternoon. I just have three questions. First of all, if I can ask, just in your assumptions, macro assumptions in your plan, you don’t have a lot of interest rates activity but just wanted to confirm how much increase you have for short-term rates. And just thinking a bit to 2025, how much -- if rates were to go up much faster and by more than 100 basis points, how would that change your 2025 targets?
My second question is on cost and thank you for the presentation, very detailed one. Just wanted to understand maybe the different moving parts between what you assume for inflation, and investments compared to your 2 billion of cost savings. And I think you have also 1.6 billion of cost to achieve. So just wanted to understand a bit the inflation component and the investments
And just a very quick one on share buybacks, we have this 4 billion buyback coming with once the sale of BancWest is done. But I think last year, you also paid out -- I mean, you’ve also done the 10% share buyback and ask the Q2 results towards the end of the year, in anticipation of sort of full year distribution. Is that still your plan as well for year ‘22? Thank you very much.
So on your last point, I mean, yes, of course, we have the 10% that is again of regular buyback that we’re going to have every day -- every year during the plan. So in ‘22, ‘23, ‘24, ‘25, there will be a 60% payout out of which 10% buybacks, 50% regular dividend. So, the 4 billion comes on top of that, so it’s very, very simple. So if you consider that we will get 16.3 billion US dollar from the disposal of Bank of the West translated into tier one, it’s the equivalent of 170 BPs, 110 stay at home, BNP Paribas, 60 BPs to be given back to investors, that is basically 4 billion Euros that will neutralize the dilution effect, because of the exit of Bank of the West. So, again, the 4 billion is on top of the regular 10% buy backs, [Indiscernible].
First of all, if we look at the interest rate sensitivity, so what we basically mentioned in our reference document is that for a 50 basis point parallel shift, it basically leads, let’s say, in 2025, so the year over plan, it will lead to a pickup of 700 million, so that’s basically what it is. And so if you go even higher, I let you do the math, and there is also -- I mean, this is a calculation of a parallel shift, right. If the curve would just be steepening and just being anchored at zero, those volumes would even be higher. Then when it comes to cost, yes, if you look at what we mentioned, so there is -- when we made our plan ramping up to 2025, if I take two points because they go together, look at rates and look at inflation. While rates we expected were in the planning, we took the assumption that they would cross zero in 2024 and that there would be limited inflation. However, the way it looks now is that rates in Europe might touch zero basically this year, and that there will also be some inflation to COVID. And those two elements, when we basically run everything, well, it has an impact on the top line and it has an impact on the cost, all of this, as I mentioned, and what Laurent mentioned before, is we have also the cost efforts to basically bring down the run of the mill and the main thing is to jaws. And so the jaws, they will be there, as you might have seen already in this first quarter. So from that point of view, we really stick to those elements. So, Delphine, that will be our three answers to your questions.
Thank you. Next question from Jacques-Henri Gaulard from Kepler Cheuvreux. Sir, please go ahead.
Yes, good afternoon. Thank you very much for the presentation, the new disclosure in particular, as well as the presentation on technology and CSR. It was very fast. I hope we’ll get to meet you all when we do the physical Investor Day later on. I had about 18 questions, but I’ll bring them to three. The first one is on Euro Med, where the performance was really, really good. You mentioned one off on Turkey, but I would be curious to know if you’re going to have to do either inflation accounting there and to which extent the Polish yield curve helped you in Q1 and maybe to which extent, this is great performance will continue for the remaining of ‘22.
The second question was on capital and I think you mentioned that all the regulatory -- hope I understood that well, all your regulatory headwinds were included in Q1. But, a lot of banks have talked about something that the EDA called return to compliance that could hit the capital later on this year. I was wondering if it’s something you had heard about, and it is something that has been included already in your capital headwind.
And lastly, on the technology presentation, in a way, I noticed that you’ve developed in Brazil and Mexico, with Neon and Coppel agreements. Are these geographies that you would continue to developing on the back of the headways you’re making into technology and considering that your cost of unit is going down, and that you have really strong engines now, would anything prevent you from really entering those new geographies, and actually probably even lowering your cost to income ratio to 60% or below by 2025. Thank you.
