BNP Paribas SA (OTCQX:BNPQF) Q1 2024 Results Conference Call April 25, 2024 7:00 AM ET
Company Participants
Jean-Laurent Bonnafe – Chief Executive Officer
Lars Machenil – Chief Financial Officer
Conference Call Participants
Tarik El Mejjad – Bank of America
Azzurra Guelfi – Citi
Chris Hallam – Goldman Sachs
Stefan Stalmann – Autonomous Research
Anke Reingen – RBC
Giulia Miotto – Morgan Stanley
Delphine Lee – JPMorgan
Samuel Moran-Smyth – Barclays
Kumar Sharath – Deutsche Bank
Kiri Vijayarajah – HSBC
Operator
Good afternoon, ladies and gentlemen, and welcome to the presentation of the BNP Paribas First Quarter 2024 Results with Jean-Laurent Bonnafe, Chief Executive Officer; and Lars Machenil, Chief Financial Officer. For your information, this conference call is being recorded. Supporting slides are available on BNP Paribas IR website, invest.bnpparibas.com. [Operator Instructions] I would like now to hand the call over to Jean-Laurent Bonnafe, Group Chief Executive Officer. Please go ahead, sir.
Jean-Laurent Bonnafe
Thank you. Good afternoon, ladies and gentlemen. I’m pleased to welcome you alongside Lars for the presentation of our first quarter 2024 results. We’d be pleased to take your question at the end of the presentation.
The group delivered solid performances in the first quarter ’24, thanks to strong business momentum within the operating divisions. BNP Paribas continues to demonstrate its ability to generate value and confirm its ’24 guidance with expected revenue growth of more than 2% compared to ’23 and net income higher than ’23 distributable income of €11.2 billion.
Moving on to the core of the presentation with Slide 3. Our net income group share clocked in at €3.1 billion in the first quarter ’24.
A very strong quarter for BNP Paribas. Those results are obviously driven by strong performances from our operational divisions, which will be further detailed by Lars. Our revenues were stable at minus 0.4% compared to the first quarter ’23 on a distributable basis.
All in all, our diversified model has absorbed the negative impact of a strong base effect in the first quarter ’23 at FICC within global markets. This base effect will disappear in future quarters as normalization is coming to an end, inducing a back to normal trend of global markets revenues.
Neutralizing for this [FICC-based] effect, our revenues would have been up 3% versus last year on a distributable basis. Furthermore, thanks to our strong discipline on costs, our operating expenses decreased by 1.4% year-on-year on distributable basis. The jaws effect is therefore positive by 1.1 points. We have also announced additional recurrent annual savings of €400 million, whose benefits are expected to begin showing up in second quarter ’24.
Cost of risk remains at a low level, 29 bps, reflecting the strong quality of our credit portfolio throughout the cycle.
As a result, our pretax income reached €4.4 billion, or 7.4% year-on-year growth, which is quite a strong performance. Having just finalized our share buyback, we are also pleased to report earnings per share of €2.51, higher than last year. Our financial structure is solid with a CET1 at 13.1%.
Again, this quarter, we provided a clear illustration of our ability to optimize our portfolio with the recent divestment of noncore activities, combined with the ongoing redeployment of capital from Bank of the West. So to conclude on this first slide, strong results supported by our diversified model with a solid operational performance of our businesses within each division and the low level of cost of risk.
Moving on to Slide 4. We take this opportunity based upon the strong quarterly results to confirm our ’24 guidance within an overall environment that we expect to be more favorable in the second half of ’24. First and foremost, our trajectory in ’24 will be supported by the growth in our revenues, which we expect to be above 2% versus last year, our continued discipline on costs with positive jaws and our strong risk management culture, keeping the cost of risk below our 40 bps guidance.
Hence, as previously announced, our net income for ’24 will exceed €11.2 billion, which was our distributable net income in ’23. Such an increase in our net income will come from the performance of our operational division, with well-identified growth levers and tailwinds.
On top of additional operational efficiency measures, credit quality of our portfolio and the deployment of capital internal catalysts will play a role, namely, the current adaptation of Personal Finance with positive impacts on pretax income already seen in ’24.
At CIB, further market share gains and the end of the significant base effect in Europe on Global Markets revenues. The gradual support of lower interest rates will also benefit our specialized businesses within CPBS, reducing the pressure on financing costs. This will allow us to overcome the after-tax negative impact of regulatory headwinds of €500 million in ’24 as well as the normalization of used car prices impacting Arval. I would now like to hand it over to Lars, who will take you through the group and divisional results.
Lars Machenil
Thank you, Jean. Good afternoon, fine ladies and gentlemen. If we browse through the document, I suggest skipping Slide 6, with more details on the P&L and a clear demonstration of our solid operating performance with, if I can single out 1 number, a strong increase in earnings per share, clocking in at €2.51.
So if we turn to Slide 7, where we give a global view of exceptional items this quarter. In particular, there are 2 main nonoperating items. The first one relates to the reconsolidation of [BGZ Bank]. For the record, we hold 60% of [BGZ Bank], the remaining 40% is owned by the EBRD. And I’ll remind you, they are operating at that more than 200 branches.
This reconsolidation from January 1, 2024, represents an exceptional gain of €226 million in the first quarter from an operational point of view. [BGZ Bank’s] contribution to our first quarter results include €77 million in revenues and €46 million in pretax income.
The second element is a capital gain on the sale of 80% of our personal finance activities in Mexico that have been concluded end March as part of PF’s strategic refocusing on the Eurozone and core countries, and which represent an exceptional result of €180 million. These positive impacts roughly neutralize the usual adaptation costs that we have, as well as the impact of IAS 29 linked to the hyperinflation situation in Turkey.
Let’s now swipe to Slide 8 on the performance by operating divisions, which illustrates clearly the strength of the model, the diversified business model. Overall, revenues were stable year-on-year in the first quarter ’24 compared to a year ago. In a normalized market environment, the CIB revenues were resilient, down 4% year-on-year, with a record quarter at Global Banking, plus 6%, and very good performance at Security Services, up 7%, with strong volumes and good resilience in Global Markets activities. They are reducing by 12%, but are supported the continued growth of our equity business and the strength of our prime brokerage platform.
As expected, our FICC business was impacted by significant base effect in the first quarter 2023, given the high demand in Europe for rates, ForEx and in particular, also commodities.
This base effect in Europe is expected to end in the second quarter.
When we switch to CPBS, the first quarter was positive with overall stable revenues, supported by the good performance of Commercial and Personal Banking, up 1%, driven by growth in fees, up 4%, as well as increasing net interest revenues, up 5% year-on-year when setting aside the negative impact of the Belgium government bonds, the ECB mandatory reserves and the inflation hedges, representing around €150 million this quarter, but that will taper off towards the end of the year.
