20 – French banks in difficulty
In a world now dominated by elements of language, deciphering the real situation of a company is complex. But not impossible, relying in particular on the views of experts.
For almost a year, we, at MEAFINANCES, have realized the proven absence of willingness of French banks to lend for real estate, even for clients entering the famous HCSF criteria (use Google Translate !).
Let’s leave aside for a future article the impact on our economy that this will have in the short and medium term.
Let us instead analyze the reasons for this situation, based on the results published by French banks for the first half of 2023.
We see a drop in the Net Interest Margin, measuring the margin generated by a bank in its business of transforming savings into loans (theoretically yielding a higher rate). This margin suffered a drop of 18% at Société Générale, 25% for Banque Populaire and 34% for Caisses d’Épargne; a brutal phenomenon rarely seen in French banking history.
And if we focus on profitability, the figures speak for themselves: French banks recorded sharp declines in their operating results, ranging from -21% (Crédit Mutuel) to -52% (Société Générale).
Faced with this sudden phenomenon, french banks find it impossible to adjust their expenses proportionately, these being mainly made up of payroll and IT resources in place.
Fortunately for them, their cost of risk (i.e. losses or anticipation of losses on loans granted), although increasing in recent months, is extremely low.
Primary factors specific to the French market
French people don’t like risk, it’s well known, so accepting a variable rate loan…
By thus combining the phenomenon of a sudden increase in regulated savings rates (Livret A, LDD, LEP), financing costs on the inter-bank market, the ECB key rate and the mechanical cap on the interest rate ( fixed) of the credits granted (the usury rate, famous French specificity), this is how to create a market on which the purchase price of your raw material soars, but your sales are capped in price, with collections spread over very long terms (20 to 25 years on average). A situation to avoid for any company worthy of the name…
Yes, but here it is, credit is essential to our economy, banks must lend up to a certain volume to feed the machine… And this is how we end up with french banks in difficulty.
Banks in difficulty, but…
Solutions (to be debated of course) may exist:
- Promote banking competition: why is the appearance of new players on the banking market so rare? Is the explanation only limited profitability? Is there not a blockage on the part of the public authorities, the only ones capable of distributing the precious key to banking approval? Conversely, doesn’t limiting the number of players protect us from sudden bankruptcies of too small players, as seen recently in the United States?
- Eliminate the usury rate: initially put in place to protect individuals from abusive interest rates, does this still make sense in the age of online comparators and with real openness to competition, previously mentioned?
- Isn’t it time to educate the French more seriously about finance, even about the essential notion of risk VS profitability? Is it really so dramatic to have a variable rate which can actually and occasionally imply an increase in the monthly payment and/or the amortization period of the loan?
Banks in difficulty, really?
Will the banks go out of business? It’s unlikely. They are among the best capitalized in the world, their solvency ratios often being among the best. Yes, but will they still want to distribute credit in the future in France, in a country culturally obsessed with regulations and calling on the State at the slightest jolt, and deeply closed to risk? Won’t they look for profitability elsewhere? Besides, haven’t they already started?
Isn’t it the best moment to call a mortgage expert that will provide you his network, experience and knowledge?