Yeah, I’ll take basically the first. If you look at EM, so yes, there have been some one-offs, as we typically have, right, that -- so this is what we have. There’s nothing more to say. And then when you look at inflation or hyperinflation, this thing is you look at hyperinflation, this is typically something that the “accountants invented,” right, when it comes to regular companies, yeah, but a regular company because you have also the assets and the liabilities that basically get revalued. Now on a bank, that is a bit of a different thing, because those revaluations are there. So at this stage, we’re looking at it, I would assume that that is not something that would apply to banks or to us in any case, so that’s on EM.
When you look at the capital and the headwinds, yes, so while there is the thing that we mentioned, that basically, I guess you saw in all of the banks is, every so often there is a new regulation by the European law, so implementing Basel, then there is a crystallization by EBA, or by somebody else, and that typically comes over time, and then the bank basically, with its run of the mill, earnings, basically offset those. And now what is bizarre already happening, it is one of the first time that all of these things come at the same time and so that’s basically what we saw.
And then the other things that you talk about, is, of course, there is a run of the middle of review of models, which is actually a good thing. It’s the fact that to ensure that your advanced modeling work and that’s basically a standard that Europe takes is they have to be reviewed and they have to be made verified and certified, and that’s an ongoing process that we have. And it’s again, it’s an ongoing process that, well, is typically depending a bit on the bank and the heritage that it has and the insights that it has. And that is also part of the run of the mill, but for us nothing on the on the horizon in a material way. So that’s basically that.
On the technology, I don’t know if there is -- I’m looking at if there is anything Laurent that’s –
On the technology in the particular case of LatAm that was quoted, it is mainly driven by the fact that the insurance business in LatAm is very consistent, and very well placed at the edge of the business there. So that’s why going to technology LatAm comes among the quoted examples when we talk about Cardif. There is no specific LatAm initiative inside the group.
Thank you. Next question from Giulia Miotto from Morgan Stanley, Madam, please go ahead.
Yes. Hi. Good afternoon. Can you hear me?
Yes, we can. Giulia.
Perfect. Okay, a couple of questions from me as well. I want to go back on the cost of risk, so I hear you that you expect the cost of risk to be below 40 basis points, which is very encouraging. But what surprised me in the quarter is that a global banking had actually some reversals, whereas I would have thought that looking at the supply chain disruptions, and, you know, higher energy prices, maybe BNP could have taken some forward looking overlays. So how are you seeing the situation on the ground in terms of potential corporate asset quality deterioration? You’re not seeing anything, you’re very confident on that? Or is this something that potentially comes at a later stage? So that’s my first question on cost of risk.
Then secondly, thank you very much for the presentation on IT, I thought it was very interesting and also the new disclosure on ESG. I have a question when you talk about being -- preparing for the future, and is accounting for new technology and fintechs. Which area do you think is most interesting for BNP there? Is it payments? Is it buy now, pay later, you already auction the floor or anything else? I will be curious to hear your thoughts there. I don’t know, maybe core banking systems, yeah, anything? Thank you.
So on the cost of risks, basically, as of today, we are very confident because the quality of the book is great. You know that we’re growing the balance sheet in the safe side, you saw the situation in Russia. If you take Russia, for example, we decided to deleverage 10 years ago. 10 years ago, we were around 10 billion Euros exposure in Russia. Then through a number of analysis, we decided that there would be probably over the time a better, I would say, occasion of those exposures to other jurisdictions or businesses, so we started to deleverage and then we accelerated in ‘14 after the Crimean situation. And it goes that way in a number of businesses. So well -- so when we show the cost of risk at CIB solo, it is just the situation and where we are looking at the quality of the books and the company’s web banking situation. It doesn’t mean that at certain cycle, at a certain point, we won’t see some kind of pick up certain quarter but it should the cycle. Again, we’re very confident and if you look at the level of stage one, stage two provisioning at BNP Paribas, this is the highest one through the European banking system, so this is the situation.
