BNPQY - BNP Paribas SA (BNPQF) Q1 2023 Earnings Call Transcript

2023-05-03 23:13:07 ET

BNP Paribas SA (BNPQF)

Q1 2023 Results Conference Call

May 03, 2023 08:00 AM ET

Company Participants

Lars Machenil - CFO

Conference Call Participants

Tarik El Mejjad - Bank of America

Amit Goel - Barclays

Jon Peace - Credit Suisse

Stefan Stalmann - Autonomous Research

Anke Reingen - RBC

Pierre Chedeville - CIC

Máté Nemes - UBS

Geoff Dawes - Societe Generale

Jay H. Gaulard - Kepler

Flora Bocahut - Jefferies

Delphine Lee - JPMorgan

Kiri Vijayarajah - HSBC

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to the presentation of BNP Paribas First Quarter 2023 Results. For your information, this conference call is being recorded. Supporting slides are available on BNP Paribas IR website, invest.bnpparibas.com. [Operator Instructions]

I would like now to hand the call over to Mr. Lars Machenil, Group Chief Financial Officer. Please go ahead, sir.

Lars Machenil

Thank you. Hello, everyone. I trust you're doing well, and welcome to BNP Paribas First Quarter 2023 Results Presentation. As usual, at the end of the presentation, we'll be pleased to take your questions. So for now, let's go through the results.

BNP Paribas, as you've seen, is on track for a very solid performance in '23, which reflects the efficiency of our leading platforms and strong financial structure. It gives us a unique capacity to serve our clients and the economy while enabling a strong increase in our earnings per share and return to shareholders.

Our results are demonstrating that the group is very well positioned to deliver its ambitious '23 and '25 targets. And as per our expectation, BNP Paribas benefited in the first quarter more than ever from the strength of its business model, which continued to drive strong growth in activities and results more than ever supported by a robust balance sheet. And basically, this says it all.

So let's now move to the core of this presentation, and let's jump to the key messages on Slide 3. As a reminder, we told you in February of this year that for BNP Paribas, 2023 will be a pivotal year with changes in perimeter, accounting standards, and for lack of a better word, extraordinary items. As such, we committed to a clear full year '23 objective in terms of distributable income, and this distributable income is adjusted, on one hand, representative for our intrinsic performance going forward and, on the other hand, significantly above our reported results of a year ago.

So here we are, first quarter '23, and we apply the bulk of the adjustments we announced for '23. Hence, a distributable net income that clocked in at €2.8 billion in the first quarter and an earnings per share of €2.19, 43% above last year. This is, first and foremost, supported by the performance of our businesses, as we will see, and this generated a strong intrinsic growth.

If I look at the divisions, CIB up 4%, CPBS up 5.9% and IPS rising by 0.6%, leading to an underlying group's revenue growth of 5.3% year-on-year. This growth is disciplined. So if we look at it -- at the cost, excluding IFRIC 21 taxes and exceptional costs, our underlying operating expenses to our company, the revenues increased by 3.8% year-on-year, well below inflation and generating an underlying positive jaws effect of 1.5 points. You know the focus we pay and the attention we pay to the positive jaws.

The group continues to benefit from its long-term, prudent and proactive risk and liquidity management, combined with a strong diversification of activities. Where do we see this? Well, let's look at the cost of risk, it clocked in low at 28 basis points of loans outstanding, well below our guidance of less than 40, 4-0, basis points. Our financial structure, of which the cost of risk is part, is very solid, also seen by the group's common equity Tier 1 ratio that clocked in at 13.6% after the sale of Bank of the West. Moreover, and benefiting from strong positions, our liquidity coverage ratio stands at 139% end of the period, increasing by 10 points compared to end of December and well above the requirements for this stressed ratio.

In a nutshell, a solid quarter, leading to a distributable earnings per share of €2.19, increasing by 18% on an annualized basis. In addition, we remind you that we launched the first tranche of our €2.5 billion share buyback program. So we intend to buy back €5 billion in total for the first part -- first half before the summer, and we launched it on March 31. And the second tranche is planned for execution after the summer, so during the second semester.

These results are the bedrock on which we will achieve the objectives for 2025 as revised upwards in February of this year. And of course, our '23 objectives of growth in distributable income, earnings per share and dividend per share. So we reviewed the objectives upward in February and deliver an EPS growth above even this objective. And this is before, as I mentioned, before we launched or we have finalized the share buyback.

So with this, if we switch to Slide 4. I take it the messages jump off the slide, but anyway, let's highlight the main ones. So we confirmed the growth trajectory of our '23 distributable income as announced when publishing our annual results in February of this year. So as I said, '23 is a pivotal year after the sale of Bank of the West, and it's also the last year for the ramp-up of the Single Resolution Fund. It's also the first year for the application of IFRS 17 and 9 when it comes to insurance activities.

As announced in February, our solid stance allows us to do a couple of things. First, offset the effect of the sale of Bank of the West by our organic growth. And you can already see from the first quarter that our organic growth is offsetting the effect of the sale of Bank of the West as well as the base effect coming from the insurance-related IFRS changes. So first one, tick the box.

Second, adjusted distributable income upwards by €1 billion. So adjusted distributable income upwards by €1 billion in anticipation of the end of the ramp-up of the Single Resolution Fund. We did it in the first quarter, and we stuck to the €1 billion we announced even though the Single Resolution Fund contribution was lower than expected. Hence, we added some other positive adjustments to the distributable income to be in line with the €1 billion we announced. So second, tick the box.

Third and last, as announced, we also exclude two extraordinary items to establish a coherent base. First, the capital gain from the sale of Bank of the West and the impact of, well, what else can I say, the "extraordinary" negative impact of the adjustment of hedges resulting from the changes in TLTRO as decided and announced by the ECB end of last year. So with these adjustments, we established the true performance of the group and its GTS 2025 growth trajectory.

As a consequence, we also translate this in our earnings per share and our dividend per share. So in a nutshell, we generated in the first quarter '23 a distributable net income of €2.845 million and in line with our objective. And hence, we confirm that we anticipate a distributable net income for 2023 at least €1 billion above the 2022 results as reported, it is at least €1 billion above €10.2 billion.

With this, let's move to Slide 5. Our adjusted distributable income in '23 will serve as a base for the 60% return to shareholders with an objective of 50% points in cash and 10% points in share buyback. It will come in addition to our 2023 share buyback program amounting to €5 billion.

Hence, again, a confirmation of our objectives, it has a growth for '23 in EPS and DPS that can be anticipated at a level above the GTS '25 objective of an average growth higher than 12%.

So if with this, if your term allows you to swipe or whatever thing is swipe to Slide 6. Given all we just said, it should come as no surprise that we confirm all our 2025 objectives with two major pillars representing an additional growth potential of €5 billion. First, the redeployment of the proceeds of the sale of Bank of the West, which put us in a unique position to accelerate and step up long-term growth. Second, the positive impact of higher interest rates on net interest income, and this across the group by 2025, stemming from the hikes have been taking place in 2022.