Thirdly, also a resilient performance of the specialized business. So the other part of our CPBS is minus 0.7% year-on-year, supported by the early recovery of Personal Finance with higher volumes, notably in mobility and improved margins. Arval is still being impacted by the normalization of used car prices, though still at a high level.
So lastly, a very good performance this quarter from the new digital businesses. So this sums up CPBS, and let’s move to the third division, IPS, which also saw a strong performance in revenues, up 4% year-on-year when we exclude real estate and principal investments. In particular, Wealth Management and Insurance delivered strong revenue growth of, respectively, 5% and 4% year-on-year.
If we now turn to Slide 9, and let’s look at the costs of the operating divisions. Overall, costs are down, as mentioned earlier by Jean-Laurent, by 1.5% year-on-year. Thanks to strong discipline on costs, operating expenses were contained despite the prolonged inflationary context. If we look at the divisions, CIB, operating jaws were under control, with Global Banking and Securities Services delivering very positive jaws effects, 6.5 and 7.8 points, respectively, combined with a significant decrease at Global Markets of 8% year-on-year.
Second division, CPBS, contained growth in its operating expenses.
If we look at the Commercial and Personal Banking, very positive jaws for BNL and Luxembourg, whereas Belgium was impacted negatively by the banking taxes that we talked about at the end of the last year. Within the specialized businesses, cost support growth with positive jaws effect for Personal Finance and Leasing Solutions. Thirdly, operating expenses were stable at IPS, with very positive jaws effect of 3.9% when we exclude real estate and principal investments.
So if we focus a second on costs and we turn to Slide 10. In our plan 2025, so GTS 2025, we committed to a jaws effect of at least 2 points on average and announced cumulative cost savings of €2.3 billion recurring between ’22 and ’25 to a recurring basis as of ’25. We are well on track to deliver on both accounts.
During the first quarter, costs have evolved to well below inflation. Moreover, and in order to get there, in 2024, we are accelerating and enlarging our operational efficiency program with a further cost saving of €400 million to begin paving off in the second quarter, resulting in total cost savings in 2024 of €1 billion and stepping up the total recurring savings to €2.7 billion. We are implementing this while continuing to support growth of our businesses and investing in our future. Basically, the €400 million additional savings offset the impact of inflation.
Our industrial priorities remain clearly mutualization via near and offshoring. It also is continuing automation, robotization, digitalization. Thirdly, acceleration in the rollout of the cloud and the use of artificial intelligence for optimization and flexibility in our premises. And lastly, discipline in managing our external expenses.
So we’ve talked about the top line. We’ve talked about the cost. Let’s now talk about the cost of risk. And let’s do this by looking at Slide 11. So the trend of the past 5 years provides a clear illustration of our strong risk management culture, as also mentioned in the beginning by Jean-Laurent.
Our risk management has been quite efficient on 2 main contributors in terms of cost of risk for BNP Paribas, namely Personal Finance and BNL, thanks to repositioning of the portfolios therein. So our exposure moreover to commercial real estate is quite low, representing less than 4% of our portfolio. And with the sale of Bank of the West, we hardly have any exposure in the United States.
So let me also stress our pretty high stock of so-called Stage 1 and 2 provisions that are close to €5 billion. I’ll let you peruse the cost of risk of our divisions on the next slide. You will basically observe they are characterized by variations on the theme “Low cost of risk.” If with this, so we talked about the top line, the cost, the cost of risk, let’s also look at the capital. So if you look at the capital redeployment that we have so far. As you can see, things are well underway.
As announced, we will have invested relatively half of the total, so 55 basis — so half of the total, we expressed the capital to be redeployed on Bank of the West as basis points of the common equity Tier 1 ratio. So we have 110 basis points to redeploy. And by the summer, we will have done 55.
And I remind you that the return that is generated by that in 2025 will be above 16, so 16%. So the redeployment took place with a variety of organic and inorganic opportunities having materialized in the past 2 years. To make it simple, 1/3 has been redeployed organically, particularly at CIB, to support clients; 2/3 have been redeployed through partnerships and bolt-on acquisitions. Our goal is to promote the long-term interests of our franchises and our shareholders, meaning that these investments should provide long-term value to the group by consolidating its positions in growth areas or bring scale and complement our product offering and our team’s expertise.
Several transactions have already taken place in the insurance sector, and we just signed an agreement with Fosun to acquire around 9% stake in Ageas, whose subsidiary, AGI, in which BNP Paribas owns BNP Paribas Fortis, owns 25%, exclusively manages property and casualty insurance as well as life insurance distributed by BNP Paribas Fortis.
Another thing is mobility. It’s also a strategic sector for us, as you know, and we are growing our transversal mobility initiatives thanks to partnerships and bolt-on acquisitions involving Personal Finance, Arval, [Cardiff], CIB. Furthermore, strong assets and technological platforms, we have been able to move on, let’s take floor in payments or Kantox on ForEx and they allow an expansion of the offering. Lastly, there are aspects like what we’ve done with [bpost Bank] in Belgium, a way to improve the operational efficiency of our retail activities through the integration of external networks. So good progress is being made, and opportunities are being explored organically or through external growth.
Having said that, so the redeployment of the capital, let’s turn to the capital. Let’s go to Slide 14. And as you see that at the end of the first quarter, our common equity Tier 1 dropped in at 13.1%, a solid level, well above our objective to fly at 12%. Compared to year-end 2023, there is an evolution of 10 basis points down, resulting from the combined impact of, on 1 hand, organic capital generation, net of charges, changes in the risk-weighted assets in the first quarter. So that’s basically generating 30 basis points.
Out of this, there is, of course, setting aside the distribution in the first quarter, that being saying 50% in cash, 10% in share buyback, so minus 20 basis points. So there is 10 basis points uptick.
Then there is the capital redeployed from the Bank of the West sale. We talked about that we have progressed by 5 basis points, so there’s 5 basis points that are consumed. And then there is a regulatory effect that’s requiring an updating of models as we had announced at the year-end, so there is 15 basis points that is consumed, and that’s basically in the anticipation of the CRR 3 that is to come. And so other impacts on the ratio were limited overall.
So then there are many other ratios. I’ll basically skim through that rapidly. You have the leverage ratio. It clocked in at 4.4%, well above our aim to fly at 4.3%. Our liquidity, we’re also — it’s very strong.
So we are flying at 134%, I remind you, well above where we have to be. So having said that, we’ve touched about the elements of the P&L.
Then there is also other things. There is the environment. And so you know that ESG is very important to us. And that’s what you see on Slide 15. And so last quarter, we showed the strong acceleration of our commitment to financing the production of low-carbon energies and exit fossil fuels.
As an illustration, we selected this quarter major innovative solutions in each of our 3 divisions, a major debt raising in CIB, a combined offer of services and mobility of CPBS by Arval & Leasing Solutions and the launch of the first global equity fund dedicated to the net-zero transition. So that is a bit more detail on why the results of the first quarter are comforting us in reconfirming our overall guidance.
