New Issue: BNP Paribas announces new SGD NC5 perpetuals at an IPG of 4.50%

• BNP Paribas (BNP) plans to issue new SGD NC5 AT1 perpetuals at an initial price guidance (IPG) of 4.50%, for accredited and institutional investors only. BNP is rated A+ / A1 / AA- by S&P, Moody’s, and Fitch, while the new perpetuals are expected to be rated BBB- / BBB by S&P and Fitch. The first call and reset date is 1 September 2031, 5 years after issuance, with a reset rate of 5Y SORA (2.0550% as of 25 August 2026) + initial margin of approximately 244.5bps. Proceeds from this new issue will be used for general corporate purposes.

• BNP Paribas is one of Europe’s largest banking and financial groups, with operations organised across three core business segments: Corporate and Institutional Banking (CIB), Commercial, Personal Banking & Services (CPBS), and Insurance, Wealth & Asset Management (IPS). CIB spans Global Banking, Global Markets and Securities Services; CPBS covers retail and commercial banking across BNP's domestic markets (France, Belgium, Italy, Luxembourg) and specialised financing businesses such as leasing and consumer credit; IPS comprises Insurance, Wealth Management and Asset Management.

Financial Highlights

• For the three months ending 30 June 2026 (2Q26), BNP reported pre-tax income of €6.1b, up 33% YoY (2Q25: €4.6b), and net income of €4.3b (+33% YoY). Revenue rose 12.0% YoY to €14,091m (+10.4% at constant scope and exchange rates) — the strongest quarterly revenue growth the group has posted in a decade. Return on tangible equity (ROTE) stood at 13.3% (1H26 basis), already running ahead of the 12% guided for full-year 2026 and comfortably within reach of BNP's above-13%-by-2028 target. However, we note that part of the earnings surge was inorganic: an €858m capital gain from the restructuring of BNP's insurance partnership with Ageas (the AGI/AGES transaction) flattered both pre-tax and net income this quarter, with only a modest ~€40m/year of recurring earnings expected from the deal from 2027 onwards. Stripping this out, pre-tax income growth would have been closer to +14% YoY rather than +33% — which, in our view, is still a good quarter, but a noticeably less spectacular one than the reported print suggests.

• Growth was broad-based across BNP's three core divisions: Corporate & Institutional Banking (CIB) revenue rose 13% YoY, led by a particularly strong quarter at Global Markets alongside solid Global Banking and Securities Services; Insurance, Wealth & Asset Management (IPS) revenue grew 27% (+8% at constant scope), boosted by the consolidation of AXA Investment Managers; and Commercial, Personal Banking & Services (CPBS) revenue rose a more modest 5%, supported by double-digit net interest income growth in Eurozone commercial banking. We view this broad-based strength as a more reassuring quality-of-earnings signal than a single standout division would provide — it suggests the quarter's momentum is not merely a function of a favourable trading environment at CIB, but reflects genuine business development across BNP's franchise, which we think supports the durability of the group's earnings base into future periods.

• Operating leverage was decent, with the "jaws effect" (revenue growth less cost growth) at +3.7 percentage points on a constant basis, though only +1.6 points on a reported basis, held back by AXA IM integration costs and restructuring charges — a reminder that cost discipline is still being phased in around the M&A activity. Management lifted its annual cost-savings target to €1b (from €700m previously), an incrementally positive signal on the cost trajectory, though execution risk on integration remains a modest overhang near-term.

• Cost of risk was broadly stable and within guidance at 39bps (in line with 1Q26), including a €95m addition to Stage 2 provisions for the geopolitical environment — a sign management is building precautionary buffers even as realised losses stay contained. Management continues to guide to cost of risk below 40bps through the cycle. The main soft spot flagged was Arval (auto leasing), where used-vehicle sales remain pressured by falling ICE vehicle prices; management indicated this was more than offset by strength elsewhere in the group, though it bears watching if used-car price weakness persists.

• Looking ahead, management reaffirmed its 2028 strategic targets (net income CAGR >10% from 2025-2028, cost-income ratio <56%, ROTE >13%) and, following the strong quarter, signalled scope to raise ambitions further at the next strategic update.

