Banking union could trigger consolidation

The completion of European banking union could lead in two or three years’ time to consolidation among the continent’s banks, said Jean-Laurent Bonnafé, chief executive of BNP Paribas.

“Once the banking union is complete, we will have additional efficiency, more transparency and a better understanding of the global and regional economy,” he said in an exclusive interview with Emerging Markets.

“Then the strongest part of the banking system could be part of some form of consolidation – either through an acquisition or through organic development plans.”

The process would be led by the strongest banks in the most powerful economies, he said – and there would be an opportunity for BNP Paribas to benefit.

“In the end, consolidation will just take out the weaker players who were unable to strengthen their positions either because of their own situation or because of their jurisdiction,” Bonnafé said.

He is a firm believer in the necessity of banking union, and in its inevitability. “This is one single currency, this is one single market, once single central bank, one single monetary policy – so you need this type of banking integration,” he said. “Of course it will take some time, because we are talking of integrating up to 17 different banking regulators. But they are on their way, and by the end of next year we should be close.”

The union would allow an optimal allocation of liquidity across member states, and unleash some potential for growth, he argued.

Two years after taking the helm at BNP Paribas, Bonnafé presides over a bank with a balance sheet that has strengthened even in the currently tough environment. Its Basel III fully-loaded common equity tier one ratio is 10.4%. “We have more than doubled the capital base, just to do the same level of business,” he said.

Nevertheless, Bonnafé believes the main obstacle to growth in Europe is not tough regulation on banks — though he does not want to see further adding of “more and more rules”.

“Regulators in Europe have probably set the [capital] level on the tough side. It would be wise to stay there,” he said.

Rather, countries like France needed to tackle unemployment, Bonnafé said, especially by making the labour market more flexible. Despite its still dire unemployment, Bonnafé praised Spain for cutting wages and regaining competitiveness.

BNP Paribas is now preparing a development plan for 2014-16, to be unveiled early next year. Asia Pacific will be an important focus — the bank wants to grow its revenues there to over €3 billion in the next three years, capitalizing on its 12 full banking licences in the region.

Bonnafé is proud of the bank’s number two league table position this year for dim sum bond underwriting and believes there is no reason why a regional Chinese bank cannot be part of a global banking group like BNP Paribas.

The bank already has a 15% stake in Bank of Nanjing; a foreign bank can only own up to 20% of a Chinese bank at present.