So if we now look at the divisions. So if you follow me, and we go on to Slide 17, where we start with CIB. What you have seen this quarter is our unique CIB model once again at work, delivering a strong performance, thanks to its unique and very differentiated positioning. If we look first at Global Banking. Revenues at €1.5 billion, posted a record quarter.
I’m not bragging about it, but that’s how it turns out to be. And it is up 6% in EMEA and the Americas. Revenues in particular, were up sharply in the capital markets platform, particularly in the Americas and EMEA. They posted also strong growth in transaction banking, in this case, particularly in EMEA, with a virtually stable deposit and cash management during the quarter.
If we then turn to financing. The financing activity was very strong in EMEA on the bond markets, market up 26% compared to a year ago, and in syndicated loans, also up 14% compared to a year ago. Finally, loans at €178 billion were down 1.4% compared to a year ago, but up 0.4% compared to the fourth quarter. Deposits at €2.17 billion continue to grow. So that’s the first part in CIB.
If we now move to Global Markets. The work accomplished over the last 4 years, let’s say, since 2021, with the successful development of the prime brokerage activity and the aggression of exams, so cash equities, has allowed global markets to leverage this quarter on the sustained activity in Equity and Prime Services. Within FICC, a tangible increase in credit markets has partially offset the decline in the macro environment amidst a normalization reflecting a base effect versus the first quarter ’23.
Such a base effect is expected to end the next quarter, so this is the last time that we have this base effect as markets started to return to normalized level in the second quarter of 2023. I will come back to that in detail on the next slide.
So if we end CIB with Security Services, the first quarter performance confirms the relevance of the business model with the benefit from new mandates kicking in the first quarter. With outstandings up 10%, thanks to the positive market environment, revenues went up by 7% year-on-year. I would call it solid performance. Overall, thanks to a low cost of risk and operating costs well under control, as I mentioned before, CIB pretax income reached a significant level, €2 billion, up 2.4% year-on-year.
If we now take a look at Slide 18, where we focus on the FICC activities, as I mentioned. So FICC revenues in the first quarter ’24, when you compare it with the first quarter in ’23 and ’22, those revenues are down. And I remind you that ’23, so the first quarter ’22 and ’23 formed a very high base, and particularly for European activities due to the exceptional geopolitical and financial conditions over these 5 quarters in Europe.
But still, BNP Paribas FICC in the first quarter, the revenues are on average significantly higher than the revenues of the other quarters if we look at the history since 2021, which shows our continuous market share gains. And particularly, when you combine the fact that we are a leader in Europe with 60% of the FICC earnings generated in that region, and that region has been impacted by the normalization of rates, ForEx in 2022. So a comparison quarter-on-quarter doesn’t really make sense.
Having said this, intrinsically, the story of global markets is all about continuing to take market share quarter after quarter. As such, this will continue in 2024, especially in EMEA. Furthermore, we will also continue to invest in the Americas and in the Credit business. So to conclude, we have a platform with our FICC activities that is very well positioned for growth.
So that’s CIB. If you now stick with me and we turn to Slide 19, where we look at CPBS. So CPBS delivered solid results for the first quarter, with good business momentum offsetting headwinds. Indeed, the performance of the division has been marked by those headwinds that appeared during the second half of 2023, with a total negative impact of nearly €150 million in the first quarter, of which around €50 million related to the French inflation hedges €50 million related to the Belgian bonds and €50 million to the mandatory reserves of Frankfurt.
So this in line with our prevalence assessments as we made at the year-end.
Overall, these headwinds will weigh on our first half results and will gradually taper off in the second half of ’24 in the third quarter for French inflation hedges in the fourth quarter for the Belgian bonds.
Adding to that, the normalization of used car prices for Arval also weighed on the first quarter performance. On the other hand, we have seen positive drivers this quarter. First, positive business momentum with Commercial and Personal Banking, supporting intrinsic growth in net revenues, up 5% year-on-year, setting aside the identified headwinds. In addition, our capacity to generate value at fees has been confirmed. Fees were up 4.4% this quarter, supported by a good performance in France and Europe Med.
Talking about Europe Med, we are now able to regain control of our commercial and personal banking activities in Ukraine, as mentioned before. Regarding the specialized businesses, let me point out a few positive drivers. Arval, the increase in financial margin and margin on services, driven by higher volume. For Personal Finance, the shift to mobility is materializing with increased volumes in relation to our parts with Stellantis. Margins at production are improved [Audio gap] supporting growth in revenues.
Lastly, our new digital businesses confirm their role as a new client acquisition engine with the continued expansion of our client base at Nickel. Overall, CPBS revenues dropped in at €6.7 billion in the first quarter, stable year-on-year. And so driven by, first, the good performance of Commercial and Personal Banking at 1%, and second, the resilience of the specialized businesses, down 0.7%. As a result of dynamic growth at specialized businesses, loans at CPBS were up 1.8%.
Deposits down 1.7%, mainly driven by the impact of the Belgian government bonds. They were stable overall versus the fourth quarter ’23.
Now moving into some further details about the business drivers of Commercial and Personal Banking in the Eurozone. In France, good business resilience in a normalized environment. Net interest revenues were stable, excluding headwinds. Our exposure to regulated savings remained low compared to the market, as well as the proportion of our demand deposits in our total deposits, which remains high compared to the market. What is also important is the confirmation of our strong capacity to generate fees, so up 5%, driven by our ability to cross-sell with the insurance activities or to leverage on our strong presence in cash management.
As announced, net interest revenues were impacted by inflation in the amount of negative €54 million in the first quarter, in line again with our estimates and what we’ve mentioned.
If we go to Italy, the positive impact of interest rates on deposit margin for BNL was quite substantial, with an acceleration this quarter due to growing volumes and particularly on corporate deposits. Net interest income grew by 13.7% year-on-year. Fees were stable. If we turn to Belgium, results were sufficient — significantly impacted by the government bonds.
Deposits were very stable when excluding the impact of the issuance of the Belgian government bonds, and I remind you, they are maturing in September of this year.
Excluding headwinds, net interest income in Belgium were down 1.7% on resilient performance considering the very competitive environment on loan margins in that country.
Fees were down 2.5%, with higher financial fees being offset by lower banking fees. If we turn to Luxembourg, net interest revenue is up 9% year-on-year. If we move to Europe Mediterranean, we see good business momentum in Poland, supporting the growth in net interest revenues and increased fees in Turkey. You can see the negative impact of hyperinflation in Europe Med pretax income through a decrease of €76 million compared to a year ago.
Also, if I can ask you to look at Slide 20, where we provide some further color on our ambitions in the payments and flow initiative, which is basically joint CPBS and CIB. And so we basically step up our ambitions that we announced before. But first, let me remind you why we consider payments and flow as a strategic initiative. Payments are at the cornerstone of a banking relationship, serving a broad range of customers, individuals, to corporates, small, large, supporting them in their day-to-day businesses through secured processes.