Around technology, I mean core banking system, no, there is nothing you can do with just one technology around the core banking system. You have the cloud, you have a number of initiatives, but as globally, this is not supporting technologies for anything that is payment, as you said, security services, market businesses, I’d say granting loans, if you look at personal finance, maybe 90% now of consumer lending is processed through, I’d say apps and so on and so on. So again, we need to do a better job in terms of moving to the cloud up to 40% of the, I’d say, IT space, with moving to the cloud by ‘25. This is for first safety, security and second efficiency.
Then we have to have -- and this is also the result of the cloud and we have also to open up the bank, so we can have, I’d say, fluent conversation, transaction with third parties, so we need apps. As it was said, we need to do a better job looking at that as well, so we need that a scientist, we need to have, I would say, artificial intelligence, we need to have hundreds and hundreds of situation in which those tools are delivering a better answers in the fluid way towards all counterparts, not only the retail or SMEs, but also for large caps, for, I’d say, thick institutions. It’s also valid for internal processes.
Sometimes, we tend to concentrate that doing a better job for our customers, counterparts, but sometimes we have also to remind that internally we’ve processes we need to upgrade, so this is really areas in which we’re going to push the technology, knowing also that we have to look at what’s going on. Partner with new comers, joint ventures, so this is the situation. So technology is all over the space. I mean, considering that we have 200,000 FTE at BNP Paribas, out of which 36,000 IT guys. So this is a good metric and the technology, IT is all over the place, you cannot move anything BNP Paribas away from the technology and the technology is progressing in all dimensions, so this is the situation we’re looking at.
Thank you. Next question from Matthew Clark from Mediobanca. Sir, please go ahead.
Good afternoon. Two questions from me, please. Firstly, coming back to an earlier question on the EU meds division, I mean, there have been really big swings there in the reported number in the past few quarters, as you’ve had legal charges, and then this quarter’s undisclosed non-recurring item and rate changes and so on going on that. Can you really not give us a better idea on what the underlying run rate is for revenues there. I mean, even if it’s just saying whether the non-recurring item is hundreds of millions or tens of millions or something to help us gauge what the earnings power of that division is, do come out of kind of a period of disruption?
And then the next question is on the equities, revenue line item and the impact of the prime agreements with Deutsche and I guess Credit Suisse also. Is that now at run rate, as far as you’re concerned, and I’m also interested whether you can say whether there has been a material contribution from the Credit Suisse referral agreement yet, relative to the Deutsche Bank original agreement? Thank you.
So, Matthew, thank you for your questions. So just on EM, yes, so I mean, these are activities that do have some impact. So to give you the idea, so we mentioned there is this exceptional positive, basically, database [Phonetic], if you want to put that in a number it is with two digits, but it is like in the higher up in the two digits. So that’s a bit to give you the view of where that stands. When it comes to them to the prime brokerage kind of business, so yes, let’s say, that during 2021, we have been transferring clients so that they basically run on that system and are also integrated with the other services that we basically have. And so that means that as of now, we are in a run rate, I remind you that for the year, we basically guided that transfer generates like around the equivalent of 400 million Euros on a yearly basis and we are in that run rate.
And then when it comes to, let’s say, clients being transferred, well, the situation is that several of our clients, they basically have two providers, and particularly one on each side of the Atlantic. And when it comes to this side of the Atlantic and so forth, well, this is the European side, basically, there are not that many players involved at the global scale. There’s basically BNP Paribas. So that means we step up our market share, because in the end, several players want to come back or want to stick to also a European player and so that’s basically where we stand. So, Matthew, that will be the answers to your two questions.
Thank you. Next question from Anke Reingen from Royal Bank of Canada. Madam, just go ahead.
Yeah, thank you very much for taking my question. I just have probably two follow up questions. First is on the cost of risk, I mean, I hear you on the lower than 40 basis points guidance, but given your conservative stance, I was a bit surprised to see stage one and stage two releases. I mean, it’s methodology – it is like driven by the method, but I mean, given to be a bit more conservative would have made sense to keep it. And also to understand the slightly lower than 40 basis points is based on latest economic, GDP expectations.
