KEY FEATURES OF THE FRENCH RETAIL BANKING MARKET Pierre Mathé Société Générale Day - June 20 th, 2000 1
Contents Market highlights Recent developments New challenges Société Générale Day - June 20 th, 2000 2
Market highlights Recent developments New challenges Société Générale Day - June 20 th, 2000 3
The third largest market in Europe 42 million individual customers aged 18 and over 3 million very small businesses 700,000 non-profit organisations 150,000 SMEs Weight of deposits + loans in European Economic Area 5% 14% 13% 35% 8% Société Générale Day - June 20 th, 2000 4 Sources: Société Générale, national Central Banks
Savings: market shares Deposits + Life Insurance + Mutual Funds Others 28% Crédit Agricole 16% Caisses d Epargne 12% Crédit Mutuel-CIC 10% La Poste 9% Société Générale Day - June 20 th, 2000 5 Banques Populaires-Natexis Société Générale 4% Group 8% BNP-Paribas 8% Crédit Lyonnais 5% Sources: Société Générale, Banque de France, FFSA, Europerformance
Loans: market shares Others 35% Crédit Agricole 17% Société Générale Group 8% Caisses d Epargne 9% BNP-Paribas 11% Crédit Mutuel-CIC 8% Banques Populaires-Natexis 6% Crédit Lyonnais 6% Société Générale Day - June 20 th, 2000 6 Sources: Société Générale, Banque de France
Market highlights Recent developments New challenges Société Générale Day - June 20 th, 2000 7
Economy back on a dynamic trend in % GDP Growth 4 3.5 3 2.5 2 1.5 1 0.5 0 1996 1997 1998 1999 2000 2001 in % Unemployment Rate 13 12.5 12 11.5 11 10.5 10 9.5 9 8.5 8 1996 1997 1998 1999 2000 2001 in % Growth in Business Investment 10 8 6 4 2 0-2 -4-6 1996 1997 1998 1999 2000 2001 Household Confidence Indicator Balance of Opinions 20 10 0-10 -20-30 -40-50 1996 1997 1998 1999 2000 Société Générale Day - June 20 th, 2000 8 Sources : INSEE, Société Générale forecasts
New demographic trends Ageing of population Percentage of population over 60 23% 19% 20% 27% Migration of population Change in population by region (1990/1999) Loire Region Alsace Rhône-Alpes 1990 2000 2010 2020 Strong growth in proportion of assets held by senior citizens Acceleration in transfer of businesses and property Société Générale Day - June 20 th, 2000 9 Over +5% - Betw +2 and +5% Below +2% Midi-Pyrénées Languedoc-Roussillon PACA 76% of population live in urban areas Strong attraction of the South-East and Midi-Pyrénées regions Source: INSEE
Strong growth in savings outstanding managed by banks in EUR bn +39% in 4 years 1,600 1,400 1,200 1,000 800 600 400 Mutual funds: +51% Life insurance: +107% Other deposits: -21% Special savings accounts: +38% 200 Sight deposits: +22% 0 1995 1996 1997 1998 1999 Société Générale Day - June 20 th, 2000 10 Sources : Banque de France, FFSA, Europerfomance
Recent recovery in credit demand in EUR bn +7% in 4 years 1,200 1,000 800 600 400 Loans to individual customers: +22% Loans to businesses: +4% 200 Other loans: -11% 0 1995 1996 1997 1998 1999 Société Générale Day - June 20 th, 2000 11 Source: Banque de France
A highly competitive market 3,576 Average network density Number of inhabitants per bank branch But numerous large-scale players Number of banks with market share of at least 5% 8 2,282 2,272 2,220 1,876 1,032 6 6 5 4 1 UK France Italy Germany Netherlands Spain France UK Italy Belgium Spain Germany In France: 25,000 bank branches plus 17,000 post offices In France significant weight of mutual banks and La Poste Société Générale Day - June 20 th, 2000 12 Source: SG on basis of OECD and national central bank figures
A highly competitive market in % 8 Estimated margins for French banks on mortgage loans Source : Société Générale's observatory of market conditions Customer rate for mortgage loans 6 4 Funding cost 2 Margin 0 1996 1997 1998 1999 2000 Société Générale Day - June 20 th, 2000 13
Constraints remain stringent... Persistent distortion of competition Profusion of regulated products weighs on costs Rigid banking and social regulatory framework High level of consumer protection Weight of tax charges: Government constraints Special tax system for banks CEL A string of regulated savings products LEP PC PEL PER Codevi PEP Livret jeune PTZ PAS PEA? 1965 1970 1978 1982 1983 1988 1990 1992 1993 1995 1996...despite some recent improvement Start of product deregulation New collective labour agreement Past privatisations, change in status of Caisses d Epargne Société Générale Day - June 20 th, 2000 14
