Groupe BPCE SWOT and PESTLE analysis

Strength

1.Strong Financials and Strategy : Natixis and retail banking supported the 4.8% revenue growth due to low interest rates . Operating expenses remained stable in the retail banking division in HY 2017 but there was an increase in overall operating expenses by 2.2% due to development in CIB and Investment Solutions divisions. The financial liabilities at fair value through profit / loss reduced from 133,436 to 128,529 million euros. Groupe has discontinued its speculative activities and is now focused on cooperative banking and insurance . They increased capital & it’s liquidity following which profits have started flowingin . This also increased cooperative shareholders’ base to 8.6 million.

2.Strong Commercial Momentum: Business volumes increased in HY2017 due to increased activity levels . CIB division showed 46.5% growth in revenue which amounted to €850m . Retail banking made made significant contribution through its specialized financing business . There was an increase of 6.4% YoY in on-balance sheet savings & deposits. Investment solutions rose by 14% to €600m. Continued strengthening of capital adequacy & on Asia platform also supported the growth in commercial activities. Groupe BOCE developed Insurance activities which led to doubling of the proportion of unit-linked policies in gross inflows YoY of life insurance . Caissed'Epargne Picardie and the Caissed'Epargne Nord France’s merger accelerated the growth in pension income.

3.Capital Adequacy : Capital adequacy implies that the bank stands strong to meet the future regulatory requirements . Regulatory capital increased from €73 billion in 2016 to €73.4 billion in HY 2017. CET2 ratio increased by 40 basis points to 14.7% in the first half of 2017. The Stanley in risk weighted assets has remained stable in HY2017 at €391 billion . There was an increase in the total loss absorbing capacity from 19.4% in 2016 to 20% as on June 30, 2017. The total loss-absorbing capacity was €78.3bn2 on 30 June, 2017 . The total capital ratio increased from 18.5% in 2016 to 18.7% in HY 2017 which reflects sound capitalization.

4.Specialized Financial Services:To cater to a large customer base, Groupe BPCE tailors its products for different customer segments. Natxis offers insurance products and services under two categories, Personal insurance&Non-life insurance. Personal insurance includes products ranging from life insurance, savings to borrower’s insurance. Non-life insurance includes a wide range from home insurance, health insurance, personal accident insurance, legal protection insurance, para-banking insurance to remote surveillance services. This offers the end customer quality & expert in each segment .

Weakness

1. Increase in Operating expenses: The operating expenses of BanquePopulaire network (which consists of 15 BanquePopulaire banks) increased in the first half of 2017, to 2,168 million euros (excluding exceptional items). This is an increase of 0.6% as compared to the first half of 2016. Operating expenses further grew in the sending half 2017 , which was up by 1.4% to 1,061 million euros. For Specialized Financial Services (SFS) division of Natixis, operating expenses rose by 2.8% (compared with the first half of 2016) to 458 million euros in the first half of 2017. In the second quarter of 2017, it further grew by 2.9%(compared with the second quarter of 2016) to 227 million euros.

Opportunity

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Threat

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Political

1.Change in tax rate & regulatory changes : Income tax rate imposed by France government in 2017 was higher than in 2016. The income tax rate was structural high in first quarter of 2017(41.6%) than in 2016(40.6%). This led to the increase in income tax charge to 497 million euros which was an increase of 11.1% as compared to the first quarter of 2016 as single resolution fund (SRF) and tax on systematic banking risks were not deductible from taxable income . A higher income tax rate reduces profits after tax and hence fetter future expansion plans . There is a new data and consumer protection regulation by French government viz RGPD, MIFID 2 which requires the dissociation of residential mortgages and payment protection insurance . This can hurt Groupe BPCE’s balance sheet by altering the liabilities and asset valuation of its real estate banking institutions .

Economic

1.Low interest rate environment : France has witnessed Low interest-rate environment in HY2017 which had both positive and negative impact on Groupe BPCE’s business .This led to a positive change in revenue of 4.8% from retail banking . This favoured loan negotiation & early redemption . There was a decline of 7.5% in net banking income from real estate . It was primarily due to new loan production which offered low interest rate margins than in 2016. Net interest income from retail banking fell by 0.4% due to low interest rates . Net interest income of BanquePopulaire fell by 3.3% & that of Caissed'Epargne fell by 5.8% .

2.Decrease in cost of risk : In the first quarter of 2017 , Groupe BPCE’s cost of risk was decreased by 1.6% compared with the first quarter of 2016 to 366 million euros . It reached 22 basis points in the first quarter of 2017 & was 24 basis point in 2016’s first quarter. The ratio of non-performing loans to gross loan outstanding decreased from 3.6% at March 31, 2016 to 3.4% at March 31, 2017. Cost of risk improved for Groupe’s Corporate & Investment Banking division too due to provision booking for the Oil & Gas industry. Improvement in cost of risk improves profit margins

Social

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Technological

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Legal

1.New HR agreement on the Forecast Management of Jobs and Skills (GPEC) : The groupe has signed an HR agreement on the Forecast Management of Jobs and Skills (GPEC) with CFDT, GSC and UNSA. According to this agreement , 6 major commitments were adopted which included business skills development , enhancing spirit of service in different segments , developing all divisions through their combined synergies , renewal of managerial practices, enhancing functional and geographical mobility & optimisation Of work tools . This agreement will not only enrich the employability of its employees but also optimise its operations across its divisions in an efficient way .

Environmental

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