Payments are also an incredible source of data to build value-added services, again, for individuals or merchants.
But more importantly, this is a fee business. partly recurring, but also linked to transaction volumes and the source of liquidity, hence a business that creates value for our clients and shareholders.
Second, BNP Paribas is a key player in the payment ecosystem with a unique position. Let’s start with our European leadership and cash management. According to the latest ranking by Coalition Greenwich, we are #1 in penetration rate with European large corporates at 51%, widening the gap with the #2 and #3 competitors. Our pan-European presence allow for the full coverage of retail payment services in the countries. In the context of the GTS plan 2025, BNP Paribas had announced an initial objective of additional revenues linked to our payment and flow initiatives of €600 million compared to 2021.
This target has been reached and even exceeded 2 years in advance, and we are pleased to confirm that we have set a new target of additional revenues linked to this initiative at €800 million, so topping it up by €200 million.
If this concludes CPBS, let’s turn to the third division, IPS. During the first quarter, IPS revenues grew by 0.8% and by 4.2% when excluding real estate and principal investments, showing the very positive business momentum of insurance, asset management, wealth management. Starting with insurance. Revenues were up 4.2%, and gross written premiums were up 27%.
In savings, activities — activity was sustained, thanks to a sharp increase of 34% year-on-year in gross asset inflows and good business drivers, particularly in France, supporting the growth in net inflow.
Good performance also in protection, thanks to the rollout of new partnerships as well as the continued expansion of existing partnerships. Dynamic business activity and revenue growth at Wealth Management and Asset Management, with revenues up year-on-year, respectively, 5% and 2.6%.
Supported by the relationship with high net worth clients internationally and from our Commercial and CIB banking networks, Wealth Management saw net asset inflows of €8 billion, combined with a strong market performance, pushing overall assets under management up by 4%. Client transactions rebounded, driving fees upwards. Strong business drive with asset management, with growth in assets under management supporting higher fees.
Of note, a sustained net inflow of €7 billion, driven by money market and passive funds. On the downside, the continued downturn in real estate, combined with a base effect for principal investments. So that’s the synthesis of IPS.
And then if you look also at the key element of it on Page 22, I’ll let you review the trend in global assets under management. You have a clear representation of the main drivers we just described with good net asset inflow of €17.7 billion combined with a strong market performance impact of about €27 billion. Overall, our assets under management clocked at €1.23 trillion, driven by market performance effects and net inflows. I now hand it back to Jean-Laurent for concluding remarks.
Jean-Laurent Bonnafe
Thank you, Lars. To conclude, BNP Paribas delivered a strong first quarter ’24, thanks to the solid performance of the operating divisions. We confirm our ’24 guidance as well as the strength and agility of our business model. And as a solid bank committed to the energy transition and dedicated to serving clients who are entering the new phase of the economic cycle in a pole position. Thank you for your attention.
We look forward to your questions.
Question-and-Answer Session
Operator
The first question is from Tarik El Mejjad with Bank of America.
Tarik El Mejjad
Two quick questions for me. The first 1, so I wanted to come back on your net profit guidance for ’24. And to be honest, more importantly, on the growth momentum in your earnings into ’25. So if you look at Q1, so all indicators, it’s a trough. So even if you analyze that level, you are still well above 11.2.
And then as you indicated in many times in the presentation, the second half should be actually much better because of a few elements. Belgium retail, French retail. From Q3, the FICC, personal finance, the cost measures and maybe some more capital gains. So I mean, would you be comfortable to actually be more precise on your ’24 guidance? I mean, to be honest, it’s not about the ’24 again, I’m saying it’s more to be comfortable about the base you will grow into ’25.
Because if you deliver something around 11.2, that means you still have to do heavy lifting in ’25 versus ’24 to deliver your CAGR you’ve disclosed with the full year results in ’23 of 8% net profit. I mean the — so this is the first question. I mean, unless I’m — I’m having something, I’m missing something. So you can tell us where you think there could be some offsets to stay around 11.2.
And the second question is on Ageas deal. I mean I would like to hear what you say about the rationale for this deal. I mean, I understand you want to strengthen your partnership with Belgium by securing the shareholding of Ageas. But isn’t that fitting perfectly your product factory growth story? I mean, with high multiple highly accretive business, if you have to do a full takeover.
What would be the constraints? What’s your strategy long term, more than having this 9% stake?
Jean-Laurent Bonnafe
Yes. If you look at the ’24 guidance, I mean, clearly, our internal scenario is ending up clearly above 2023. So saying that ’24 net result is going to be above ’23 is kind of a minimum. If you look back at the first quarter and if you’re correct, the base effect from a global market, in fact, the top line is growing at more than 3%. And 3% could be considered the kind of central scenario, even if we are committed to deliver more than [12 — 2%].
So clearly, the central scenario would end up above the last year net result. This is quite obvious, as you said. And again, you can deduct that from the interest, I would say, strength on the first quarter. Again, if you’re correct from the base effect that is linked to the global macro situation within Global Market last year, started beginning of ’22, it last until the beginning of ’23. If you correct that, yes, we’re growing at more than 3%.
And if you look at it that way, considering that the second half of the year should be more positive for BNP Paribas because of the rate scenario because of kind of pickup of the Eurozone economy and so on and so on. Yes, the central scenario is clearly above the ’23 net result, distributable. So as you said, it helps, I would say, getting to the final objective that is a ’25 objective. So yes, you’re correct. We are.
We’re both that kind of minimum, that is the ’23 net result.
Looking at Ageas, well, buying, let’s say, 9% because the Ageas is the owner of 75% of AGI, the Belgium insurance company. It’s like going from 25% to 33%, let’s say, looking at the Belgium company. So we increased our I would say, economic interest in the Belgium company. This is the first important aspect, the second one is that the remaining part of Asia is very much based off Asian joint ventures that are very, I would say, complementary in terms of portfolio countries to the one we have at [Cardiff]. So as an insurance company gives a strong diversification risk profile.
And again, all in all, this is also in terms of diversification, nice because there is a lot of non-life insurance business within Ageas compared to [Cardiff]. So it’s a strong way to not only reinforce the partnership, not only being more exposed to the local Belgium company that we know very well. We have the partner, the strategic partner, and we stay for years. And on top of that, you diversify the portfolio of [Cardiff]. So it’s a very good economical investment.
It will prove to be good also at the commercial level with the ringfencing, strengthening the local agreement. And it’s a very good financial investment. So this is what we can say, I would say, today.
Tarik El Mejjad
Okay. If I can come back on the Ageas, I mean having a 9% stake, I don’t see how that gives you better access to the partnerships or JVs that Ageas has in Asia or the non-life in U.K. and Portugal. I mean, unless I’m missing something, I mean, just 9% stake. I mean, clearly, financially, it’s a great deal. But commercially, I don’t see the link.
