Societe Generale Earnings: Regulated Interest Rates Hit Revenue

In contrast to most of its European peers, Societe Generale GLE reported lower revenue for the first quarter of 2023 compared with the same period a year earlier. Revenue declined 5% year on year due to net interest margin compression. Lower operating expenses and loan-loss provisions negated the decline in revenue, leading to a 6% year-on-year increase in operating profit.

NIM compression was the main driver of the revenue decline. Interest rates on French demand saving accounts, or Livret A, are regulated by the French government. The interest rate on Livret A deposits is currently 3%, materially higher than the deposit rate in most other European countries where competition determines the pricing of deposits. Societe Generale expects NIMs in its French retail banking operations for 2023 to be lower than in 2022 before recovering in 2024.

There was no sign of any impact from the ongoing U.S. regional banking turmoil on Societe Generale’s operations. Deposits grew slightly compared with the end of 2022, and liquidity ratios improved. Asset quality remains sound. Annualised loan-loss provisions were equal to only 8 basis points of customer loans, which is below the 30 basis points Societe Generale guides as a midcycle level of provisions.

Societe Generale remains one of the European banks with the most significant exposure to investment-banking-related revenue. Revenue from underwriting and advisory revenue increased by 5% to near-record levels. Income from securities trading declined slightly by 3% year on year, coming from an already high base. We expected the industry revenue pool to start normalising in 2023, but elevated volatility continues to support securities trading revenue.