Earnings

SocGen points to cost of Ukraine war with higher bad loan provisions

Key Points
  • SocGen said it now expected its cost of risk, reflecting bad loan provisions, to reach 30 to 35 basis points, or 1.7 to 1.9 billion euros ($2.02 billion), in 2022, instead of below 30 basis points as originally expected.
  • In the first quarter, SocGen's net income rose by 3.4% to 842 million euros with revenue up by 16.6%.
French bank Societe Generale has announced plans to exit Russia.
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French lender Societe Generale said on Thursday it would have additional costs as a result of the war in Ukraine because more customers would be unable to repay their loans, underscoring the ever wider economic damage in Europe.

France's third-biggest listed bank, which announced a rise in net income, as its domestic retail arm prospered and trading improved, said it was setting aside higher provisions for soured loans because of the conflict.

SocGen said it now expected its cost of risk, reflecting bad loan provisions, to reach 30 to 35 basis points, or 1.7 to 1.9 billion euros ($2.02 billion), in 2022, instead of below 30 basis points as originally expected.

Those costs come on top of earlier writedowns. The bank recently said it would quit Russia and is now selling its local arm Rosbank, writing off roughly 3.1 billion euros.

"We have provisions linked to our business in Russia onshore, which as we complete the sale is going to basically go away, together with the assets, and then we have the offshore exposure, where we have 2.8 billion [euros] in terms of our global banking, investment banking business there," SocGen Deputy CEO Slawomir Krupa told CNBC on Thursday.

"Here it's a lot of ECA [export credit agency] backed, structured credit, secured exposure where we believe we have less than a billion [euros] of really at-risk exposure, so largely manageable and so far with very little actual defaults or actual issues, but we are prudent in provisioning this exposure."

Exposure to Russia 'largely manageable,' says SocGen deputy CEO
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Exposure to Russia 'largely manageable,' says SocGen deputy CEO

SocGen helped compensate for this with strong trading. Revenue in equity trading was up almost 20 percent, at more than 1 billion euros.

In the first quarter, SocGen's net income rose by 3.4% to 842 million euros with revenue up by 16.6%.

The exit from Russia has nonetheless reduced the bank's capital cushion. Its common equity tier one ratio, a key yardstick of capital strength, was down to 12.9% at end of March.

SocGen this month became the first major Western bank to announce its exit from Russia, with a plan to sell its Rosbank unit to Interros Capital, a firm linked to Russian oligarch Vladimir Potanin.

Rosbank will rejoin the business empire of Potanin, the 61-year-old head of mining giant Norilsk Nickel, who has been sanctioned by Canada as part of Western sanctions against Russia's business and political elite over Ukraine.

The financial hit of 3.1 billion euros is made up of a 2 billion-euro hit on Rosbank's book value, with the rest linked to the reversal of rouble conversion reserves. Investors greeted the news with relief.

Moscow calls its actions in Ukraine a "special military operation".

CNBC contributed to this report