Jean-Laurent Bonnafe
Commercially, the link is in Belgium, but don’t underestimate that we’re having at [Cardiff] businesses within a number of locations, Japan, Taiwan, to the Bank of Nanjing partnership. And Ageas is having other type of businesses in a number of different countries, plus the strong JV in China. So this is a very wide portfolio. You can imagine that you can have a better understanding of the global landscape in Asia for those businesses. This is it.
Operator
The next question is from Azzurra Guelfi with Citi.
Azzurra Guelfi
Two questions from me. One is on French retail. When we look at the revenue progression, excluding the hedges and the ECB action, it’s actually strong, especially on the fees. But volume on the lending side remain quite weak. So if you can give us some indication on where do you expect margin development for the NII and also this strong fee momentum to consolidate further?
The second one would be to look at Personal Finance. When I look at the PBT of the division, it’s around €150 million in this quarter. And if I understand correctly, that should be the level from which you will build up more in terms of revenue and keeping under control the cost of risk. Is that correct? And if I may, just a quick question on capital.
You mentioned model impact for 15 basis points. If you can give us some color on that?
Lars Machenil
So thank you for your questions. So indeed, on French retail, indeed, if you take out the inflation hedge, I remind you that inflation had will taper off by the summer. And in any case, probably it will become again a hedge as of the end of the year. So if you look in the — through this, you clearly see that the top line is evolving well, and we anticipate that it will evolve even including the inflation hedge positively.
What is important is that also — the margining. So the pricing is basically holding well. So the prices that are being put into the market work well. And then the volumes, yes, we’ll have to see for the moment of volumes. We’ll have to see if they pick up.
Given what we see in the market by the summer, they might pick up, and particularly if also the ECB, the rates would be lowering. But intrinsically, the margins hold well and the evolutions are well as well. Can you rephrase your question on Personal Finance, Azzurra, I’m not sure I fully grasped it?
Azzurra Guelfi
Yes, just to understand the trend from now because the PBT is around €150 million. And if I understand well, revenue should drift thanks also to a better volume and the cost of risk remain well under control. So if I understand well from this, it’s a buildup onwards.
Lars Machenil
You might have seen that we have shown how indeed there was an evolution that we were gravitating on a yearly basis at €1.2 billion before, and that we basically said that what we are restructuring in 2023, but we are on a trajectory that should bring us back rapidly to that level of the precrisis. And so yes, the important thing is that on 1 hand, we geographically refocus. So we focus for a big part on the Eurozone market, then we also focus a lot more on the collateralized kind of activities. So the car leasing and so on and so forth. And that’s what we see.
And that is why the cost of risk expressed in basis points over time will taper off, and that is the main evolution that we are having.
On the question of the capital. So indeed, the capital what we have is that basically in anticipation of the CRR that will come. We typically have to update and independently, we have to update our models. And so we’ve updated the models with the anticipation of what the CRR 3 will be. And so that’s basically what left to that pickup in the RWAs.
So those will be the answers, Azzurra.
Operator
The next question is from Chris Hallam with Goldman Sachs.
Chris Hallam
So 2 for me. Just firstly, on costs in Global Markets, that came in, I guess, quite a bit lower than expected. So should we still be assuming the normal step down costs in Q2 and Q3 sort of towards that €1.1 billion per quarter? Or is there seasonal pattern changing at all for Global Markets costs? And then second, on BNL, our credit costs still trending lower, coming in below expectations.
What’s driving that? And how close do you think to getting to a floor in cost of risk for BNL? I guess if you take a step back, for BNL, NIM is up quite a lot. Cost of risk is down quite a bit. Obviously, there’s a sustainability question there, but does that change how you think about either how much capital you want to put to work in BNL versus other businesses or capital allocation within BNL itself in terms of the mix of lending exposures?
I know you touched a bit on this in the opening remarks, but I just wanted to hear your thoughts.
Lars Machenil
So Chris, thank you for your questions. So on Global Markets, intrinsically, Global Markets has a set of costs, which I call “variable.” And so if indeed — that’s basically how they evolve. And as I mentioned, of the €400 million that is to come, that is something that is to come going forward. So from that point of view, the rhythm at which we are doing the €400 million that part that comes to CIB, we will clearly see it. BNL, listen, I’ll start is that as a quick reminder, we basically decided to reorient BNL on activities that are less the local kind of activities and therefore, can be impacted by the cost of risk.
And therefore, the trend is of all the new businesses that we are doing, we are seeing a cost of risk in basis points, which is very similar to what we have in the other activities. So what does that basically mean? It means that, yes, we accept that there is some top line impact because the volumes are lower. However, in the bottom line that is compensated by the cost of risk tapering off. And so that is something that we see.
So overall, if you look at the yield of BNL, it is basically at “levels” that we haven’t seen for years. So from that point of view, the return to bottom line of the change that we have been putting in motion and that Elena is piloting with incredible dexterity is really piloting on the return that is very relevant and improving for BNL.
Operator
The next question is from Stefan Stalmann with Autonomous Research.
Stefan Stalmann
I have 2 numbers questions, please. So the first 1 is on fixed income. Thank you very much for this very helpful disclosure of your geographic split. Would you also be able to give us a rough split by product? And I’m particularly interested in how much of your fixed income revenue last year was commodities, roughly.
And the second question on Arval and the results from car sales. I made you don’t want to give us the number, but if you look at the Q1 number in ’24, how does that look like on a long-term trend, is it still elevated? Is it normal? How would you characterize this, please?
Lars Machenil
Listen, if you look at Arval, so let’s not forget, Arval and particularly BNP Paribas, the way we’re structured, we have 3 streams of revenues. On 1 hand, there is all the servicing fees that we charge. You get your car, but you get a bike in the weekend, whatever it is. So that’s basically a 1/3. Then there is a third basically from the financing of the new vehicles.
And then the last part is indeed the resale value of that car. So that are those 3. So the servicing fee, that is basically 1 that we step up because we start the [indiscernible]. And in the other 2, they are a bit complementary in the sense that when we saw that in 2020, there was a shortage of the new financing of new cars. Of course, the used car vehicle price went up.
And now that the production is returning, the volumes are going up, whereas the resale value is going down. So those typically go a bit in opposite trends.
Now there’s 2 things on that. The first 1 is that the resale value of the used car is at fair market. So you basically look at the fleet of the cars that you have and you take that [indiscernible], whereas the financing, accounting-wise, is accrued, yes. So those 2 elements, even if they technically compensate, they move a bit at different trends. So that is basically what we see and what we will continue.
But then on your pragmatic question, if you look at the car sales, listen, we don’t share the share price because this is something also competitive information. But yes, we are still, let’s say, what we call at high levels. So yes, they are still today at levels that are higher than what it was before. So technically, it could taper further off. But that will, over time, will be compensated by the financing.