And then on the technology, thank you very much for the detailed presentation, and to be honest with Laurent that I don’t totally appreciate all the level of detail you’re giving us. So I mean, I suppose what I should be looking for that you said the revenues, cost savings and how would you think your strategy compares to peers and relative to what you’ve sort of like, the previous strategy. And then you provide the timeline, is there like, it’s all pretty much gradual, or that key points or key points in time when you’re looking for when this really all kicks in and should be running at full speed? Thank you very much.
Yeah, Anke, thank you for your question. So, on the cost of risk, thank you for your clarifying question. So when you look at the S1 and the S2, so basically, on the exposures, which are doing fine, actually, no, it might look like we have written back but in the end, that write back is stemming from our US activities whereas if you look at our European activities, we have added to those provisions. So why is that different? Because the stage one and stage two is a bit forward looking, so you have to reflect on what the environment is and does. And so if you look at the current environment on either side of the Atlantic, it’s a bit different. So that is why if you see how the activities are, we basically have written back the provisions that we have taken on the US side, whereas we have been conservative and have stepped up a bit or as one as to on the on the European side, so that basically that.
On the IT, I’ll give the first answer and then see if there are some compliments. But in the end, as you know, and what Laurent basically clarified is that contrary to what we did in the past, we faced the investment. So we basically want the businesses to invest and to cover themselves. So that basically means they do an investment that lead to some then impact, some savings, if you wish, which allowed to do a next step. So therefore the impact is really phased here, it is not backward loaded, it’s basically a phase that you see every year is delivering basically a quarter of the total 2 billion in ‘25.
In terms of the time saving and comparison with peers, I would say that the most relevant items that I can see is that if you add the former planner and the coming plan that ensures all that year after year, we deliver continuous savings initiatives, are less around half a billion every year in a very regular and punctual manner. And that might be the main difference with other strategies that we’ve seen in the former US from competitors.
Thank you. Next question from Matt Nimesh [Phonetic] from UBS. Sir, please go ahead.
Yes, thank you very much for your presentation. I have three questions, please. Firstly, is still on Europe, Mediterranean, could you perhaps give us a sense as to what extent the rate hikes in Poland are fully in the numbers or we should expect further benefits on that front? That’s the first one.
Second one is on global markets, this is on trading revenues, can you comment perhaps on April activity levels, however it is different compared to February and March, given perhaps somewhat lower volatility at least in the first three weeks of April? Have you noticed any difference on your platform?
And last question is on our wall and using solutions. I’m just wondering if you’re seeing any headwinds or risks to new volumes, given there is still quite persistent supply chain bottlenecks in the auto industry? These are the three. Thank you.
So in our leasing, of course, I mean, there are some I would say pressure on new volumes but as you probably know, I mean, the value of the assets is going up in that type of a cycle though there’s a kind of natural edge in between the fact that volumes are under some pressure and the fact that the underlying assets are pushing up -- push up in terms of valuation, so all in -- even in that type of cycle, the top line as well as the net result are well protected, so this is from Aval. Unfortunately, we do not comment to current situation, so we can only last -- we will try to answer you, but we can only comment and deal with this 31st of March.
Yeah, on global market, listen, we cannot give -- we are not that forward looking. So imagine I tell you something and then tomorrow, it’s different, I have to find your phone number and call you and inform, so we don’t do this. But what I can give you as a guidance is that today, BNP Paribas were to bolting on off cash equities and the prime brokerage. We are basically present in Europe in all segments. So I can -- and you have seen that we are able to basically step up on market share in these activities, as Q1 once again has proven, and so I let you look into the market and see what the market does. And then you can assume or you can deduce from that how BNP Paribas is evolving. So that will be on global markets.
And then on Poland, where you particularly that is, I guess your question on Euro Med, is, what we see there is that there is a pickup in the interest rates, there is also a pickup in part of the regulation, which basically goes hand in hand with that. But at the bottom line, we basically confirm our outlook ‘25 for the region. So, Matt, that would be our three answers.
