Fitch Ratings says in a special report published today that major French banks are well placed to deliver good earnings in H206 and into 2007. Though downside pressure may arise from unexpected events, Fitch views this as very unlikely and the continued positive outlook for the French economy is expected to provide a favourable environment for the country's banking sector.

"France's economic performance during H106 has been remarkable and all areas of domestic business have proved dynamic for the country's leading banks," notes Janine Dow, Senior Director with Fitch's Financial Institutions group.

Efficiency has improved throughout the sector and corporate credit quality remains excellent. Impairment charges averaged just 0.2% of average loans for the leading banks during H106, with retail and corporate customers largely unaffected by rising interest rates, higher commodity prices and increased equity volatilities.

International expansion continues at Credit Agricole group ("CA"), BNP Paribas ("BNPP") and Societe Generale ("SG"). As the Italian banking market continues to consolidate, Italy is offering attractive investment opportunities for the French banks. Significant investments in Italy have featured at both BNPP, where management's ambitious target is to transform Banca Nazionale del Lavoro, its Italian subsidiary, into a leader in corporate, investment and SME banking while at the same time expanding its retail franchise, and CA, which recently announced a deal to acquire a 654- branch retail network from Banca Intesa.

SG continues to achieve the highest profitability ratios, boosted by the strong results posted at the group's well established corporate and investment banking division. Groupe Caisse d'Epargne ("GCE") and Groupe Banque Populaire ("GBP"), two leading cooperative banking groups, continue to do well and are working together to pool their wholesale and investment banking subsidiaries into a new entity, NatIxis, to be controlled equally by the two groups. Plans to establish NatIxis by end-2006 are progressing well. GCE's strengths lie in the retail sector, while GBP is the leader in SME lending in France. In the longer term, Fitch does not discount the possibility of greater cooperation between the two groups.