So we anticipate delivering a strong growth in net income by 2025, on average above 9% on the back of our embarked and additional growth. Our growth in earnings per share will even be higher, above 12%, thanks to the execution of share buybacks each and every year. Of course, such growth will remain disciplined with positive jaws each year averaging two points and a cost of risk below of 40 basis points guideline each year.

I would now like to take you through the group and divisional results. So let's start with Slide 8 and where we have the main exceptional and extraordinary items. You can see that adaptation costs related to the refocusing of activities and reorganization of the operating model at Personal Finance for €236 million represents the bulk of exceptional items this quarter. Moreover, and as already announced in February, you also find the impact of the adjustment of hedges related to the change in the ECB terms and conditions on the TLTRO with a negative extraordinary item booked in the corporate center and excluded from the distributable income. As announced, a similar amount also being offset as expected in the second quarter. Last, the capital gain on the sale of Bank of the West, a positive extraordinary item excluded also from distributable income.

So on Slide 9, let's wrap up our P&L. The detail of the synthesis I gave on the first page for revenues, cost and cost of risk. As a result, pretax income on a distributable basis clocked in at €3.7 billion, which reflects our performance going forward. On a backward-looking basis, it is with no other adjustments than exceptional and extraordinary items, the pretax income increased by a very strong 17%. Hence, a distributable net income at €2.8 billion, which illustrates, as mentioned, the solid underlying performance of the group post the sale of Bank of the West and post ramp-up of the Single Resolution Fund.

Now let's look into some more detail at the operating divisions. Let's start with the revenues on Slide 10. So they grew by a solid 4.4%. Very strong quarter for CIB, actually a record. The revenues were up 4%, supported by a strong performance in Global Banking and Securities Services and still a buoyant level of activities for global markets. If we take the second one, CPBS very positive momentum with an increase of 5.9%, driven by strong performance of commercial and personal banking activity, boosted by the diversified setup and the rise in net interest income.

And also the solid increase in revenues in the specialized businesses with, on one hand, Arval, the car fleet leasing, witnessing a hefty growth in finance fleet and on the other hand, Personal Finance, stepping up its transformation and adaptation. Last, IPS delivered an increase in revenues of 0.6% on the back of a strong increase in revenues in the Insurance and Wealth Management businesses, which has been offset by a lackluster market environment for asset management and real estate.

If you now move on to Slide 11, and we look at the costs in the operating divisions, up 4.1%. So costs are well under control, benefiting from our industrialized and mutualized platforms. In that context, CPBS delivered very positive jaws of 1.2 points, thanks to the ongoing rationalization of our operating model. Looking at CIB, same story, jaws were positive at 0.9 point with operating expenses supporting the growth in activity. At IPS, an increase in operating expenses, driven by the support for business development, I remind you that IPS is our growth engine, as well as targeted initiatives with very positive jaws in Insurance, four points; and Wealth Management, also four points. So this is the gross operating income.

If we now move to the risk and the risk profile. Let's look at Page 12, you'll find the illustration of our prudent long-term risk approach in all types of risk, supported by a diversified and balanced business model. As a result, this quarter, very low cost of risk, as already mentioned, 28 basis points better than our guidance of below 40 basis points over the plan every year. And to illustrate our cautious stance, the group, BNP Paribas, has the lowest level of cost of risk over gross operating income, so revenues minus cost, through the cycle compared to Eurozone peers, a measure you are now very familiar with.

Moreover, and in addition, you can see that while we have grown significantly our global market activities, the VaR stays stable in amount. It is a tribute to our ability to grow in that space while being very prudent and proactive in our risk management. Last, our activities are and will stay very balanced when considering the breakdown of our risk-weighted assets with CIB, Commercial and Personal Banking and Specialized businesses, so IPS and the CPBS ones, representing roughly 1/3 of the total.

If you now turn to Slide 13, you can see the confirmation of a very low cost of risk at group level to 28 basis points already mentioned before, and as a result of a low impairment of nonperforming loans, so-called Stage 3 provisions in IFRS 9 [lingo]; and two, releases in prudent provisioning, so-called Stages 1 and 2 in that same lingo.

Moving on to each business one by one, you will see a similar pattern of low levels of costs across the board. So they're basically all variations on low cost of risk. With this, talking about low cost of risk, let's turn to our financial structure. Slide 15, you can see the 130 basis points improvement of our common equity Tier 1 ratio versus end of last year, so clocking in at 13.6%. As anticipated, the closing of the Bank of the West resulted in a plus 170, 1-7-0, basis points impact. Moreover, and as always, in the first quarter, where there is the contribution to the IFRIC 21 taxes, organic capital generation to reported net income after setting aside 60% of our results and this net of evolution in our risk-weighted assets was close to zero. And this is -- I'll remind you, we basically had that every year during the construction of the Single Resolution Fund.

Moreover, there is an adjustment in the distributable net income. So the €1 billion that we added in the distributable net income has an impact of minus 10 basis points on the common equity Tier 1. In addition, as announced, the launch of the first tranche of the share buyback for €2.5 billion had an impact of minus 20 basis points. I remind you that once a share buyback is approved by the ECB, the impact is deducted entirely from CET1 even if the buyback has to start or is ongoing. On top, updates in our models as well as the application of IFRS 17 has generated an impact of minus 10 basis points, again, as anticipated. So that is basically the common equity Tier 1, so a solid 13.6%. I remind you that we want to fly at 12%. So a lot of room to redeploy and anticipate change.

Now if we look at the leverage ratio, it clocked in 4.4%, well above where we want to be. And then our liquidity profile at the end of the quarter stands pretty high with an LCR of 139% end of period, increasing by 10 percentage points compared to December 2022. The evolution of the LCR provides further evidence of the group's liquidity management. Well, for whatever that metric means, but if we look at other indicators like the level of our liquidity buffer, high-quality liquid assets amounted to €426 billion, out of which 75% in deposits at central banks. Our liquidity reserve, what else can I say, is a whopping €466 billion and includes again, €324 billion of them of Central Bank deposits. So I think, basically said it all.

Nevertheless, if you want some more color on Slide 16, we want to give you a sense of how solid our liquidity profile is belong all those very strong ratios and balances that I mentioned. And basically, our business model in itself, highly diversified with leading positions in flow but also long-term and sticky relationship with clients provides a relevant support to our deposit base. And diversification, as everything with BNP Paribas, is key, diversification by geography, entities, currencies, customer segment.

All this has been key and illustrated by the recent events. At €1 trillion of deposits as reported in our balance sheet, our deposits have basically been stable between December '22 and March '23. As anticipated, we experienced an inflection upwards in March to illustrate the flight to quality that we saw in the market and our efficient management. So all in all, we don't have to remind you of the stability and the quality of our resources as illustrated by our long-standing liquidity reserves and HQLA at whopping levels over the past years.

Then if we continue, we look at the balance sheet on Slide 17. And to no surprise, our net tangible book value per share continued to grow as it reached €84.8 at quarter-end. Now next to the profit and loss. Next to the balance sheet, there is also contributing to a responsible and sustainable economy, which is a major foundation of our strategic plan. And on Slides 18 and 19, we provide an update with a focus also on our social dimension.