Thank you. Next question from Azzurra Guelfi from Citigroup. Madam, please go ahead.
Hi, good afternoon. I have a question on your commodity and oil and gas exposure, if you can share with us some detail on it in terms of like balance sheet exposure or leveraged finance and things like that? I know you have very diversified loan book but if you can give us some more color that will be great.
And the second one on the CIB revenue, shall we assume that now all the benefits of the perimeter changes of the deal that you have announced in the past is fully included and there will be no more scope affect? Thank you so much.
For the scope effect, yes and no. In theory, yes, the qualities that, again, as I said, the [Indiscernible], the strengths of the new platform is such that even beyond the fact that we have pleated those transaction, especially the prime brokerage services, still, we’re growing the market share. So content wise, to some extent, yes, this is the end of it but I’d say, the growth engine is there and it will help, I’d say beat the average underlying business, if we look at average market evolution.
On commodity, listen, as you know, we are not a commodity investment bank with truckloads of these. So if you look at our exposures, they are rather single digit exposures, right, if you look at oil and gas and the likes. So for us, that’s not that. So when it comes to those, what do we do? Well, of course, we accompany our clients. So our clients, they might be using one kind of commodity than another in order to produce a product and that is basically what we will accompany and doing. So that’s basically the kind of business that we do. And in those that are -- let’s say, sectors that are explored to it, well, that’s basically the exposures I gave you. And if you want in our annual report, you can see the breakdown and you can see that those are quite limited. So that will be our two answers to your questions.
Thank you. Next question from Kiri Vijayarajah from HSBC. Sir, please go ahead
Yes, good afternoon, everyone, and thanks for the detailed presentations. A couple of questions on the technology side, if I may. So on the technology slide, slide four, you show 7 billion in IT spend for 2021. And I wonder, could you give us a feel for what that number would be in 2025? What have you baked into your financial targets to 2025 in terms of how it spends might need to grow, if at all? And then secondly, on the migration onto the cloud, could you give us a feel for the kind of percentage cost savings that you’re realizing when you migrate a system onto the cloud? And, with the different types of cloud options, you show a lot of detail on that slide nine, is there much difference in the cost structure or cost saving between, say, the dedicated private cloud versus, say, the public cloud? So just your thoughts on how that sort of really affecting the P&L and the cost base, this whole migration to cloud you’re discussing there? So your thoughts on that would be helpful? Thank you.
I will take the first question and leave to Bernard. The second one, as far as IT spending is concerned, we indicated in the slides that we were at 22% of global OpEx and 7 billion in 2021 and we wanted to maintain the relative path up to 2025. Meaning that it’s absolute terms, that will be a slight growth of the IT spending, but not more than the general growth of our cost base average to 2025.
So coming back to your question about the cost savings of -- to move to the cloud, we have in cloud two initiatives. One is our legacy systems that we are going to move to IT environment. For this one, according what our experience so far is, our saving is between 15% and 20%, depending to the complexity of applications, but this is all in one hand. On the other hand, you have the new initiatives, which basically are going to be developed in native in cloud. So this one, it can be in theory, the calculation between what could be, if we were in a non-cloud environment, or we are in cloud. So basically, if I answer you, I would more precisely answer you to about our legacy system moving to cloud. And talking about the other cloud initiatives and environment, I have to say that it depends on the complexity that you have. So you can -- we cannot compare our initiative that we have with the other initiatives that you could find on the market.
Thank you. And next question from Pierre Chedeville from CIC. Sir, please go ahead.
Yes, good afternoon. I’d like to come back to your slide 18.
Pierre, we don’t hear you very well.
You don’t hear me. Can you hear me? Is it better?
Okay. Sorry. Yes, I’d like to come back to the slide 18 regarding sustainability, I have two questions. First question is a detailed question, it is question of detail, but I was curious to know regarding power generation, if you consider nuclear energy as renewable energy, when you fix your target of minus 50%. And my second question was more about the methodology regarding your -- you wish to decrease your oil and gas financing or automotive financing, for instance. I was wondering if you were discussing with the management of your clients, for instance, do you discuss with people P&L or other people in total, when you decide to decrease your participation for this industry or do you discuss with [Indiscernible] director? I was wondering how do you mix the commercial aspect of your business and your volunteer to participate to zero carbon world in terms of methodology or do you decide from one side without discussing with your clients? It’s like what the weight is. Thank you very much.
