PARIS: BNP Paribas, the euro zone’s biggest lender, posted a lower-than-expected net profit in the fourth quarter, as a jump of its cost of risk and higher operating expenses offset a boom in its trading sales.

The bank, however, raised its 2025 targets and announced a 5 billion-euro share buyback program in 2023. In the three months to end December, net income fell by 6.7% from a year earlier to 2.15 billion euros ($2.31 billion).

This missed the 2.37 billion-euro mean estimate of six analysts compiled by Refinitiv. The decrease notably stemmed from a 52% jump from a year earlier in the cost of risk – money set aside for failing loans – to 773 million euros.

Exceptional operating expenses on restructuring costs and IT reinforcement also weighed on fourth-quarter earnings, the bank said.

The group cited the current context of higher inflation and rising interest rates to explain the hike in provisions for some of its less risky loans in 2022.

BNP Paribas said, however, that its cost of risk was still low, adding that its core tier one ratio - a measure of a bank’s ability to withstand shocks - stood at 12.3% at the end of December.

Raised targets

The solvency ratio has notably benefited from the sale of the group’s US retail business Bank of the West for $16.3 billion.

The transaction, closed on Feb. 1, will fund the bulk of the 5 billion-euro share buyback, the French bank said.

The buyback is set to be completed in two tranches with a first one worth 2.54 billion euros that has been submitted to the European Central Bank, BNP said in its statement.

BNP Paribas considers restructuring of consumer finance unit

The proceeds from the Bank of the West sale, combined with expectations of more than 2 billion euros in added revenues from the rise in interest rates, led BNP Paribas to raise its 2025 targets.

It now sees an average annual growth in net income of more than 9% between 2022 and 2025, up from its previous forecast of more than 7%. It also expects a return on tangible equity (ROTE) of around 12%, compared to a previous target of more than 11%.