French banks outlook: Fundamentals support profitability; political uncertainty clouds loan growth

French banks have underperformed EU peers on profitability in 2024, mainly due to slower balance-sheet repricing. We expect revenue growth in 2025, but political uncertainty will weigh on market confidence and could delay the recovery in lending volumes.

French banks’ well-diversified business models are a key factor supporting profitability. The largest banks generate significant revenues from corporate and investment banking (CIB), wealth management and bancassurance. While non-banking revenues are stable and outperform relative to EU peers, asset repricing will support NII growth in 2025, albeit with a delay compared to other European banks.

“We expect profitability to improve slightly in 2025, and for ROE to reach levels of between 8% and 10%, and return on risk-weighted assets to reach 1.5%-2.0%, supported by the repricing of the existing stock of retail loans and mortgages,” said Carola Saldias, lead analyst for French banks.

Political uncertainty is a headwind to confidence. Alongside volatile domestic economic conditions, this is a key concern because the two factors could impact the recovery in lending and limit profitability improvements in the near term.

“Efficiency and cost containment remain priorities. Large branch networks and a higher variable remuneration component related to CIB continue to weigh on banks’ operational efficiency. While structural improvements will take time, we expect efficiency gains will likely come first from a growing top line,” Saldias said.

“We expect stage 3 ratios to increase due to deterioration in commercial banking and consumer lending, given the still high interest-rate environment and uncertain growth outlook in sensitive sectors. However, in the context of growing revenues, we do not expect this increase to put pressure on profitability, still leaving upside potential for banks’ results,” Saldias added.

French banks maintain robust capital levels, prioritising CET 1 and TLAC buffers to ensure stability. The strategic use of RWA for acquisitions and growth in profitable segments (consumer and specialised lines) remains the key driver for capital deployment.

Download the French banks outlook here.

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