Morningstar DBRS Confirms All Credit Ratings of BNP Paribas, Including the Long-Term Issuer Rating at AA (low), Stable Trends

DBRS Ratings GmbH (Morningstar DBRS) confirmed the credit ratings of BNP Paribas SA (BNPP or the Group), including the Long-Term Issuer Ratings of AA (low) and the Short-Term Issuer Ratings of R-1 (middle). The trend on all credit ratings remains Stable. Morningstar DBRS has also maintained the Intrinsic Assessment at AA (low) and the Support Assessment at SA3. A full list of rating actions is included at the end of this press release.

KEY CREDIT RATING CONSIDERATIONS
The confirmation of BNPP's long-term ratings at AA (low) reflects the Group's leading and diversified franchise and strong funding and liquidity position. Morningstar DBRS also takes into account BNPP's resilient earnings, conservative risk management, and solid capital cushions.

The Group's underlying earnings generation capacity has gradually improved, but still lags that of its similarly rated peers. However, Morningstar DBRS notes that BNPP's highly diversified revenue streams keep earnings volatility low. BNPP's asset quality metrics have also improved consistently in recent years, but are a bit weaker than those of similarly rated peers, because of the Group's geographic exposure and business mix. This is mitigated by the granularity of the loan portfolio, conservative risk taking, and the Group's solid loss-absorption capacity. Morningstar DBRS views BNPP's funding and liquidity profile as a credit strength, given the large and granular deposit base supported by very good access to wholesale markets.

Despite the headwinds from still-elevated wage inflation, the weak economic backdrop, and more recent political uncertainty, Morningstar DBRS expects the trend of gradual earnings improvement to remain in place, supported by a combination of market share growth, efficiency initiatives, and investments in higher-yielding businesses. Asset quality could weaken in this context, but no major deterioration is expected. Morningstar DBRS is closely monitoring any adverse impact on BNPP from the current political situation France, which has caused French stock and bond prices to drop significantly.

CREDIT RATING DRIVERS
An upgrade would occur should BNPP demonstrate sustained and material improvement in cost efficiency and profitability whilst maintaining a resilient credit profile and capital position.

The credit ratings would be downgraded if BNPP experienced a prolonged material deterioration of its asset quality profile, profitability, or capital buffers. Any indication of a significant weaking of BNPP's franchise could also result in an adverse rating action.

CREDIT RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: Very Strong
BNPP is the largest European banking group with EUR 2.6 trillion in total assets. Morningstar DBRS views the Group's franchise as very well diversified, and this is a key driver of the ratings. BNPP operates in 63 countries, offering a broad range of products and services spanning retail, corporate, and investment banking; wealth and asset management; insurance; and specialised finance businesses with strong market positions in France, Belgium, Luxembourg, and Italy. BNPP also has leading positions in European corporate banking, global markets, and securities services.

Earnings Combined Building Block (BB) Assessment: Good
BNPP has a track record of consistent earnings generation, supported by highly diversified revenue streams and prudent risk management. While profitability metrics have improved over time, they are weaker compared with those of international peers, however, Morningstar DBRS noted that the Group's profitability has remained resilient throughout crises. BNPP's 2023 net income of EUR 11 billion increased year over year (YOY) by 11.4% (14.1% excluding extraordinary items), which resulted in a return on equity of 8.9%. This was mainly driven by solid revenue growth while operating expenses and cost of risk were contained. Commercial, Personal Banking, and Services revenues in particular benefitted from higher interest rates, partly offset by weakness in Personal Finance. In Corporate and Institutional Banking, Global Banking and Securities Services also benefitted from higher rates, more than offsetting softer revenues in Global Markets. Investment and Protection Services experienced a drop in revenues driven by Real Estate and Principal Investments, which could not be offset by sustained growth in Wealth Management and Insurance. Morningstar DBRS expects BNPP's cost efficiency to improve further, given a number of cost initiatives as well as growth in segments with higher profitability. The Group also anticipates that revenue tailwinds will more than offset headwinds in 2024 to result in moderate revenue growth despite a somewhat weaker start to the year because of softer Global Markets revenues.

Risk Combined Building Block (BB) Assessment: Strong/Good
Morningstar DBRS views the Group's risk profile as generally conservative with some higher-risk elements, with credit risk accounting for 76% of risk-weighted assets (RWAs) at end-March 2024. Credit risk is mitigated by significant diversification of the loan book by product and geography, and higher-risk components only represent a small part of the portfolio. Asset quality metrics have continuously improved in recent years and the gross NPL ratio was 2.2% at end-2023 compared to 2.9% at end-2022 based on Morningstar DBRS' calculations. Exposure to capital markets activities is moderate, with the Global Markets and Securities Services division representing 13% of the Group's RWAs at end-March 2023. Despite instances of operational risk in the past, the Group has significantly strengthened its compliance and control functions and has no major outstanding litigations that could have a substantial impact on its earnings or capital.

Funding and Liquidity Combined Building Block (BB) Assessment: Very Strong/Strong
In Morningstar DBRS' opinion, the Group has a strong funding position supported by a large and granular deposit franchise in France and other markets as well as good access to capital markets. The Group's stable deposit base is the main source of funding with consolidated customer deposits of EUR 973 billion at end-March 2024. The loan-to-deposit ratio was 88%, up slightly YOY and quarter over quarter. Funding the Group's capital markets and non-deposit-taking businesses, BNPP's wholesale funding is also sizeable with EUR 355 billion (excluding sterilised short-term funding) at end-2023, including short-term funds of EUR 137 billion. The exposure to wholesale funding is mitigated by well-diversified funding sources and maturities as well as a strong liquidity position. At end-March 2024, the Group had a substantial liquidity reserve of EUR 446 billion, amply covering outstanding short-term wholesale debt, and the liquidity coverage ratio was solid at 134%.

Capitalisation Combined Building Block (BB) Assessment: Strong/Good
Morningstar DBRS generally considers BNPP's capital position as strong, reflecting BNPP's stable earnings generation, low overall risk, and solid cushions above the regulatory requirements. The Group had a phased-in CET1 ratio of 13.1% at end-Q1 2024, down from 13.6% a year earlier when BNPP's capital ratios benefitted from the sale of Bank of the West. The decline was mainly due to share buy-backs and model updates. This leaves the Group with cushions of around 290 basis points over the 2024 SREP requirements. The total capital ratio declined to 17.1% from 17.8% a year earlier, and the leverage ratio remained at 4.4%. Following the EUR 2.9 billion in net gains generated by the sale of the Bank of the West and the associated around EUR 50 billion release of RWAs, BNPP carried out a EUR 5 billion share buyback programme in 2023, of which EUR 4 billion was aimed at compensating for the dilution of net earnings per share resulting from the sale.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/434768/.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) at https://dbrs.morningstar.com/research/427030

Notes:
All figures are in euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (4 June 2024), https://dbrs.morningstar.com/research/433881 In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024), https://dbrs.morningstar.com/research/427030, in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The sources of information used for these credit ratings include Morningstar Inc. and Company Documents, BNPP 2023 and Q1 2024 Reports, BNPP 2023 and Q1 2024 Press Releases, BNPP 2023 and Q1 2024 Presentations, BNPP 2023 Pillar III Document, BNPP 2023 Universal Registration Document, BNPP Q1 2024 Universal Registration Document Update, and BNPP 2023 Integrated Report. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS's outlooks and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://dbrs.morningstar.com/research/434767/.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Sonja Forster, Vice President
Rating Committee Chair: Elisabeth Rudman, Managing Director
Initial Rating Date: 16 May 2001
Last Rating Date: 21 June 2023

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