Societe Generale, a leading French bank, has reported a return to profit in the second quarter of this year. Despite this positive development, the bank faced pressures in its home market due to lower revenues in France and broader challenges in the global banking industry.
The bank’s net income for the quarter amounted to 900 million euros ($983.6 million), surpassing analysts’ expectations and marking a significant improvement compared to the 1.5 billion euro loss recorded in the same period of the previous year when the bank withdrew from its operations in Russia.
A contributing factor to the bank’s improved performance was the lower cost of risk, which refers to provisions set aside for potential loan defaults. The bank allocated 166 million euros for this purpose, 12 basis points.
However, the positive results were overshadowed by a decline in revenues in the French retail banking sector, which dropped by 13.6% compared to the previous year. This decline was mainly driven by lower net interest margins, a crucial indicator of banks’ profitability.
The global banking division of Societe Generale also experienced a decrease in revenues, falling by 7.3%, attributed to reduced volumes and weaker volatility. Remarkably, the Fixed Income and Currencies (FIC) activities suffered an 18.4% decline due to unfavorable market conditions resulting from inadequate interest rates and currency volatility.
To address the challenges and further enhance shareholder value, the bank initiated a share buyback program amounting to around 440 million euros, following the lead of other industry peers.
Slawomir Krupa, the CEO of Societe Generale, expressed his views on the quarter’s performance, stating that most businesses had good commercial activity. He acknowledged that the contraction in group revenues was mainly caused by a fall in net interest margin in France and reduced market activities revenue, which was expected as market conditions normalized after favorable years.
Krupa also emphasized the bank’s effective risk management practices, as reflected in the meager cost of risk, indicating the quality of the bank’s origination and loan portfolio.
Additional highlights for the quarter include a decrease of 8.9% in revenues (net banking income) from a year ago, amounting to 6.3 billion euros, and a 2.7% increase in operating expenses from the previous year, reaching 4.4 billion euros. The CET 1 ratio, a measure of bank solvency, stood at 13.1%, and the ROTE (return on tangible equity) increased to 5.6% from -13.7% in the same quarter the previous year.
Despite the challenges faced in its home market and the global banking industry, Societe Generale’s second-quarter results indicate progress toward financial recovery and stability.