Credit Highlights

• Capital strengthened meaningfully and ahead of plan: BNP's CET1 ratio reached 13.0% at end-June 2026, up 20bps QoQ, hitting its 13% target roughly 18 months ahead of the original end-2027 schedule. Solid underlying results drove this, contained RWA growth, the Ageas-related gain, and active RWA optimisation via significant risk transfer (SRT) and credit insurance (€63b of cumulative RWA savings, ~90bps of CET1 benefit). The 13.0% ratio is ~260 bps above BNP's 10.43% SREP requirement, providing a comfortable buffer. Moving forward, management has reiterated its intention to maintain the current CET1 ratio within range, with additional capital built above 13% to be returned to shareholders via higher dividends and a possible buyback of shares.

• Funding and liquidity remain a clear strength. LCR stood at 149% at end-June 2026 (up from 125% at end-1Q26), comfortably above the 100% regulatory minimum, supported by €430b of high-quality liquid assets (HQLA) and a €521b immediately available liquidity reserve (up from €464b at end 1Q26) — both metrics point to a funding position that has strengthened further over the quarter, not merely held steady.

• Asset quality remained resilient: the ratio of doubtful (non-performing) loans to gross outstandings held at a low 1.6% as at end-June 2026, continuing a steady multi-year decline, while the Stage 3 coverage ratio stood at a solid 66.4%. The stock of provisions was €18.4b (including €3.9b at Stages 1&2), against €20.3b of non-performing loans. This comfortable NPL/coverage picture sits alongside management's decision to keep building forward-looking Stage 2 overlays for geopolitical risk (€95m this quarter, €155m cumulative in 1H26) — we read this as prudent provisioning ahead of realised deterioration rather than a signal of imminent asset quality stress, but it is worth monitoring given the ongoing Arval/used-vehicle pressure and broader macro uncertainty.

• Taken together, we view BNP's overall credit profile as solid and, on balance, modestly improved this quarter. Underlying profitability strengthened even excluding the Ageas one-off, capital moved from "on track" to "ahead of schedule" on its 13% CET1 target, and liquidity metrics advanced further from an already comfortable base. The main offsetting considerations are the pivot toward higher shareholder distributions from 2027, and the still-elevated (if well-provisioned) cost of risk in pockets such as Personal Finance and Arval. Neither strikes us as a near-term credit concern, but both are worth tracking as the group moves through its capital deployment phase and finalises its 2027-2030 strategic plan.

Recommendation

• At an IPG of 4.50%, the new issue implies a reset spread of around 244.5bps based on an estimated 5Y SORA of 2.0550%. However, any tightening to the final price guidance (FPG) would reduce both the initial yield and the eventual reset spread.

• Table 1 below compares the new issue with BNP's own outstanding SGD perpetual, as well as similarly dated bonds from Barclays (BACR) and Standard Chartered (STANLN), and OCBC's outstanding SGD perpetual.

• At the 4.50% IPG, the new issue offers a substantial pickup over OCBC's outstanding perpetual (YTW 3.12%, reset spread ~119bps, near-identical 4.99-year tenor) despite OCBC sitting only one notch above BNP's expected issue rating, and a smaller pickup over STANLN (YTW 3.90%, ~226bps, 4.89yr, BB+/Ba1/BBB-), which is rated below BNP. Against BACR (YTW 4.21%, ~308bps, 5.31yr, —/Ba1/BBB-), however, the new issue's implied ~244.5bps reset spread looks modest despite BACR carrying the weakest ratings in the comp set — especially once the expected tightening from IPG to FPG is factored in.

• Overall, we see the new perpetual as decently priced at IPG — offering a clear pickup over OCBC and a smaller one over STANLN, though looking tight relative to BACR given the ratings gap. Some tightening toward FPG is likely, which would further narrow the gap to STANLN while preserving the premium over OCBC.

Note: These perpetuals are considered to be Additional Tier 1 capital for BNP. These perpetuals therefore come with loss-absorption risks. There is also a possibility of non-calls, resulting in extension risks. Investors should be mindful of such risks before investing.

Table 1: Bond Comparison

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds positions in BACR 4.650% Perpetual Corp (SGD), STANLN 4.300% Perpetual Corp (SGD) and OCBCSP 3.200% Perpetual Corp (SGD). The analyst who produced this report holds NIL positions in the abovementioned securities. This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.