Morningstar DBRS Confirms BNP Paribas SA's Long-Term Issuer Rating at AA (low), Stable Trend

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on BNP Paribas SA (BNPP or the Group), including the Long-Term Issuer Rating at AA (low) and the Short-Term Issuer Rating at R-1 (middle). The trends on all credit ratings remain Stable. Morningstar DBRS also maintained BNPP's Intrinsic Assessment at AA (low) and Support Assessment at SA3, meaning that timely systemic support is not expected. A full list of credit 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. Resilient earnings, conservative risk management, and solid capital cushions further support the credit ratings. BNPP's underlying earnings generation capacity has gradually improved but still lags behind its similarly rated peers. However, Morningstar DBRS notes that highly diversified revenue streams keep earnings volatility low. BNPP's asset quality metrics have also improved consistently in recent years but are also a bit weaker compared with similarly rated peers, mainly 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 its large and granular deposit base supported by very good access to wholesale markets.

Despite the geopolitical uncertainty and the threat of U.S. tariffs, Morningstar DBRS expects the trend of gradual earnings improvement to remain in place. From a macroeconomic perspective, the Group benefits from lower wage inflation and interest rates. In addition, BNPP continues to gain market share in many areas, as it has invested in higher-yielding businesses and implemented efficiency initiatives.

CREDIT RATING DRIVERS
Morningstar DBRS would upgrade the long-term credit ratings if the Group demonstrates a sustained and material improvement in cost efficiency and profitability whilst maintaining a resilient credit profile and capital position.

Morningstar DBRS would downgrade the long-term credit ratings if BNPP experiences a prolonged and material deterioration in its asset quality, profitability, or capital buffers.

CREDIT RATING RATIONALE
Franchise Combined Building Block Assessment: Very Strong
BNPP is the largest banking group in Europe with EUR 2.7 trillion in total assets at YE2024. In Morningstar DBRS' view, the Group's franchise is well diversified, which is a key credit rating driver. BNPP operates in 64 countries. The Group's activities include retail, commercial, and investment banking; wealth and asset management; and insurance and specialised finance businesses, with strong market positions in France, Belgium, Luxembourg, and Italy. BNPP also has a leading position in European corporate banking, global markets, and securities services. The Group is organised into three main operating divisions: Commercial, Personal Banking & Services (CPBS), Corporate & Institutional Banking (CIB), and Investment & Protection Services (IPS).

Earnings Combined Building Block Assessment: Good
BNPP has a track record of consistent earnings generation, supported by highly diversified revenue streams. BNPP's profitability metrics have improved over time but are still weaker compared with its international peers. However, Morningstar DBRS notes that the Group's profitability remained resilient throughout crises. BNPP's 2024 net income of EUR 11.7 billion increased by 4.1% year over year (YOY), excluding extraordinary items and adjusted for changes in perimeter. This resulted in a return on equity of 9.36% up from 8.86% a year earlier. Results were driven by solid revenue growth while operating expenses were contained and cost of risk (CoR) increased moderately. Performance at CIB was particularly strong with revenues up 8.4% YOY, supported by volatility and increased customer activity. IPS also reported good performance (up 4.2% YOY) driven by sustained growth in wealth management and insurance businesses. However, CPBS lagged with its revenues up only 0.5% YOY due to weaker performance in specialised finance businesses.

In Q1 2025, BNPP's net income of EUR 3.0 billion was down 4.9% YOY due to higher non-operating items in Q1 2024 and an increase in CoR in Q1 2025. Revenues grew 3.8% YOY to 13.0 billion, driven again by CIB (+12.5% YOY) and IPS (+6.6% YOY), while CPBS was up 1.2%. Operating expenses were up 4.0% and CoR increased 20% YOY to EUR 766 million on lower reserve releases. However, for the full-year 2025 Morningstar DBRS expect BNPP's cost efficiency to continue its trend of gradual improvement, given a number of cost initiatives as well as growth in segments with higher profitability.

Risk Combined Building Block Assessment: Strong/Good
Morningstar DBRS generally views the Group's risk profile as conservative. Credit risk accounted for 74% of risk-weighted assets (RWAs) at the end of March 2025. While the majority of the Group's exposures have shown low risk metrics to date, the Group is exposed to higher-risk segments such as Italy, Europe-Med, and Personal Finance. However, these exposures are mitigated by significant diversification of the loan book by product and geography. Exposure to capital market activities is moderate with the Global Markets and Securities Services division representing 12% of the Group's RWAs at the end of March 2025. Based on Morningstar DBRS' calculations, the gross nonperforming loan ratio was 2.8% of loans to customers at YE2024, compared with 2.9% at YE2023. At 33 basis points (bps), the CoR remained below the 40-bps guidance of the Group for 2022-25. BNPP has strong compliance and control functions, and there are no major outstanding litigations that could have a substantial impact on its earnings or capital.

Funding and Liquidity Combined Building Block Assessment: Very Strong/Strong
In Morningstar DBRS's 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 1,027 billion in Q1 2025. The loan-to-deposit ratio has remained stable over the past year and was 87% at the end of Q1 2025. Funding the Group's capital markets and non-deposit taking businesses, BNPP's wholesale funding is also sizeable and was EUR 484 billion (excluding sterilised short-term funding) including short-term funds of EUR 161 billion at YE2024, the latest available data. The exposure to wholesale funding is mitigated by funding sources that are well diversified by product, investor base, and geography. At the end of Q1 2025, the Group had a substantial liquidity reserve of EUR 483 billion, and the liquidity coverage ratio was solid at 133%.

Capitalisation Combined Building Block Assessment: Strong/Good
Although the Group's capital ratios are below those of its similarly rated peers, Morningstar DBRS generally considers BNPP's capital position as strong, reflecting the Group's stable earnings generation, low overall risk, and solid cushions above the regulatory requirements. The Group had a fully loaded CET1 ratio of 12.4% at the end of Q1 2025, down from 12.9% at YE2024 mainly because of the first-time application of final Basel III rules and, to a lesser extent, capital distribution and model updates. This leaves the Group with cushions of around 200 bps over the 2024 SREP requirements. The acquisition of Axa Investment Managers is expected to close in early July 2025. The expected CET1 impact at closing based on a recent opinion by the ECB regarding the prudential treatment of asset management companies is around -35 bps, which should be largely offset by earnings. Excluding the potential impact from the fundamental review of the trading book, the Group expects a CET1 ratio of 12.3% for 2025 and 2026. The total capital ratio was 16.7% at the end of Q1 2025 and the leverage ratio was 4.4%.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/456371.

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 Factors in Credit Ratings (16 May 2025) at https://dbrs.morningstar.com/research/454196.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (23 May 2025) https://dbrs.morningstar.com/research/454637. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings https://dbrs.morningstar.com/research/454196 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. Other sources include BNPP 2024 and Q1 2025 Reports, BNPP 2024 and Q1 2025 Press Releases, BNPP 2024 and Q1 2025 Presentations, BNPP 2024 Pillar III Document, BNPP 2024 Universal Registration Document, BNPP Q1 2025 Universal Registration Document Update, and BNPP 2024 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' trends 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://www.dbrsmorningstar.com/research/456375.

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

Lead Analyst: Sonja Forster, Senior Vice President
Rating Committee Chair: Vitaline Yeterian, Senior Vice President, Sector Lead
Initial Rating Date: 16 May 2001
Last Rating Date: 20 June 2024

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