The Issuer Rating of AA- for BPCE SA reflects Scope's view that Groupe BPCE, for which it acts as the central institution, continues to preserve reassuring, stable and predictable credit fundamentals, underpinned by a low-risk business model focused predominantly on domestic retail banking. The Group displays solid prudential and financial metrics, with asset quality and capital adequacy each on an improving trend in FY17.

As one of the four French Global Systemically Important Banks, Groupe BPCE must meet a Pillar 1 requirement for total loss-absorbing capacity (TLAC) of 18.5% (including capital buffers) by 1st January 2019. Encouragingly, the Group estimated that its TLAC had reached 21.6% of risk-weighted assets as of end-June 2018, and therefore that the requirement has been complied with ahead of time. The measure includes issues of the new class of senior non-preferred debt made after the passage of the Sapin II law in France in December 2016.

As for other French banks, Groupe BPCE’s efficiency metrics have been weak in recent years, especially in the face of margin pressures which compound the effect of inflexible labour costs. The FY17 cost/income ratio was 72.1%, and a key challenge for the Group is the ongoing need to invest upfront in a digital banking model and the streamlining of processes, while also attempting to cut expenses.

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