As you can see, our actions are material and illustrated by significant achievements as we have developed a comprehensive approach to support our client transitioning towards a sustainable and low-carbon economy. So helping our clients transitioning towards sustainable and low-carbon economy. We are a worldwide leader in green bonds and sustainable bonds with $9 billion and $14 billion, respectively, raised for our clients. We have also been recognized by IFR as 2022 Bank of the Year for sustainability.

Beyond our strong commitment towards a net zero trajectory, the group has also embarked in a socially responsible strategy with ambitious targets in that domain. Our plan, People Strategy 2025, aims at developing our employees' potential and engagement along the top priorities of diversity, inclusion and development of human capital.

With this, let's look at our divisional results, and we do this with CIB. We start on Slide 22 to 25. So CIB saw another quarter of very good results. Top line up 4%, and this supported by a strong client activity, leveraging on a diversified and integrated model. Leadership positions in EMEA are confirmed, in particular in financing and bonds as well as transaction banking. CIB is also a leader on multi-dealer electronic platforms.

On the back of these strong platforms, CIB today confirms its resilient growth year after year. First, a very good performance in Global Banking with a strong momentum in a more favorable context with a sound rebound of EMEA bond markets. Global Banking revenues were up 15.6%, very good performance, supported by growth across all business lines and regions and strong gains in transaction banking and cash management. So this was the first division of CIB.

Second, Global Markets. Supported by a very robust client activity, it delivered a sustained very high level of revenues with a modest decrease of 1.8% compared to a very strong first quarter in '22. Thanks to a very robust client activity on the whole, FICC benefited from a strong demand in rates and ForEx products. Revenues at FICC were up 9%, a stunning performance versus an already very high first quarter '21 -- '22, sorry, I forgot we already passed the year.

Equity and Prime Services, despite an overall good activity, are decreasing due to a very high base in the first quarter '22. Finally, the third activity in CIB, Security Services displayed again this quarter, very high volumes of transactions on the back of a strong business drive, supported by the relevance of its diversified model. Assets held up well with new mandates in Europe. Boosted by the positive impact of interest rates, revenues increased by 6.7%. What else can I say, a solid performance. Total CIB costs were up 3.1% with positive jaws, as I mentioned before, 0.9 points.

All in all, and considering the very low level of cost of risk, CIB generated a pretax income of €1.4 billion in the first quarter, a record, up 5.7%. So that's the first division.

If you can now turn your attention to the second one, CPBS, Commercial, Personal Banking and Services, Slide 26 to 33. As you can see, CPBS displays a significant increase in results with positive jaws, thanks to the strong performance of Commercial and Personal Banking and the sustained growth in Arval. In terms of activity, loans were up 4.4%, close to 10% versus the first quarter two years ago, 2021. And this across Commercial and Personal Banking as well as Specialized businesses. Deposits increased by 1.2% across all business. Again, if we compare it to the year before, that will be up 9%. Deposits increased between February and March of this year on the back of a favorable positioning across client segments.

Looking at Private Banking, here, the indicator is net asset inflows. They were strong at €4.4 billion. And this, as a testimony of our model at work essentially through external client acquisitions and synergies with corporates. So that's our lever for growth, which makes it distinctive. Moreover, the division continued the path to digitalization, combined with ongoing client acquisitions being at Hello bank! or Nickel.

In terms of P&L, revenues clocked in at €6.7 billion, up 5.9%, thanks to the favorable interest rate environment and a steep increase at Arval. With a good momentum on net interest income, Europe, Mediterranean and also Eurozone Networks performed particularly well. If we look, for example, at France, net interest income increased by 6.8% with an increase in deposits from individuals and the low relative exposure to regulated savings. If we look at Belgium, it increased by 15.6%, thanks to our strong market share; and in Luxembourg by 36.3%. At B&L also, despite the tough competition on pricing and a prudent approach, net interest income grew by 3%. So that's part of the top line.

Another part of that are the fees. And we continue to get the full benefit from our leading positions on flow businesses and favorable client mix. Despite the negative impact of financial markets, fees were flat overall, supported by a buoyant activity on cash management and trade finance. They increased in particularly at B&L, plus 3.5%, driven from a significant increase in fees from corporate clients. So that's the third part of CPBS.

If we now look at the second part, Specialized Businesses, revenues were up 4.5%. When excluding Personal Finance, the growth was above 20%. Indeed, on the back of volume growth, continuous expansion of the finance fleet as well as the benefit of high used car prices and thanks to new partnerships, Arval and Leasing Solutions saw a sharp increase in revenues, up 20.9%.

The transformation of Personal Finance and the adaptation of its businesses is underway. Outstanding loans were up 4.7%, and this across all segments. And production margin in this environment are under pressure. Lastly, new digital businesses and personal investors confirmed their role as new client acquisition engines, accompanied by strong growth in revenues, up 18% year-on-year. So that's basically the divisions and the top line of them in CPBS.

If you now look at the costs, they were up 4.7%, reflecting the gains in efficiency across networks and the transformation of their operating model with a strong positive jaws effect, 3.5% if we look at the commercial and personal banking environment. And similarly, the specialized businesses confirmed their capacity to grow at marginal cost with a significant positive jaws effect of 10.9 points for Arval and Leasing Solutions. All in all, jaws for CPBS are positive and come in at 1.2 points.

Looking through all of these elements and going to the pretax income of CPBS, it increased to €1.5 billion, up 7.7% year-on-year. To sum up, a strong quarter for CPBS with a good business drive, thanks to its favorable client mix and a supportive interest rate environment. So that makes two out of three.

So third one. Let's now move to Slide 34 to 37 and let's look at Investment and Protection Services. Business momentum was sustained by a strong net asset inflow of €19.4 billion, supported by Wealth Management, especially in Commercial and Personal Banking in France, Italy and Belgium, as well as with international high net worth clients. Strong net asset inflows, also in Asset Management, driven by money market funds. If we now focus on the P&L. IPS revenue stood at €1.4 billion, up 0.6% year-on-year, with strong increases in Insurance and Wealth Management, offset by lower performance in Asset Management and real estate compared to a strong first quarter '22.

So for the first quarter, under IFRS 17, a solid performance in Insurance with revenues up 6.9%. Good business drive in France, supporting inflows, notably in unit-linked, combined with a nice momentum for protection, notably in Latin America. Moreover, Wealth Management also performed very well, up 10%, boosted by the strong growth in net interest income. Then Asset Management. Overall revenues were negatively impacted by the market performance and a high first quarter in '22 that was related to the gains of principal investments.

I remind you that in that segment, there is Asset Management, there's Principal Investments, I remind you of a year ago and the environment for principal investments. Finally, real estate had a good momentum on property management and investment management, however, negatively impacted by lower activity in advisory and property development. Moreover, the comparison with last year, we saw a very high level of activity in advisory after the pandemic, doesn't help the comparison.

So if we look at the operating expenses of IPS, they were up 5.4% year-on-year, driven by the business developments and the targeted investments of this engine for growth. EPS pretax income just came down by 7% due to what I mentioned, the less favorable environment impacting asset management and real estate combined with a base effect in '22 for both of them. So this basically synthesizes the group and the three divisions.