But intrinsically, over the next kind of quarters, the top line of Arval could somewhat be under pressure as we have seen now. If you look at it again in the specialized financing, so yes, there is a bit of pressure on the top line of Arval, which is basically compensated by Personal Finance rebounding faster. So that is a bit the dynamics of Arval on 1 hand and then the overall dynamics in the specialized services.
Stefan Stalmann
Great. And the fixed income mix?
Lars Machenil
Think — don’t get me wrong. That is also — that kind of breakdown on what we do and what we offer is we consider that to be in the commercial competitive domain, and that is why we don’t disclose it. But you can imagine that intrinsically, the fee in FICC is not necessarily the dominant part.
Operator
The next question is from Anke Reingen with RBC.
Anke Reingen
Anke Reingen from RBC. Two questions, please. The first is on the revenues, where you very hopefully gave us like the above 2% and the 3% base case, which would put the revenues, I guess, around €48 billion with €12.5 billion in Q1, that implies around €12 billion for the average quarter for the rest of the year. I mean, considering that probably Q1 was quite strong in the markets business because of seasonality and strength in Q1, is it fair to assume that the rest of the businesses should be running broadly flat, in your assumption?
And would that be conservative considering your comments you made about the more favorable environment in the second half?
If you can give us a bit more commentary around the trajectory? And then secondly, on the cost flexibility, the additional €400 million of cost savings, which I guess, are relatively material and are coming in faster. I just wonder how you — or where you found or identified the €400 million and should we see this as a reflection of your flexibility to deliver more cost savings if needed? Or is there — this more like a one-off?
Lars Machenil
Anke, I’ll start with the cost savings. So to me, the cost savings, I mean, the €400 million that we talked about. So as a reminder, the €400 million is something that we do to basically fight inflation, yes. So inflation would lift that. That’s what we do.
And that is basically to come. So we crystallized it in the second quarter. And therefore, the impact is to come. So what you see, what will we do — we’ll do basically more of the things that work well. So I remind you that over the plan GTS ’25, we had put in place initiatives.
We are putting in place by pooling activities, near-shoring activities, industrializing activities. And so what we see is that several of these things work very well. Moreover, if you look at, for example, AI with the arrival of gen AI and whatever, we see that we can do a bit more. And so that is basically what we do. The things that work well, we do them — we do more of them, and we boost them given the recent evolutions.
And so that is the €400 million. And intrinsically, that €400 million is to come, and that €400 million will be recurring. So that is why we stepped up the overall savings to €2.7 billion.
And on your question on the top line, listen, if you look at the slides, it basically says it, yes? I mean, if you take away the high base of a year ago, you see that kind of 3% increase. And you see how that increase is basically distributed over our divisions. And you can imagine that intrinsically, that is a rhythm that you go for. It’s [indiscernible]. So that’s basically it.
Anke Reingen
Okay. But the second half favorable environment, that compares year-over-year or that compares quarter-on-quarter?
Lars Machenil
In total, what we said is that it’s comparing year-on-year. So year-on-year, we said the results would be up 2%. And so it should then again compare the quarters, what you see is that, indeed, the quarters might be different, but that is different rather in the Global Markets activities, yes? And the other 1, it is much more a logical consequence of that. So you shouldn’t read anything in it. Just on a year basis, we see that we will structurally improve.
Operator
The next question is from Giulia Miotto with Morgan Stanley.
Giulia Miotto
Yes. Good afternoon. Two questions from me as well. Belgian retail was particularly weak, and we know why because of the Belgium bond and the taxes. But I’m wondering what actions are you planning to enact in this division to make sure that preprovision operating profit is not negative in the future?
So that’s on Belgian retail. And then secondly, perhaps more strategically. On Slide 20, I found this line very interesting. And I’m curious to understand this 28% to 51% penetration of European corporates, it’s quite an increase. What do you think makes BNP unique in their offering to corporate and therefore, so successful in this increase?
Jean-Laurent Bonnafe
Listen, well, Corporate Banking is 1 of the core businesses of BNP Paribas. It’s a business that belongs to CIB, domestic market, specialized businesses. if we were to, I would say, to mention only 1 business, Corporate Banking is all over the BNP Paribas universe. We started that story more than 20 years ago, merging BNP and Paribas. The number you have, looking at market penetration used to be below 20% at the very beginning.
So you can see the trend over 20 years. It’s a completely integrated comprehensive platform. We are a leading bank in all the different services: general factoring, leasing, trade finance, financing the supply chain, global cash management, local payments, financing fixed income. To some extent, equities, we’re leader, all over the European space. And we build those factories over 20 years.
And you give — it gives you strength, it gives you the ability to fit global needs throughout Europe. And this is the trend. And it’s a machine that’s in gaining market share every year, like Arval is gaining market share every year. If you look at the Net Promoter Score at Arval, you can see the difference in between Arval and competitors, who are gaining market shares. You can say the same in a number of other dimensions.
So there is nothing new. It’s just the machine that is being built as a global platform so up, build upon specialized businesses, specialized factories, quality of service and the kind of integrated, I would say, fit ability to answer global, I would say, needs coming from global corporates. If I take an example, looking at Italy and the BNL. The point was raised couple of minutes ago. If you look at the BNL we bought in 2006, it was basically a saving and loan company and a kind of popular bank.
The mass retail, we kept it. This is basically Rome and Central Italy. It’s fine. The very small corporate business, we get rid of it. We deleveraged more than 95% of those businesses.
We moved the bank in Milan, the corporate bank. And now we’re having in Italy, something that is in terms of quality, very close to the French platform. These are large mid caps, innovative, SMEs and so on. This is an ideal fit for BNP Paribas.
It’s also explain why cost of risk is becoming low because the quality of those companies is great. It’s part of the global pan-European franchise of the corporate bank of BNP Paribas. It’s just the same. You can see, for example, in the CIB business, in the BNL business, the impact of that global platform away from that global factor. We could not have been able to get rid of that book that was not of the highest quality so well.
So corporate banking, again, it’s all over the place. It’s a kind of unique proposition. It’s covering U.K., going to Poland, the Nordics, Southern Italy. Thousand space. So this is a global pan-European factory, and it’s quite powerful.
And there is nothing new. We’re telling you every year, this is the way it moves. So it will continue to move that way.
Lars Machenil
On Belgium, Giulia, there are several things that we are doing. So 1 of the things that we’re doing, we’re stepping up further cross-selling. We’re stepping up clients, with streaming up clients from Nickel and Hello Bank! And there’s also bpost, which is really taking in at full. So we are doing all that.
We’re also attending to costs, as you know. And of course, we are preparing for the return of the deposits that are at the National Bank that should come back after the summer. So that’s all the kind of things that we do.
Operator
The next question is from [Joseph Dickerson] with Jefferies.
