France to drop extra capital demand for banks exposed to indebted companies

Paris: France will not renew a two-year measure that required its biggest banks including BNP Paribas (BNPP.PA), opens new tab and Societe Generale (SOGN.PA), opens new tab to hold extra capital against their exposure to highly indebted companies, the financial stability council said on Monday.

The measure, put in place in August 2023, requires the French lenders, which also includes Credit Agricole (CAGR.PA), opens new tab and BPCE, to hold more capital when their exposure to a single large company with high debt levels exceeds 5% of their core capital, or CET1.

In such cases, banks must set aside an extra 3% of that exposure in top-tier capital.

The year 2023 was marked by heavy debt restructurings in France, including high-profile cases like retail group Casino. The need to simplify macroprudential rules and lower debt levels today at the affected companies justifies dropping the measure, an official at the finance ministry said.

The council, which is chaired by Finance Minister Eric Lombard and includes the central bank governor, also said it would maintain the so-called countercyclical capital buffer at 1.0%, as it did not see the measure negatively affecting new loan production.