So before handing it over to you, let me conclude our presentation. So BNP Paribas, 2023 first quarter results confirm a solid, intrinsic performance for the group, driven by the strength of its model. So three points to take away. One, together with the distributable income of €2.8 billion, we confirm the strong growth trajectory of the group.

We confirm, in particularly, the growth of our 2022 distributable earnings per share well above the planned objectives. Two, embarking on a new phase of acceleration, we affirm our leadership in financing the energy transition. Three, last but not least, we say what we do and we do what we say. So let me take the opportunity to thank BNP Paribas teams who are strongly mobilized and committed to support, more than ever, our clients' needs.

So BNP Paribas is more than ever uniquely positioned to deliver strong performances, serving clients and the economy in all weather. So with this, I thank you very much for your kind attention, and I'm now pleased to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions]

Lars Machenil

Operator, no questions [indiscernible]?

Operator

Yes, we have some questions. The first question is from Tarik El Mejjad with Bank of America.

Tarik El Mejjad

So first question is, can you please provide us maybe an update in regards to the Bank of the West capital deployment. You said in fourth quarter results, that will be mostly organic, and you mentioned some key divisions that you'll focus on. Could you, at this stage, be more specific and highlight the areas where you see growth coming first? Secondly, how do you see the lending growth in the sector could be impacted by the banking crisis in the U.S.? Do you believe -- is the material slowdown of growth there could be observed in Europe as well and how that would impact your guidance?

And lastly, still on the growth [indiscernible], if we want to do some capital allocation exercise of your excess capital, we can see that the €3 billion revenues uplift could be somehow underestimated. So if let's say, we take €7 billion excess capital, we deploy it, that's around €50 billion, €60 billion RWAs, the €3 billion extra revenues that you guided for would imply a 5% margin. So today, you deliver already above that at the group level and certainly much higher than that if we focus on the targeted growth divisions. So could you please help us reconcile the 2?

Lars Machenil

Thank you for your questions. When it comes to the Bank of the West redeployment, listen, we basically stick to what it is. If I say it very simple and if I anticipate a bit your next question, we will not buy anything with the word bank in it. So we are convinced that organic redeployment, so knowing we know the clients, we know our bankers, we know our platforms, we know the regions, it's basically what we want to do. And therefore, on top of that, the bottom line impact will be immediate. So there is no additional investments, there is no additional churn, whatever that we have to take. So we basically stick to that. We already redeployed a part. I mean, this is going to take maybe one, two, three years to do the redeployment, but that is what we will do. And again, in the areas that we mentioned, and so no bank. So that's on the redeployment.

When -- on your question on the U.S., listen, in my view, what we saw in the U.S. is different from what you will have in Europe. And in Europe, I have to be even more explicit, I have to talk about the Eurozone. Why? Because if you look at the supervision that is being applied in the U.S., you have a handful of large banks, and then you have another set of banks that are governed by a different set of rules. Whereas in Europe, it's not the case. The ECB doesn't supervise the G-SIB banks, yes? They supervise more than 130 banks directly, and then indirectly, even more. And so from that point of view, the impact that you might have on the overall economy, on the overall banking environment, so the banks running into whatever kind of systemic issue, that is not what we anticipate in Europe.

And then in particular, if we look at BNP Paribas, as you know, we are a bank and particularly focused on corporates, commercial activities and the like. And what you see, look at our results, we see that activity continuing. I remind you that on the economy, we basically coined the term: it's a look through what we see, yes? So we don't anticipate a recession. We might see some sluggish growth. But if you look at our results, how business are doing, if you see what is happening to commodity prices, if you see the rebounding in China, if you see all that, for BNP Paribas, we clearly anticipate to be delivering on the growth in our plan, and the first quarter is a tribute to that.

Then with respect to the numbers that you apply, listen, I let you do the math. The only thing what I can tell you is we are a prudent stance or a bunch of people, and that's basically where we stand. And you can see that we take into account that maybe it can take a bit of time to happen. But intrinsically, if you do the math, you see what you get to.

Operator

The next question is from Amit Goel with Barclays.

Amit Goel

So two main questions for me. The first one, just going back to the guidance on the distributable income for 2023, the kind of €11.2 plus billion. Just want to check in terms of the path over the rest of the year, given CIB seasonality, if you mind just giving some of the rationale or what gives

you confidence that you should be able to maintain similar type levels to Q1 over the coming quarters. And then secondly, again, just coming back to the Bank West redeployment. I'm just kind of curious, given the current environment, I appreciate you're not going to, as you say, buy anything with a bank in it. But is there anything in terms of the pace or any changes or differences versus what you previously articulated? I think and you said something like 20 bps per annum. But just wondering if you're thinking there might be more opportunity given some of the dislocation or no change at this point?

Lars Machenil

Sorry, thank you for your questions. So if I take the first one. So what we basically said that in distributable income is that, on one hand, the run of the mill business will more than compensate Bank of the West. And then on top of that, we correct for the Single Resolution Fund. The Single Resolution Fund is basically an event of the first quarter, right? So that one fell in the first quarter, and we compensated in the first quarter. And you also saw in the first quarter that our run of the mill not only did better, but it compensated Bank of the West. And I don't have to remind you that, for example, a year ago, when it comes to CIB, we already had a record quarter. So from that point of view, I think the first quarter illustrates that the run of the mill more than compensates Bank of the West. That's what we have seen. And so there is no reason why you should anticipate that going forward, that would not be the case. So that is why we feel comfortable with the elements we shared.

And then when it comes to the growth on the redeployment coming from Bank of the West, are there more opportunities? Listen, in my view, what we have seen in the U.S. and what we have seen in Switzerland, I don't observe it as such in the Eurozone, yes? In the Eurozone, we see that there is a requirement for liquidity, capital, what have you not, and a close supervision. So I don't anticipate that there would be something that would have a systemic-ish kind of dimension. Would there be maybe banks that basically say, "Hey, the regulation becomes too heavy." Or the regulation says, "Hey, I'm not necessarily having the capital to do so." Yes, that's one of the elements that we could face, but there is nothing in particular that we anticipate that would be systematic in the European environment. So we really feel comfortable with the growth that we can capture. And if we can do more, we will, of course, do so.

Amit Goel

Just to clarify on the first question. I guess my point was if I took €11.2 billion of distributable income for this year, the group has done €2.8 billion in the first quarter. The run rate then for Q2, Q3, Q4 is also around €2.8 billion. I guess, generally, you normally experience a bit of seasonality with CIB. So I wasn't referring to the kind of the moving parts which got you to the €2.8 billion in Q1. Just wanted to gauge what gives you the confidence, obviously, that Q2, Q3, Q4 will also deliver a similar level to the underlying distributable income in Q1.

Lars Machenil

Yes. Listen, if you look at -- I mean, Bank of the West is just gone, and we basically already overperform versus that. So we not only compensate, but we do better than that. So from that point of view, we feel comfortable that the rhythm at which we are, we will deliver. I agree with you. Typically, what you can have is that there are some activities that typically perform a bit better at the beginning of the year, think of global markets. But then there are other activities which do perform ramping up of the year, which can be some activities what you see in Global Banking, but also what you see in some of the other activities. So all in all, it's again, if you look at the rhythm that we had last year, it was very similar. So it's nothing particular that we anticipate, it's just the run of the mill in the first quarter confirms that overall trend.

