The bank for a changing world

Standard & Poor's Ratings Services said today that it revised the outlook on BNP Paribas to positive from stable, reflecting the French banking group's strong operating earnings capacity and sound risk profile. At the same time, Standard & Poor's affirmed its AA- long-term and A-1+ short-term counterparty credit ratings on the group.
"The ratings on BNP Paribas reflect the group's contained risk, strong earnings, satisfactory capitalization, and strong financial flexibility," said Standard & Poor's credit analyst Sylvie Dalmaz. "Also factored into the ratings are the group's focused strategy and good management."

BNP Paribas is one of the largest banking groups in Europe. Its very diverse core businesses benefit from strong market positions and robust risk management, allowing for resilient financial performance despite a mediocre operating environment.

According to the group's 2002-2005 strategic plan, capital allocation among business lines should stabilize at current levels, except for the group's private-equity portfolio, which will be further reduced to 4% of allocated capital.
BNP Paribas' profitability is satisfactory, with an annualized net income-to-revenues ratio of 22.7% as of September 2003. This good performance reflects the group's strong earnings capacity. BNP Paribas' well-diversified earnings streams and the intrinsic strength of its individual business lines should continue to enable it to address potential stresses in individual business lines or geographic areas more easily than other financial groups.

The group's consolidated risk profile is reasonably contained in light of the group's highly diversified activities and moderate risk appetite. Even given an expected cyclical increase in domestic and European credit-risk cost, the group's overall risk profile is not expected to deteriorate materially in 2004. Exposure to market risk is relatively limited despite the group's extensive market activities.

The group's dynamic expansion strategy is expected to lead to a decline in its current Tier 1 capital adequacy ratio, although it will remain in line with the medium-term target of about 7%. BNP Paribas' Tier 1 ratio stood at 9.2% as of September 2003.

"The positive outlook on the long-term rating reflects the potential for an upgrade if BNP Paribas continues to maintain its strong financial profile and focused strategy," Ms. Dalmaz said.

Standard & Poor's expects that the sustainability of BNP Paribas' earnings and credit-risk-averse culture will continue to offset the uncertainties in the economic climate, which could pressure asset quality. Similarly, the bank's dynamic acquisition policy is not expected to generate material execution risks or ultimately translate into a weakening of the group's capital position.

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