Unidentified Analyst
I’ve got 2 questions. When I go back and I look at the full year, it’s on capital allocation, firstly. I look at the full year slides, you’ve talked about the CIB market share gains without impacting capital allocation. And when I look on Slide 4 of the Q1 slides, you talk about CIB market share gains while retaining a balanced allocation of capital just because there’s quite a strong amount of momentum in the CIB, whereby it’s just going to follow cyclical moves and in some instances, take more capital? Or is it a similar kind of guidance, this is worded differently this time? So that’s question one.
And then number two, if I just look at the Commercial and Personal Banking in France, you’ve got a high share of current accounts, 52%. I suppose that’s a blessing in terms of funding stability but also can be a curse in terms of margins when loans aren’t growing, I guess, at 52% of deposit balances and having fallen about 5% quarter-on-quarter. I guess, how do you see the mix of current accounts panning out over the course of the year?
Lars Machenil
Thank you for your questions. If I start with the RWAs on CIB. So indeed, well, typically, in the first quarter, there is always a bit of a step-up in activity also with everything that is market related. So there is a bit of a step-up in the RWAs. Another element — another element that you should know is that there are some temporary effects in CIB that weigh on it.
I don’t want to drown you with it, but we have some elements, for example, on CCPs like in elastic CCPs in India which are basically evolving and that need further information sharing and set up and which have temporarily a step-up in RWA. So the RWAs in CIB. on 1 hand, it is a typical Q1 one, and then there are some temporary ones that should taper off by the end of the year, by the summer actually.
And then if we look in France, if we look at the deposit mix, what we basically see is that when you look at the deposits for individuals, the mix is basically stable. So it has — there were some moves a year ago. But today, what we see is that it’s stable.
Unidentified Analyst
So just to clarify on the CIB capital allocation, there’s no change in terms of the appetite and proportion of the group capital?
Lars Machenil
This kind of overall balance in the long run of 1/3, 1/3, 1/3. It’s a bit silly, but that’s basically what it is. And then as I mentioned, in 1 quarter, it can be a bit more than another 1 or it could be that an acquisition is done in the other. And so it’s basically something that we have been having over years that has been that equilibrium. So we’ll stick to that equilibrium.
Operator
The next question is from Delphine Lee with JPMorgan.
Delphine Lee
My first question is on net interest income in domestic markets, France and Belgium, in particular. So when we look at the evolution year-on-year, even excluding the impact of ECB mandatory reserves on the Belgium bonds, and NII was still down almost 2% in Belgium and stable in France. So I’m just trying to think about like your additional guidance — guidance of the additional €1 billion of impact from higher rates, how we should think about sort of that recovery, the timing of that recovery? Is that mostly majority geared to ’25? Or just thinking when we are seeing that change?
And then is that — is deposit pass through the main reason why NII is not growing?
And my second question is on — coming back to Ageas, I’m sorry. I mean, strategically, it makes sense financially, it looks like the Danish compromise makes it really cheap to invest. So the question is, why wouldn’t you be interested in — given the efficiency on capital in a larger stake in Ageas than just 9%?
Jean-Laurent Bonnafe
About Ageas, the situation we’re in is very much linked to the fact that Fosun was exiting Ageas. So it’s very simple. They were exiting Ageas. They were having 9%. And they were looking for someone, I would say, able to invest the same amount without a discount, let’s say.
We were the only 1 to be able to replace Ageas not without a discount. It’s obvious because we are close to the local company, the Belgium one, we — we know those people. We know their business model and so on and so on. So this is the point. It’s — this is the story.
I mean, Fosun was trying to exit, and we were there, and we were the natural, let’s say, shareholder to replace Fosun. This is the move. And again, there are 2 different, I would say, dimensions that are key. ‘
The first 1 is we were having economically 25%. Now we have 1/3. So we are moving from 1/4 to 1/3, which is nice. We know that company very well. It’s great. We continue to grow the local one. And financially, it’s a good return, extraordinarily good return.
And on top of that, this is diversification as an investment for [Cardiff]. So this is nothing more, nothing less. Nothing more, nothing less. Looking at Belgium and France, you know that they have a fixed rate balance sheet because of the mortgage business. So the trend is going to be better.
Today, short-term rates are going to be below long-term rates. This is going to come quite soon. So you will see the evolution in between ’24 and ’25. This is really the story. It has been postponed for a number of reasons.
The Central Bank stand the way it was for a certain period of time, longer period of time, we were expecting. But at a certain point in time in the cycle — and it’s soon now. It will start in June, probably on July. You will see short-term rates progressively going down and long-term rates potentially going up slightly. This is coming.
And when those rates are going to be normalized, then those businesses in terms of NII will be much more — will be better positioned because this is the natural situation for those banks, short-term rates that are below long-term rates, steepness of the rate curve and back to normal.
So we were, I would say, for 2, 3 years trapped in something that was quite abnormal to some extent with those balance sheets. So now we are back to normal, and it will take place ’25, and it will continue with ’26. And you know that beyond ’26, there will still be an additional impact. By ’26, we will have only got maybe half of the impact because these are long-term exposures. These are not midterm, they are long-term exposures.
So the rebalancing is going to start second part of that year, accelerate in ’25, accelerate again in ’26. And then we will continue to have a second half of the impact looking ahead in the term plan for 2030.
Operator
The next question is from Samuel Moran-Smyth with Barclays.
Samuel Moran-Smyth
I’ve got two, hopefully, that’s okay. So firstly, I just wanted to come back on a statement you made at the start of the call and you made again in the Q&A that 2H ’24 is expected to be a better environment for BNP. I’m just wondering how reliant on rate cuts that statement is?
You’ve got other levers such as cost savings, winning mandates, fees recovering, your efforts from the BancWest proceeds starting to come through. So just trying to work out how important rate cuts are to your guidance and trajectory or if it’s just 1 element of it.
And then secondly, a strategic question. Hopefully, that’s okay on your noncore retail banking position. So in the quarter, you reconsolidated Ukraine, you sold 6% of your Polish business and you’ve adjusted Turkey for hyper inflation. So across the sector, while we’re seeing a bit more discussion on M&A and also disposal, I was just wondering what your kind of long-term thinking on your retail banking footprint is?
Lars Machenil
I will basically start on the second half of the year. So let’s be fair. I mean, if you look at it, we already articulated our confirmation of having a result over the year above last year, we already announced that in February. So that was basically that at that stage, we assume that we will have the cost under control that we work on pace on fees and that there is the base that is going on. And so now on top of there is this rate environment that has been announced by the ECB in the last couple of days.
So that is just a part of 1 of the elements. So it basically provides further comfort. And your strategic question on Europe Mediterranean?
Jean-Laurent Bonnafe
No. If you look at the domestic markets, we are very much a pan-European bank. I would say, France, Italy, Belgium, Luxembourg, Germany, to some extent, with [Consorsbank]. Poland, even if it’s not part of the Eurozone. And relatively to that, the Turkish bank is relatively small.