Operator

The next question is from Jon Peace with Credit Suisse.

Jon Peace

So my first question is, if you think 2023 earnings and dividend growth could exceed 12% target, are you expecting growth to slow down a bit in '24/'25 as rates and provisions and volatility normalize? Or could you also be above the target in those years as well? And then could I ask also on the cost of risk, do you think you will be able to sustain this 30 basis points run rate into Q2 or into the second half of the year? Or should we imagine it will track higher over time as Stage 3 provisions rise? And lastly, if I could just ask a quick clarification on the buyback. How quickly do you plan to complete this first tranche? And would you only apply for ECB permission for the second tranche once it's finished, so there might be a three months gap in between?

Lars Machenil

Jon, thank you for your questions. Listen, on the EPS, so what you see is -- let's look at it in two ways. So the EPS is basically -- of the more than 12% comes from the earnings of more than 9% and then the share buyback. So you know this by now, Jon, we typically overperform our commitments, but that is yours to judge. The fact that our earnings per share will be above the 12% is because the fact is that the share buyback that we will do this year is well above what we would do the other years. So yes, we have the intention. What we said is it's above 9% and it's above 12%. That's what we will do. But there will be a bit of a boost this year given that share buyback.

And let me continue on your third question on the share buyback, and then I will come back to the cost of risk. So on the share buyback, you know how that goes. We don't want to perturb the market, yes? So the volumes that we can do is like 20% of the daily volume, something like that. So if you look at it, it's roughly €0.5 billion per month, yes? So it's going to take us, I don't know what, somewhere around July to be done. Now the thing is I don't want to do it in July and August because all of you guys, they are on holiday, it does matter. So we want to do it in September. So you're absolutely right. When I say I'm going to launch it in September, that is not French for saying I'm going to ask permission in September, yes? So basically, I'm going to ask permission before that, so that really we can launch it after the summer. So that's the second question.

Then on your third question on the cost of risk. So can it be sustained? So we basically said it would be below 40, yes? 28 is probably not the level we will gravitate to, but it will be below 40. And can it be sustained? Well, let's look at two things. On one hand, you're talking to BNP Paribas. If I look at our customers, which are basically corporates and the likes. If I look at the corporates, and you will look at them when they publish their results, they basically have the ability to adapt to this environment, yes? They focus on the profitable kind of business. They can adapt pricing. So we see our customers doing well. So if you look at our Stage 3 cost of risk, it's basically doing well. And on top of that, you know that we are a prudent bunch, and so we have provisioning as well. So is it going to be 30? I don't know. Do I feel very comfortable that it's going to be below 40? Absolutely. So Jon, that will be my three answers to your questions.

Operator

The next question is from Stefan Stalmann with Autonomous Research.

Stefan Stalmann

Two questions from my side, please. The first one, going back to cost of risk or risk provisions, could you give us a rough idea how much of -- how substantial the releases of Stage 1 and Stage 2 provisions were in the first quarter? And the second question relates to your deposit base. Thanks for the additional color on Slide 16. I was wondering, are there any meaningful guaranteed deposits in your corporate and financial client deposits as well?

Lars Machenil

Stefan, when you look at the cost of risk, you know how that goes. We are on the Stage 1 and 2, you have to look at the models. And as you know, we are a bit of a prudent bunch. So if in the models, we can see dangers on the horizon, sorry, a bit from my theatrical kind of wording, we will take that into account. But then again, these things have to realize. So if going forward, after typically six quarters, that kind of environment on which

we took those S1 and S2 provisions, if that kind of environment doesn't realize, well, you can no longer sustain those, yes? And so that is a bit what we had in the S1 and the S2. And so the amount of debt we've written back is around €100 million. So that is a bit on that question.

When you look at your -- on the question of the deposits, so as you know, when you look at the deposits, we have different segments, and I told you about it, we have different clients, we have different behaviors. And if you look at the corporate side of the deposits, there is like around 20% that is operational. Therefore, while they're sticky, like you see them in the retail environment, and there is the remainder being rather financial in nature.

Stefan Stalmann

So no meaningful insured deposits in that part of the deposit base?

Lars Machenil

In that part, no. No. In the retail, that's where the big book is with 2/3 of it being insured.

Operator

The next question is from Anke Reingen with RBC.

Anke Reingen

I just had two questions. Firstly, just following up on the customer deposits, I was wondering if you can give us a bit more indication about the trends across the quarter in terms of your retail corporate, but as well, I think you mentioned in March, you actually saw like net inflows. And maybe any comment about April, although I realize you don't like to comment beyond the quarter. And then just in terms of the LCR ratio, I guess there's a debate, will the ratio potentially change over time given recent event. And I just wondered if you have a view. And if it would be more stringent, would you think you would need to run -- would like to run with the same ratio, having the same absolute liquidity buffer? Or would you think you can run this down?

Lars Machenil

Thank you, Anke. So when we look at the deposits, listen the deposits evolution in the first two months are basically at our hand. What I mean by that, Anke, you know me well, we are basically profit-based. And so -- and on top of that, as you see, we have truckloads of liquidity. So from that point of view, we are profit-based. So we're not overpaying on deposits. So if from time to time, a client tapers off into another product, that's basically what we saw. So it's on our demand in January and February. And then something a pivotal happened in March, where whatever happened around us basically triggered a flight to quality. And so corporates that were having several banks, they basically decided that they would move into us. And the same thing is true on the retail side.

So when they will be having their assets in different products or even different players, they basically had -- we had that flight of quality that brought it back to us. But Anke, you know this by now, right? And so that's basically what we do. So the first two months, it was on our hand. And basically, in March, well, it was our stance that basically brought it in. So then -- so that's on the deposits.

And then when it comes to LCR. So I don't have to remind you that the LCR is basically a stress ratio, yes? So it basically says that in a stressed environment, so when your assets go up, you need the liquidity to cover that, yes? So the 100% liquidity ratio where you have to be, it's basically saying you need the liquidity to cover your assets in a stressed environment. So that is I don't want to fly truckloads above that because that is just liquidity that we freeze. You saw the numbers of liquidity that we have, it's basically deposited at the Central Bank, yes?

It's basically sitting on the beach, getting a suntan, and that's basically it. So there is, for me, no reason to stay that high. What you do see, indeed, when they are -- there is turmoil, you see it going up. And so that's the main important thing.

For us, I don't want to fly high at the LCR. What we have shown again in this quarter that is when there is turmoil, basically, we step up the LCR yes? And so the thing is if the environment is normalized, there is no reason that we would fly so high and just have all of that liquidity parked at the Central Bank. It will be our pleasure to redeploy it. So if the environment is normal, we will see the LCR tapering off and we will -- again, you see it stepping up if at some point in time, there would be some uncertainty. So that's basically how we look at the LCR, Anke. So that would be my two answers.