I would take your nuclear-related question. So when it comes to reducing Co2 intensity of the power generation, it includes all types of sources of energy. So including nuclear, renewables, gas, or oil, and a little bit of coal, we still have. Of course, if the question is do we include nuclear in renewable, the answer is obviously, no, it’s only renewables and hydro. And then, Yannick --
On the second, second part, we are in very, very close conversations with our clients on their own transition strategies. So it’s not something that we just decide out of scenario. We are basing the modeling works we have done of the Co2 footprint of our lending activities is factoring in the transition plans of our clients. And beyond this, we are, obviously, playing an element of selectivity into clients we are banking, not to be in the energy space. We are, by purpose, mostly focusing on clients that do have a comprehensive transition strategy, and we think they have the means to actually accomplish this transition. So, these are the ones we are actively backing and working hand in hand with. I hope that addresses your question.
Yeah, Pierre, those would be our answers.
Thank you. Next question from Omar Fall from Barclays. Sir, please go ahead.
Hi, there. Thanks for taking my questions. Firstly, just a strategic one on CIB, with the strong performance, the breadth of the offering, and the comments you’re making, it feels that you’re telling us that CIB is now an all weather unit that performs no matter the environment and presumably deserves a lower cost of equity than what it’s had historically. If this momentum continues, what’s the real constrains on how big the business can be, as a proportion of the group beyond the traditional hurdles of the group, just capital and leverage or some other metrics that we should think of? You’ve even moved the CIB section of the divisional slides to the front compared to the back of the deck in all the years I can remember. Second question, can you discuss the strong top line in French retail please, especially given this is -- I guess before seeing a big part of the benefit from higher rates. In addition, if you could just give us an estimate of the sensitivity of revenues there to, if I have to made changes, please. Thank you.
So looking at CIB, basically CIB is one short. So this is the situation and it’s part diversification, it has a vast amount of cross sell with the other divisions and businesses structure. Yes, CIB in itself is a diversified platform, you can see looking first at global markets, balancing rebalancing in equities, fixed income and so on and so on. So, again, the performance and the stability, those two elements that are the key for long-term growth are both coming from the size of the franchise. It’s really the point that is the basis of the strategy, looking at great growing counterparts with good strong risk profile and we’re banking with them through that platform. And the fact that we’re growing the market share, the market penetration throughout Europe and in discipline way in the US, the Americas, and in Asia, the basis of the success. And the fact that now again the platform is completed last year and I would say all over the space looking at those businesses and products, we can proceed that way. So, again, CIB now is running full speed and, yes, probably -- most probably the good chance to beat the plan. But again, it’s one-third of the company.
Now looking at the so-called French retail; in fact, this is not anymore the French retailing decision. It was very simple for so many years to say the French retail but we changed the brand name. This is commercial, personal banking in France. And part of the franchise is basically innovative companies, mid caps, large to mid caps, I’d say, companies that are, I would say, the best part of the economy growing fast and this is where we have a very large market share throughout France in the, I would say, two key regions. This is the [Indiscernible]. These are the areas in which we’re so strong in those domains and this was at the basis of the success of the first quarter.
Then we have the private bank, by far the leading banking in private banking in France, with increasing market shares, especially when it comes to, I would say, try net worth individuals and we’re also the first private banks throughout the Euro zone. So, the success of the platform looking at the first quarter is basically the success of the corporate universe, commercial banking, the success of the private banking, everything that is linked to, I’d say, financial effects and really, that’s it. It’s a very quantitative franchise, very centered around what is the best in the economy, the French economy, but those domains, the innovative gaps, large gap, so growing mid gaps, private banking, universities are the two main, I’d say, areas in which the wealth is being concentrated Europe to Europe. I mean the pure retail is not evolving at the same pace. Also, this is very much the way it goes and also, this is where we have decided ultimately recently to change the name, so it’s not anymore retail, it is very much about commercial banking, private, personal banking. And even when we’re talking of personal banking, we’re talking of affluent individuals, it’s not really to the pure mass market dimension.