It’s very much focused on the, I would say, affluent customers. It’s not typically retail bank, I would say, good quality mid-caps. So the domestic, I would say, bank universe is very much Europe. This is it. We don’t believe — if you look at Africa, we exited many countries.
Out of 22 in 10 years, we still have Morocco and Nigeria, but they are very small operations also. It’s very simple. We’re having the Eurozone as a natural, I would say, universe, Poland and a bit of Turkey. This is the — this is the situation. And probably, this is going to stay for some time.
There is no reason to go further. There is no reason to exit. We are very satisfied with those banks. There are a lot of synergies going on with the asset management, [Cardiff], consumer lending, Arval, specialized businesses globally.
So again, if you look at Italy because sometimes we’re at all, I don’t know, BNL is too small or whatever. I mean if you look at the rate of Italy had been 3 buybacks. BNL is only half — BNL is only half of the franchise of BNP in Italy. In total, we have in excess of €5 billion total turnover, and the cost income is extremely good. And why? Because through BNL, we have a platform, we can cross-sell, we can diversify.
I mean, this is the situation we are having. And we don’t believe we are going to change this approach. We are satisfied with those businesses, those regions, those countries. The difficulty adding on a new country, for example, the domestic ways that, unfortunately, in Europe, cross-border acquisition doesn’t deliver enough cost-cutting synergies, and it’s a fact.
You know that better than me. It’s linked to a number of factors. So cross-border, I would say, acquisition in terms of cost synergy are not very powerful. So looking at the cost of doing banking because of the equity, because of the equity requirements, liquidity requirements, fines and so on and so on. I mean, you cannot deliver enough cost synergies, it’s becoming rapidly a risky move.
So this is why we tend to stay the way we are and to grow the platform in a more pan-European platform.
And in between those businesses and those different domestic businesses were having, I would say, in payments, savings, mobility and so on and so a lot of synergies that are growing on top of the local businesses. So basically, this is the idea, and you never know what can happen 1 day. But as of today, we stay the way we are and probably, the profile we have having had been people looking at the setup, the regions is the 1 we are going to keep for some time.
Operator
The next question is from Kumar Sharath with Deutsche Bank.
Lars Machenil
Kumar has disappeared.
Kumar Sharath
Sorry, I was on mute. Am I audible now? Sorry. Sorry for that. So I have a couple.
So 1 on asset management and 1 on Italy, NII. So firstly, on asset management, the performance overall continues to be impacted by real estate and maybe some investments in — principal investments. So when can we expect this to end, given market tailwinds, when do we start seeing year-on-year growth at the revenue level? So that’s 1 on asset management on Italy. NII, you spoke about the NII performance led by deposits from Corporate and Private Banking.
So I wanted to know the stickiness of these deposits and in a sense, the sustainability of NII at these levels.
Lars Machenil
Thank you for your questions. So first, if I take asset management, so indeed, within asset management intrinsic activity is doing well. But then we indeed have lodged in there a division called real estate. So I remind you that division, real estate, is not a portfolio of like commercial real estate books and what have you not. It’s really a business activity that is into advisory, promotion and the likes.
And so what we basically see is in the countries where we are present basically in Continental Europe, we see a tremendous dry up in this demand. And so that basically means that that dry up doesn’t trigger any cost of risk, right? It’s not an exposure that we have that leads to a cost of risk. What we do see is that the demand is materially lower, and therefore, that’s an impact in the top line, so the top line is lower. And that is something that started last year.
At this stage, the demand is indeed still low, and that will take some time before that picks back up. So you should assume this year and probably still a bit next year, that you have this impact on foregone revenues on the real estate. And then when you look at BNL, BNL, again, what you see on the deposits, we consider it quite sticky. Why? Because there is this kind of environment.
And BNL has this reputation as basically all of the activities do of BNP Paribas. And so we have this “flight to quality.” So what we basically see or what we anticipate is that that would stick. So those will be the 2 answers to your questions, Kumar.
Operator
The next question is from Kiri Vijayarajah with HSBC.
Kiri Vijayarajah
A couple of questions from my side. First, I’m afraid, coming back to Belgium and specifically the NII there because — because the things you flagged in terms of the Belgian government bond and the remuneration and mandatory reserves. I was thinking that they should all already been captured in the 4Q NII run rate in Belgium. So could you just drill down a bit more in terms of what drove that quarter-on-quarter decline in Belgium NII? With the more kind of deposit mix shifts or asset margin pressure we need to be aware of.
And then second question, more — just a quick clarification. I think it was something you said in response to Azzurra’s question earlier. Am I correct to understand that the inflation hedges become a positive tailwind for French retail NII in 2025? And if so, what kind of magnitude could that be next year? And have you included any benefit at all in your — what you referred to as your central scenario for budgeting?
Or is that something that could kind of come on top, if you like? So just some clarification on that inflation hedges please into next year?
Lars Machenil
On this inflation hedge. Just — I don’t want to make it too long, but just that we see that we are on the same page, right? So this inflation hedge, what this inflation had was basically to put in place because we had deposits which were linked to inflation. Therefore, we also onboarded assets that are linked to inflation and that allowed us accounting-wise to hedge the two. Then basically, a decision was taken by the French authorities to fix the rate on their deposits would not have it inflation linked.
So therefore, the hedge was no longer working. And so we have that inflation. With inflation coming down, that is the impact that we see.
So that effect started in the third quarter of 2023. And so that basically means we have it for 4 quarters, so we will have it in the next 2 quarters. And so we assume the effects will be limited thereafter. And then we assume that at the end of the year, the deposit pricing will return to inflation. And so that is why we haven’t broken that hedge because we assume that the deposits will be repriced end of the year into inflation.
Therefore, the inflation hedge will again be working. So that’s a bit a long answer of what the inflation is.
But again, independent, if you look at French top line, even with that impact of that inflation, over the year, the top line will go up. And then when you look in Belgium, yes, the impact that we talked about, they basically kicked in during the fourth quarter. And so that is why if you look at the first quarter of 2024, you have the effect. And when you compare it, which is the comparable base, given the volatility of all the other elements, you clearly see the impact compared to a year ago. And so that is basically the elements.
So Belgium, to some extent, has — when we talk about the headwinds, while they basically have the local ones and they have the Frankfurt ones. And as again, as I said, the Belgium one, I anticipated to taper off that that money will come back over the time. So that’s basically the impact on Belgium and on inflation for France, Kiri.
Operator
Gentlemen, there are no more questions registered at this time.
Lars Machenil
No more questions?
Jean-Laurent Bonnafe
So thank you very much for your patience, and all the best with BNP Paribas. Thank you.
Operator
Ladies and gentlemen, this concludes the call of BNP Paribas First Quarter 2024 Results. Thank you for participating. You may now disconnect.
Read the full article here