Operator

The next question is from Pierre Chedeville with CIC.

Pierre Chedeville

Maybe a question regarding cost. Could you give us a little bit flavor regarding the evolution of HR cost versus non-HR cost to see if there is any difference there? It could be interesting to compare with some of your peers on that point. And my second question is related to the business of BNP Paribas Real Estate, which is a quite significant part of the Asset Management business in terms of contribution. It seems to me, regarding what you said that it is a difficult time for BNP Paribas Real Estate, could you explain us in which businesses particularly Investment, maybe, I guess, promotion also maybe, how long do you see the trough lasting?

Lars Machenil

Thank you, Pierre, for your questions. Listen, when you look at the cost base, generically, if you take the cost base of BNP Paribas as a whole, then basically, you see that the cost base evolves below inflation. So that basically means we don't have an impact of HR at the same cost and the other ones not. So that's basically intrinsically what we do. Now there might be some areas where things are different. There are some areas, in particularly a country to the north of Paris, that basically has it into law that salaries have to be impacted by inflation. So yes, there, that evolution is. But overall, it is not the mechanical impact. And so on average, again, on average, you can take that evolution, which is below inflation, you can apply it to the bulk of our sectors in the costs.

Then when you look at real estate, yes, real estate, if you look at it, actually investment is doing well. That's an activity that continues, has been doing well. The point of attention is basically advisory. And particularly I don't know where you were a year ago, but a year ago, in the first quarter, we came out of the COVID environment. And so there was a boost of those kind of activities. So the level in real estate on advisory was very high a year ago. Again, I don't know where you were this quarter, but this quarter with the rates rising and so forth, the overall demand in the market in Europe for that went down. So that's basically the point. So it's advisory from a very high level a year ago to a more lower level in Europe this year. So those would be my answers, Pierre.

Operator

The next question is from Máté Nemes with UBS.

Máté Nemes

I have two questions, please. The first one is on Global Banking. That's a business you mentioned that might be seeing some positive momentum also over the next year or so. Quite a contrast to the Global Markets business, which is skewed to the beginning of the year. I'm just wondering if you could give a sense of the outlook in the financing business in Global Banking and also what you expect in terms of transaction banking activity. Are we seeing peak activity levels now? Or with some rate volatility, some inflation, that momentum could carry on in the next couple of quarters?

And the second question is on Asset Management. Clearly, you had a quite strong development in terms of AUM, good flows, yet revenues were lower, clearly pointing to a weaker gross margin and costs were very high. Could you give us a sense what is your expectation in terms of gross margin development in that business for the remainder of the year? Shall we expect some pickup? And if not, is it fair to assume that some cost action will be taken there?

Lars Machenil

Thank you, Máté, for your questions. So Global Banking, yes, so we see a very positive business. And basically, that business continues. There are aspects of it that have started to open in the first quarter, and that will continue to do so. It's also if you look back a year ago, a high yield, you needed two magnifying glasses to find it. You see there businesses opening. So that's -- basically, we anticipate that business demand continues. And don't get me wrong, it's not negatively. But from that point of view, as you mentioned, the behavior is not necessarily as seasonal as is Global Markets. It is much more steady, growing activity. So that's what we see. I confirm that, and we remain positive on that business.

Then when it comes to Asset Management, there are several things. So Asset Management, yes, the good thing is if you look at the volumes because when it comes to -- we are not an asset manager that does everything for everybody, all around the place, right? So we have some clear focus. And amongst others, everything which is CSR is things that we do. And then if you look at the evolution, indeed, if you look at the P&L this quarter versus the quarter ago, it might be a bit suggesting the evolution not going in the right way. But I remind you that in what we mentioned under Asset Management, we also include the activity principal investment, yes? So that's the demand. And again, a year ago, the demand for principal investment in that surprising literally, surprising market environment, principal investments did very well. And so that basically forms that base towards which it is compared.

And independent of that, on Asset Management, they are continuing their industrialization. And so that's what they're doing. And so we will see, if you take it on the whole, on a yearly basis, that evolution should be fine. And as always, if at some point in time, we see a business that is basically in an environment that is changing, then we adapted, yes? Point in case, take Personal Finance. We see personal finance, we adapted, we adapt the setup. So -- but at this side, we don't see anything on the horizon of asset management. Again, there is this lift for principal investment that you saw a year ago. And Asset Management, when it comes to everything that is CSR-related, they are doing very well. So we're happy campers on Asset Management. So Máté, those would be my two answers.

Operator

The next question is from Geoff Dawes with Societe Generale.

Geoffrey Dawes

Geoff Daws here from SocGen. Just first of all, a quick clarification and a couple of questions, clarification. Excellent comments on the retail deposit trends and everything that we've seen there across the quarter. Could you maybe also extend that out to private banking. So you had €4.4 billion of net inflows. Just if you saw any month-by-month trends there that would be of interest to share? And then a couple of quick questions. First of all, Consumer Finance, you just mentioned it, but essentially, what do you get for the €250 million-odd of adaptation spend? Where is that focused? Which regions? Which products? And what kind of return will we see on that and when effectively? And then second, another division within that area, Arval, could you give us an idea of how much of the revenue is coming from the used car benefit? And if you have any sense of how long that might last. So an idea of the duration between purchase and sale of some of the used cars that you have -- that you're currently making profits on. So that would be it.

Lars Machenil

Geoff, could you repeat or rephrase your second question? So can you -- I have your deposits. I have your other question. What was your second question?

Geoffrey Dawes

On Personal Finance, the restructuring charge, the adaptation charge of nearly €250 million, effectively, where that's being channeled, what we get to see from those adaptation charges?

Lars Machenil

Yes. Thanks. Listen, if you look at -- on your question on wealth, intrinsically, that behavior, if you look at it in retail, it is basically for us mass affluent and wealth management. So that's a bit that same kind of behavior that we see. So that's on that. When you come to Personal Finance, yes, the restructuring -- maybe as a quick reminder. So what we saw in Personal Finance is that we want to focus that activity basically on the activities that are asset-backed. And so in order to be asset-backed, well, you basically also need a lever or unique position on that asset. And so for us, that is -- for a big part that is mobility. So in order to do so, therefore, you need the kind of relationship with the dealerships and what have you not, to have that. And that is what we have in basically the Eurozone and the U.K. So that is why we basically said, the activities in Latin America, in Africa and basically in Eastern Europe, we want to basically get -- sell them, those activities and stop being the owner of that.

Having said that, you basically reduce the overall setup, and you also change the way in which you do it, the way you do the typical products or those mobility products is different. Therefore, you also need at "the head office level", you need to do a restructuring to be ready to go from that international kind of personal finance business in that Eurozone, mobility-driven, asset-backed kind of activities. And so that is the restructuring we are doing. So it's basically activities like -- well, the costs related to moving out of those activities, decommissioning systems and the like.