Sorry. Please go ahead. Nope. Okay. So next question from Andy Simpson from KBW. Sir, please go ahead
Good afternoon, everyone. Thanks for all the extra disclosures and the detail on the technology projects and other [Phonetic] projects. I’ve got my questions today, one on leverage and then second one on ESG, please. Last quarter, we spoke a little bit about the leverage ratio and the target level being quite close to the future minimum and one of the justifications that you guys gave us, there was quite blunt instruments that it was very stable, but in the first quarter, it’s jumped down by 30 basis points, frequently [Phonetic]. And I guess it’s all a matter of opinion on these things but it is moving around by more than the headroom that you’re giving yourself in the target of 4.2% versus the 4% future or likely future minimum. Clearly, you’ve delivered an excellent quarter on an fixed and equities off the back of that leverage that you’ve used.
But how’s this quarter made you consider that you might need a bigger headroom, if you’re going to be running a larger and more successful CIB unit? And if not, then why is the 4.2% still correct? And then my second question on ESG, it’s great that you boosted the financing target significantly last quarter. And it’s very good for all of us, I think if we got those lending numbers quarterly to see how you’re getting on with that target through the business plan. But I’m also interested to know whether you’re seeing sustainable lending, resulting in a net increase in the loan volumes, or you just ending up seeing lower investment from client A, and a new sustainable loan from client B, and then there’s no real loan growth, this is just a thing that you should be doing. So is that initiative resulting in a net increase in loan volume today? Thank you.
I’ll start on the leverage. So the thing is, if you if you look at it, let’s not forget always the leverage at the year end is typically a tad higher, because there is very limited activity going on at the year end. So what you basically see is that kind of it can hover in a quarter where there’s a lot of business activity, it can hover some 20 basis points and that’s intrinsically what you see. Because indeed, there has been high demand we have been fully supporting the economy as you can see, and so that’s basically the 20 basis points and that we feel fine with where it is. On top of that, we have levers we can increase AT [Phonetic] once, we can decrease some repo activities, so we feel fully comfortable with that kind of volatility, which in the end is still at a much lower than what you could have on the common equity tier one ratio, yeah, because you do not have the risk-weighted asset fluctuations and so on. So we feel -- with that intrinsic volatility of 20 basis points, we feel comfortable and the 20 basis point is stemming from the fact that we fully supported the economy.
And on the second point regarding the volumes of sustainable finance, we’re seeing it’s very much a tale of two cities. On the one hand, there is indeed elements of traditional funding in the loan of the bond market that gets replaced by sustainability linked loans or bonds, so there’s an element of this and it’s just a stability of the volumes in bold. But on the other hand, you also see a massive pickup in requirements or capital required to fund the energy transition. And this is all of the investment that is going to renewable financing and, more generally, that will go tomorrow into the sort of low carbon economy and this is new. So this is creating new capital requirements that are feeding a pickup as a result in loans and bonds, volumes and to some extent, equities as well. You will see this in a greater proportion as we pull this in the years ahead. This is of course a multi-year kind of transition, so you can expect to pick up over from one year to the next.
Thank you. Next question from Stefan Stalmann from Autonomous Research. Sir, please go ahead.
Yes, good afternoon. My first question goes back to Ukraine, please. You had changed the accounting to equity, could you confirm whether that was done for the full quarter or at the end of the quarter, please? And also policy performance in Ukraine look like in the first quarter, is it so bad that there is actually solvency issues that may require a recap of a bank? The second question relates to BancWest, I think you mentioned last time around that you have hedged the US dollar proceeds of the sale and given the stronger dollar, I would have expected to maybe a mark to market effect, a negative mark to market effect in the first quarter account, which is not there. Is it because you have gotten hedge accounting for this hedge or IV using an option type structure which only protects against the downside, but you still participate in the upside of the stronger dollar. Thank you very much.
