“In Europe, this wave of innovation will give a boost to additional growth”, Jean-Laurent Bonnafé - Les Echos
Interview with Jean-Laurent Bonnafé, Director and Chief Executive Officer of BNP Paribas - by Edouard Lederer, Thibaut Madelin, Guillaume Maujean and David Barroux for Les Echos.
BNP Paribas is half-way through its 2016-2020 Business Development Plan. Will it meet its objectives?
We are in line with our forecasts. Our 2020 Plan has three broad elements: company engagement, digitalisation, and performance. Engagement means integrating into the bank’s strategy the notion of a ‘positive impact’ regarding the challenges facing society: the energy transition; equal opportunities for young people; diversity; and support for entrepreneurs and the local communities where we are present. This engagement represents a positive contribution to society, and it is part of the essential missions of the bank.
What is the importance of digitalisation in your business plan?
We are investing 3 billion euros in technology as part of the 2020 Plan. The aim is to work on improving the customer journey so as to do our job as a bank in a more predictive, efficient and transparent way. All our employees and all our business lines work tirelessly towards this goal every day and for the benefit of our clients, whether they are companies, investors or individuals. Sometimes we gain new business models from outside: Gambit or Nickel are very good examples. They are ingenious, creative and they have created a concept and new market. They are accelerating our transformation. Regarding Nickel, two years ago it had 300,000 customers. This summer, it had one million, and by 2020 our goal is to reach two million. We are also thinking of expanding Nickel internationally as it is something that should inevitably follow.
And what about performance…
We are committed to achieve a return on equity of 10% by 2020, bearing in mind that our equity base is progressing well. There are small fluctuations up and down, but overall we are in line with objectives.
Do current uncertainties call into question your objectives?
Brexit and the situations in Italy and regarding international trade are raising many comments and concerns. But global growth remains high. We are seeing a large number of new technologies being deployed in the IT sector, in transport, energy, building materials, health, and so on. This wave of innovation will give a boost to additional growth. But we need to ensure that this growth results in greater harmony and fewer imbalances. Digital technology was created a long time ago and it has tended to concentrate wealth. It is imperative that the rollout of these innovations enables a distribution of benefits as equitable as possible. Ideally this would be characterised by continued economic growth but part of this growth would be reinvested in education and reducing inequality.
Are you preparing for a “no deal” Brexit?
Our sector is highly regulated. Banking regulators are in close contact with each other and all scenarios have been considered.
I think that Europe and the United Kingdom share so many values that common sense will prevail.
The process will be managed. There are other sectors where a “no deal” outcome would be much more problematic. In the end, what is very important is that there’s an agreement, not in terms of technical content, but for what it represents in political terms. An agreement, even if very short, would convey the message that we are going to remain partners for a very, very long time. I think that Europe and the United Kingdom share so many values that common sense will prevail.
Will Europe have a new financial centre?
We do not necessarily need a centre! It’s true that the French always want a centre, but in many European countries the vision is quite different. We can operate with multiple financial centres and in order to better distribute wealth.
“ We are investing 3 billion euros in technology as part of the 2020 Plan. The aim is to work on improving the customer journey so as to do our job as a bank in a more predictive, efficient and transparent way. ”
Director and Chief Executive Officer of BNP Paribas
You are present in Italy with BNL. Does the political situation worry you?
The situation in Italy results from the previous crisis and affects both minds and the economy. We have to admit this. Europe must somehow factor in this situation because it serves no purpose to deny the problem. The situation exists. The Italians are not creating this problem deliberately.
This means more solidarity?
Yes, absolutely. Today there is an attitude that Europe could be different. It is important that this conversation take place between Italy and Europe.
Markets react quickly. Is there a risk of a crisis regarding Italian debt?
The Italians have already shown that they honour their commitments when payments fall due. This is not the issue. However, all these situations—Brexit, Italy, the introduction of tariffs by the United States, etc—can create a wait-and-see situation. It can lead investors, and those who drive the economy, to be cautious. This will limit growth in the long term.
Ten years after the crisis, why do U.S. banks dominate?
At the time of the crisis there were established, powerful and coherent regulators in the United States. There was a ‘hand’ holding everything together. The strongest banks at the time were invited to take over the weaker ones. More powerful, larger financial platforms grew quickly, and with a higher cash-flow capacity. Once the banking landscape had been restructured, the regulators strengthened the rules, but applied them to a banking sector which had already created solid groups.
Why was Europe not able to do the same thing?
This powerful regulatory ‘hand’ did not exist on a European scale. Since then, Europeans have made substantial efforts in creating a single regulator for the euro zone (SSM) and an integrated banking system with the Banking Union. This means that should there be a crisis one day, this new European governance should be able to intervene more effectively. From this perspective, the creation of the SSM is a success. But back in 2008 it was not possible to be as reactive in winding up problematic banks. Nor was it possible to drive any banking consolidation that might have been feasible. As a result, banks in Europe are on average, smaller and less diversified than they were before the crisis, with very rare exceptions.
So why are we not seeing any triggers for consolidation?
The completion of Basel 3 is a prerequisite. After that, banks then need to find the appropriate levels of capital and liquidity. Realistically this can only occur if new European capital markets are able to contribute in part to financing the European economy, currently funded mainly by banks.
Banks also face huge reputation risks. How can we protect ourselves from a scandal like that of Danske Bank?
The human risk is always the problem. This has also happened to us. The correct answers are in how we conduct ourselves, training, building awareness, and of course monitoring.
The correct answers are in how we conduct ourselves, training, building awareness, and of course monitoring.
Banking is progressively becoming a tech sector
What is your IT budget?
We are investing more and more in technology because the customer experience today is essentially one based on digital technology.
We are investing more and more in technology because the customer experience today is essentially one based on digital technology. By analogy, this is similar to wind farms, the initial cost of which was in no way comparable to nuclear energy. With research and hard work comes efficiency. In a few years, real industrial-scale solutions in terms of fluidity, distribution, agility and the right levels of security will have been reached. Industry in general operates this way. And in banking, which is gradually becoming a sector of technology, it will be the same.
Have you created a private ‘cloud’?
Yes, we are among several companies to have made this choice. Public cloud-type technologies have the advantage of being extremely innovative but do not allow for the necessary security levels, particularly with regards to data protection.
But all this will change with the implementation of frameworks such as the GDPR directive or equivalents. We need to put in place mechanisms that ensure both strength and security. When you are a large company, whose business is based on managing data – which belong to your customers—and you are asked for a level of security in line with GDPR, for example, you cannot make compromises. It is as simple as that.
We need to put in place mechanisms that ensure both strength and security.
Does this give you an advantage compared to other banks?
The strategy that we have implemented gives us a kind of industrial advantage. In industry, regardless of the sector, technological strides require a scale effect at a certain time. Some companies reach it, others do not. For the latter, either they will join up with others in their sector or they will evolve in an environment that does not provide sufficient levels of security. It will most probably be the first approach that prevails.
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