If your question would be on the staffing, basically, we -- at BNP Paribas as a whole, we keep on adding staff, adding staff in the sense of people retire, people leave and so forth. And so we redeploy those. And then when your question is on Arval, we aim not to be a one-trick pony that basically is making money on the used car sales value. And so we basically have three levers into that, right? On one hand, there is the financing of the new production. On the other hand, there is the sale of the used cars. And then thirdly, there is the "added value". The added value things can be like you want an electric car in the week, but you want a hybrid car in the weekend. Or like in my case, a bike in the week and a car in the weekend, what have you not. So these kind of things. And so typically, that tends to be like 1/3, 1/3, 1/3.

Now in a day -- in a period like today, when maybe the production of new cars is not as high, maybe that financing part is a tad below that 1/3. And therefore, the resell value of the cars is a tad above the 1/3, yes? But overall, it is blended. And so when the used car price will come down, the new production will come up. And so that's basically what we see. And on your question, I find you very focused on Arval, Geoff, is basically, we have the typical durations of the cars. And sometimes it can be -- as there are not as many cars available as they used to be, well, they can to be -- tending to be getting a bit longer in one year, but that is not an intrinsic trend. So Geoff, those will be my three answers.

Geoffrey Dawes

That's great. And just to follow up on the Personal Finance side. Do you think that restructuring charge taken this quarter fully reflects the change in staffing? Or is this the first of maybe one or two quarters of adaptation cost?

Lars Machenil

Listen, again, the adaptation cost, as I mentioned, is basically on the IT, the restructuring and that, because if you look at staff, we basically aim to redeploy them. Nevertheless, on the underlying question, it's what we have booked is basically the entire cost that we will have this quarter, next quarter and so forth. So we basically accrue the entire cost.

Operator

The next question is from Jay H. Gaulard with Kepler.

Jay Gaulard

Jacques-Henri from Kepler Cheuvreux. Two questions. First, the concept of distributable income, I guess you're just going to use it for '23 and that your net reported in '24 will be against that distributable income. Is that the right way to look at it? And the second thing is on your corporate center restatement, that's also a very useful set of slide. I guess the impact has been minus €16 million. Is there any point -- I would say, how could we forecast that? Is there any point even forecasting it materially considering that the impact is very small this quarter? Even I appreciate that there was volatility in the previous quarter.

Lars Machenil

So just to be sure, it is Jacques-Henri because I wasn't sure when you were announced.

Jay Gaulard

Last, you can't possibly imagine how bad it is to spell that type of first name every quarter. But anyway, it's in the first week. I'm happy.

Lars Machenil

So if we look at it, you're absolutely right. So when it comes to the distributable, that's only in '23. That's why we always use this kind of thing like exceptional elements, like when we have costs and so forth. The exceptional ones tend to be coming back and on average, we compensate them by capital gains, yes? We have roughly some -- a couple of hundred million exceptional costs that we compensate for -- by capital gains. And so this year, we introduced something which is extraordinary. And so this extraordinary is really saying this is only applicable this year. This is the silly impacts of the TLTRO and the like. So yes, I confirm when we basically say that 60%, 6-0 percent, of earnings are going to be returned to shareholders, it's only this year that we apply to distributable. Next year, it's going to be on the bottom line point. So it's just one day that we do it.

The way we do it is also because that the figure that we published is basically the base also for going forward. And so that's the thing. So the EUR

2.8 billion is the basis for what to read. So next year, you will see that the intrinsic bottom line has improved versus that, and we pay 60% on this. So this kind of distributable is only 2023. And to be even more specific, Jacques-Henri, it's basically in the first quarter and the second quarter. And thereafter, there will be no such thing as extraordinary elements. So that's basically this.

And then when you look at the Corporate Center, yes, and I take it when you say the impact you meant, the IFRS 17 and IFRS 9 on insurance. And yes, the impacts that we saw a year ago were really related because the whole thing was managed under IFRS 4 and they change it. You'll see that the amount is minimal. And the idea for us is to really keep it minimal. That means what? Yes, there is some volatility that can be from the assets that are held and the volatility goes into the P&L., but we will do everything to keep it to the minimum. That basically means if there are hedging that we can apply, we will do it. If there can be alternative products that don't have that volatility in the P&L, we will do this as well, yes? So the effect -- the larger effect that you saw in 2022 should be limited to 2022. You saw it is minimal, and we're doing everything to keep it minimal. So Jacques-Henri, those will be my two answers.

Operator

The next question is from Flora Bocahut with Jefferies.

Flora Bocahut

So Lars, I have two questions for you. It's actually on things that are not directly under your control but which matter a lot for BNP Paribas. The first is on the Single Resolution Fund. The second is on the banking union. I mean, on the Single Resolution Fund, there's two things. One, just trying to

understand why the contribution declined so much this quarter. Obviously, there is a smaller deposit base, but the decline this year is much bigger than this. So just trying to understand, first of all, what drove the SRF decline this year. And then if you see any risk on the fact that the contribution to the Single Resolution Fund is supposed to decline significantly from next year, is there any risk to that from what's happening in the U.S. or in Europe at the moment?

The second question is on the banking union, obviously, not in your hands either, but BNP Paribas is one of the largest banks in the Eurozone. So it would benefit massively from progress being made on that front. Could -- would you say that there is progress being achieved? I think it's back on the table. Authorities are looking at it again. Could this be the silver lining from the current crisis? What are you seeing from your point of view?

Lars Machenil

Flora, thank you for your questions. Let's look at the Single Resolution Fund. So the Single Resolution Fund, why did it drop? I don't have a magical want. I wish I had one, but it is not me. And so there are basically two drivers for the amount going down. So on one hand, it is the deposits, yes? So they basically -- the law says, and I'll come back to that, at the second part, the law says that by the end of '23, 1% of the deposits -- there has to be a fund which represents 1% of the deposit. So if the deposits are lower as seen in 2022 and the 1% on the total fund goes down, that is the one thing. The second thing is that the -- that's the law, the European law, but then the operations on this is basically done by the Single Resolution Board, which is based in Brussels. And if you look at the law, the Single Resolution Fund could allow 0% to 30%, up to their discretion, to have 0% up to 30% not in cash but in an off-balance sheet commitment.

And so what happened until this year, that was allowed up to 15%, so 1-5 percent, of the contribution to the fund was allowed in off-balance sheet, so not impacting the P&L. And now what happened, a decision was made in February that basically the Single Resolution Board allowed the fraction of the contribution in the year '23 to be 22.5% to be off-balance sheet. So the amount that we had to pay was lower and the amount that we have to pay in cash lowered as well. So those are the two levers why that amount is lower than what we anticipated.

Then on your question, why do we believe that, that basically should fall away? Well, should fall away. The fund will be constructed and then it can continue to live. I mean if deposits go up or if it's used and so on and so forth. But that will not be the material thing. And so why -- what is the read on why it would end? It's basically the construction of this fund as 1% of deposits is written into law. So there's a law that basically says, by 2023, a fund has to be created 1%, and that's the law. And I remind you how strict the law is. I don't know Flora where you were in 2020, but I was really witnessing the COVID environment in banking. And so everybody was concerned, the authorities were concerned, what will the COVID situation do on the banks? And maybe we should not charge the banks with the contribution to the Single Resolution Fund.