On Ukraine, so yes, you create -- well, technically -- again, sorry, you’re talking to the CFO, right, so don’t make me sound brutal, but the pivotal point was beginning of March, right. And so it is at the beginning of March, that we basically considered that we would take it as an equity stake so that basically means that we consider what we have as an equity stake. And so we reviewed the valuation in line with what the EBRD has done, given their solid knowledge of what we have on the floor and so that is basically what we have. And for the rest, let’s be clear, with respect to the activity, well, you know what it is? I mean, it’s the focus there, it is on the humanitarian situation, and we will have to see, once that situation comes to a halt, how the overall banking environment will be restructured, as it typically does, after -- in a post war system to be a vehicle, the banking system as a whole as a vehicle to reconstruct the country. So that’s basically where we stand. And so we have an equity stake somewhat we’re still presenting a tad below 20 million on that, so that’s basically Ukraine.
And when it comes to Bank of the West, listen, we are not a speculative bank. So we don’t take a very open position on how we do these things. So when you look at the overall hedging that we take, we do it as an overall stake in the sense of what kind of investments do we have, what kind of financing do we have, what kind of hedge is against that and so that’s basically what we do. So again, don’t expect that we have a massive open position that would come over and above what you have seen. So overall, let’s say, we focus on what we mentioned as the gains to be and that is kind of the run of the mill you should take.
Thank you. Last question from Flora Bocahut from Jefferies. Madam, please go ahead.
Yes. Good afternoon. Thank you for taking my questions. The first question I’d like to ask you is really regarding revenue sustainability and the sustainability of the level of activity that we saw in Q1. I mean, obviously, you just printed strong results, I think you probably had record revenues ever, this quarter. You have a strong level of activity across pretty much all your businesses. But then, of course, we had war -- we still have the war in Europe that started in February, so there is uncertainty on whether the level of activity can continue at this pace. So the question I wanted to ask you, is about the client behavior that you have seen since February. Have you noticed a change in behavior among your clients in the different businesses? Has the level of activity changed in what you saw in March and April, versus the beginning of the year?
And the second question is really just a clarification on the Single Resolution Fund. I understand that it’s up, the contribution is 30% this year. I understand the drop that you expect in 2024 and what should we expect for next year? Do we need to expect another 30% increase in the Single Resolution Fund contribution in 2023 year-on-year? Thank you.
On the Single Resolution Fund, yes, in ‘24, it should vanish, this is the role of the game. Next year, in a cautious approach, we could imagine basically the same level in a cautious approach because probably the global deposit banking base in the banking system will start to decrease slightly because of the challenging the ECB policy. So, for the Single Resolution Fund, be quite conservative to consider the same level next year and then the [Indiscernible] ‘24. Again, we cannot comment on the current situation, can comment only to down to the 31st of March, but if you look at the current cycle, basically this is a situation in which you need strong banks, business [Phonetic] type banks, banks that can support and accompany customers, franchises in a diversified way. I mean needs could be different in some weeks, in some months, so this is really the situation in which the BNP Paribas is good at and we consider that the cycle, even if you look into global economy, it will have a certain impact.
Consider that the bank lately is very well positioned to support that transition to new cycle, it’s a new economic scenario. Rates are going up, some [Indiscernible] is there, sectors are, I would say, travelling, de-cycled in different situations, so we’re in very good shape, very strong platforms diversified model, ability to serve. So, as a consequence, we consider that, for BNP Paribas, as a whole, it’s a scenario that is wiser, I would say, positive. Looking at the need to support the economy globally, could be through the balance sheets through financial markets, of payments, services, and so on and so on. So we’re not typically, I’d say, afraid of the environment. There’s a lot to do and we’re ready to serve.
Florida, those would be our answers.
Thank you. We have no more question by phone.
So thank you so much. Take care. Stay safe. And see you soon for the second quarter. Bye, bye.
Thank you. Ladies and gentlemen, this concludes the call of BNP Paribas first quarter 2022 results. Thank you for participating. You may now disconnect.
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