French banks* have nevertheless achieved substantial productivity gains Base of 100 in 1990 120 Deposits + loans 110 100 + 33 % 90 Staff 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Société Générale Day - June 20 th, 2000 15 *Members of the French Banking Association
...and regularly extend their scope of activity Target: one-stop shopping & cross-selling SME Investment Banking Personal Insurance Life Insurance Deposits Lease Finance Loans Securities Mutual Funds Factoring Revolving Credit HP/LT Leasing Non-life Insurance Equipment Leasing Société Générale Day - June 20 th, 2000 16
Improving retail banking profitability ROE of French Retail Banks 20% 16% Société Générale + BNP + CL 12% 8% 4% CNCA + Crédit Mutuel + Banques Populaires 1995 1996 1997 1998 1999 Retail businesses Société Générale Day - June 20 th, 2000 17 All activities Sources: IBCA, financial communication of banks
Market highlights Recent developments New challenges Société Générale Day - June 20 th, 2000 18
Retail banks face new challenges The euro and emergence of the European financial area New technologies and the arrival of new players Changes in customers' behaviour and expectations Société Générale Day - June 20 th, 2000 19
Changes linked to the euro will be progressive in retail banking Obstacles to unification and free market practice in Europe Force of inertia in consumer behaviour Disappearance of "neither nor" situation on French market Société Générale Day - June 20 th, 2000 20
The internet favours the emergence of new entrants on the domestic market e-brokers Consors Fimatex Self Trade... e-banks I.Banque ING Direct Fortis (Triomph Online) Lloyds-TSB, ABN Amro, UBS...? FINANCIAL SERVICES PORTALS ZE Banque...? Société Générale Day - June 20 th, 2000 21
The behaviour and expectations of customers are changing Greater flexibility and ease of use Greater responsiveness and mobility More demanding (information, services, transparency...) More recognition and greater customisation Less exclusive relationship with bank Strong need for proximity in banking relationship Customers want free access to bank but vast majority do not want fully remote banking Société Générale Day - June 20 th, 2000 22
Banks are improving the quality of their services 92% of French consumers are satisfied with their main bank (source: SOFRES survey - 500 people - April 2000) 82% of French consumers have a favourable perception of their main bank 78% would recommend their bank to their friends (source: AFB/IREQ survey - 1,000 people - June 1999) Société Générale Day - June 20 th, 2000 23
Banks are developing the necessary tools to manage the customer relationship CONTROL CUSTOMER INFORMATION FLOWS CUSTOMER KNOWLEDGE (DATA-MINING) Information collected from distribution channels DATA WAREHOUSE MULTI-CHANNEL DISTRIBUTION EVENT MANAGEMENT DECISION-MAKING SYSTEM Société Générale Day - June 20 th, 2000 24 TO CUSTOMISE RELATIONSHIP
"Click & mortar" networks have strong advantages Brand and trust Security and privacy Service quality, strong customer relationship Size of franchises and files, customer knowledge Risk management expertise Société Générale Day - June 20 th, 2000 25
Internet: a varying impact depending on product on the French market Low Product complexity SIGHTS ACCOUNTS CONSUMER LOANS MUTUAL FUNDS NON-LIFE INSURANCE Highest migration risk SECURITIES BROKERAGE CREDIT CARDS TERM DEPOSITS LIFE INSURANCE MORTGAGES High Low Price sensitivity High Société Générale Day - June 20 th, 2000 26 Source: Société Générale evaluation - domestic market
"Click & mortar" networks have to overhaul their business model Change distribution mix Reduce cross-subsidization Refocus branches on value-added advisory services Extend offer to include "best of breed" products from third parties Société Générale Day - June 20 th, 2000 27
KEY FEATURES OF THE FRENCH RETAIL BANKING MARKET Pierre Mathé Société Générale Day - June 20 th, 2000 28