And then they basically observed, wait a second, we are obliged by law to have that fund in 2023. So if we don't charge in 2020 that amount, then it will have to be done in '21, '22, '23. So in the end, let's not do that, and they really kept the payment to be done in 2020. So that is the overall thing. So it is a law that basically ends. There is no way they can extend that law. And so that is basically why we have that rate. So that is why it's lowered, and that is why we feel confident that the main contribution will fall away next year.

Then if you look at the banking union, if you look in Europe, there's basically -- yes, if you look at it in the banking union, there's three levers. So they basically have a guarantee fund in place and they have supervision in place. So they know how to supervise banks. And if something goes wrong, they can have that resolution. Well, they even now have the resolution fund to go with it. So that's a good thing. And if you compare how the Eurozone banking environment went in the last months compared to the U.S. and Switzerland, basically, that supervision mechanism worked very well and it didn't need the resolution. So then the next step is like saying, hey, that third lever, can we have one guarantee system for deposits and can we take it forward? And so that's something that Europe is thinking about, and it takes the countries to get to that. And that's one thing that maybe is going forward.

But let's not forget, Flora, that's not necessarily enough. I mean even if you have these things, I don't know if you've been trying to one day take a mortgage in France and then another day in Germany, you will see that those products are totally different, yes. So it is a step that is going on. The two pillars are there. The two pillars are basically there and worked well. And so that third one is evolving. And so yes, maybe that is a silver lining of what we will see in the overall European environment. So Flora, this was a bit -- a long answer to your two questions.

Operator

Next question is from Delphine Lee with JPMorgan.

Delphine Lee

So my first question is on deposit beta. Just wondering if you could give us a bit of color about what's going on in your main domestic markets. I think you refer to margin improvement. So if you could just share a little bit what you have been seeing on deposit costs, how is that trending. And also, just remind us a little bit on your €2 billion assumption for the NII sort of interest rate impact by 2025, what assumption on deposit beta have you assumed? And then my second question is really just briefly coming back to your guidance for this year in terms of net profit. I mean taking a step back, would you say that the improvement in your guidance to above 12%, is that mainly because in the first quarter so far, you've seen still very low level of provisions and very strong performance in CIB? Or is that a mixture of very different things? If you could just share a little bit the thinking here of why the improvement in the full year guidance?

Lars Machenil

Delphine, thank you for your questions. If we look at the deposits, basically, we don't see competitor -- in the countries where we are, we don't see competitors doing in a credible way, tangible things. So from that point of view, the whole pricing, we have it in our hands. And as we are profit-driven, that's what I told you on January and February, we basically manage that with a profit in mind, not having any other friction. And then it changed in March and basically the flight for quality drove retail and corporate clients basically more to us. So that's basically that.

With respect to the €2 billion of the €5 billion that we stepped up in 2025, so the €2 billion that is related to the interest income, it's overall what we mentioned is the overall revenues. So that's the overall pickup that we see. And basically, we said that it would be phased, yes? So it would be roughly 1/3, 1/3, 1/3. And that's basically what you see. And don't get me wrong, I'm not -- we are not disclosing the kind of betas on those things. But that is what you see. You already see it now. And again, as I mentioned, I think earlier at the beginning of what we said to Tarik, when we put that €5 billion in the market, we are conservative in the things that we say. So that is basically how you should read it.

And then when we come to the net profit and the guidance. So there's two elements, if I take them one by one. So the first thing is we've guided that we have -- so as a reminder, we had €10.2 billion in profit last year. And we basically said that, yes, Bank of the West is gone, but our operational business is growing fast and solidly in such a way to more than compensate that Bank of the West that has gone. And in the first quarter, you clearly see this. And then on top of that, we basically say we add to you in the distributable income that €1 billion to anticipate the falling away of the Single Resolution Fund and therefore have the basis going forward. So that's the numbers. And then when you look at those compared to a year ago, you'll see the growth in the net income and you see the growth in the earnings per share. And what we mentioned, those growth, they are clearly in line with what we put in the market of our new ambition. They're even a tad better. And then on top, when it comes to the earnings per share growth this year, that will be further boosted by the fact that we are launching and are performing a €5 billion share buyback, so boosting it even further this year. So those, Delphine, would be my answers.

Operator

The last question is Kiri Vijayarajah with HSBC.

Kiri Vijayarajah

Just a couple of quick questions from my side. Firstly, coming back to the Personal Finance. So given you want to reduce the unsecured side but then want to grow the other segments in Western Europe, the asset base, as you described it, I'm just wondering kind of net-net in terms of RWAs, what should we really be expecting in terms of potential capital release from the whole Personal Finance exercise? Or is that not how -- the objective of that exercise? But anyway, any kind of numbers you can put in terms of the scope, which RWAs are potentially on the block would help there.

And secondly, just turning to AT1. I know in the past, you've talked about increasing the AT1 component of your total capital stack, primarily because it feeds into your leverage ratio, I think. But given some of the uncertainty in the AT1 market, have you had to reassess that kind of ambition to ramp up in AT1? Or is your feeling that in a few months or the back end of this year, the AT1 market will be kind of more business as usual fairly soon?

Lars Machenil

Thank you for your questions. Listen, if you look at it, you're absolutely right. If you look at the dynamics, so we bring down the unsecured and we ramp up the asset-backed. Now there's a couple of levers on which this plays. On one hand, to some extent, moving from unsecured to asset-backed, the gross operating income, so before cost of risk, is a tad tighter when it is asset-backed than when it is unsecured. However, that is more than compensated by the fact that the cost of risk is way lower. The fact that, that cost of risk is way lower, basically, therefore, also translate into your risk waiting on those assets to be lower. So indeed, what we basically said is that there might be €5 billion that is being stepped up, that €5 billion will have a "better waiting" than has a totally unsecured one. So that's the overall setup that we do. So we're already from going to an unsecured to secured. When you look at pretax income, it's basically already roughly the same, but then the yield is improving for the reasons that I mentioned. So that's on Personal Finance. I concur with your read on it.

And then when it comes to the AT1, yes, the AT1s, Well, as the business is growing, the balance sheet is growing, we have to grow this as well. But at the same time, you know us by now, right? We know each other now for a while, and you know we are a prudent bunch. And so that basically means there is already of what we aim to issue in a year, that 75% that is done and there's basically no calls outstanding for the rest of the year. So from that point of view, we feel comfortable with that situation. And then moreover, if you look at, for example, the leverage ratio, the fact that Bank of the West, the capital gain is there, we are well above that. So the AT1 is not an issue. We are comfortable this year. And moreover, you start to see the market coming back. So it is definitely not the point of attention. And in particularly, we have no concern in the coming months. So that will be my answers.

Operator

Mr. Machenil, there are no more questions registered at this time.

Lars Machenil

Thank you very much. Thank you all for your interest. And I think you've seen that the results of BNP Paribas are very solid, confirming their overall plan and delivering a very solid performance.

Thank you very much. Wishing you a great day.

Operator

Ladies and gentlemen, this concludes the call of BNP Paribas First Quarter 2023 Results. Thank you for participating, and you may now disconnect.

For further details see:

BNP Paribas SA (BNPQF) Q1 2023 Earnings Call Transcript