Fitch Ratings has said in a new report that the performance of France's leading banks during the first half of 2007 has been good despite the current turbulent credit markets.

The report, entitled "Major French Banks Semi-Annual Review and Outlook", reviews the performance of Credit Agricole (CA), BNP Paribas (BNPP), Societe Generale (SG), Groupe Caisse d'Epargne (GCE), Natixis and Groupe Banque Populaire (GBP). The Outlooks for the ratings of all these banks is Stable and Fitch remarks that results have been good with little fall-out from the current turbulent credit markets.

Although the banks display different profiles - for example, BNPP, SG and CA are far more diversified, both geographically and by product line, than other major players - common themes appearing in the H107 interims can be identified. Notably, there has been a slowdown in domestic retail mortgage lending, increasingly tough conditions in domestic retail banking, robust performances reported by corporate and investment banking (CIB) divisions, little fall-out, as yet, from the troubles in the US subprime mortgage markets and, where applicable, continued progress in international retail banking.

Operating ROAEs, though declining compared to H106, ranged from a high 30.5% reported by SG to 13% for GBP. Impairment charges remain very low (around 0.25% of average loans). Efficiency ratios show no material signs of improvement, but the large French banks remain well capitalised, with Tier 1 ratios ranging from 7.2% for BNPP to a high 9.7% for GBP.

"Large French banks have reported strong results for many years, but prospects appear less rosy," says Janine Dow, Senior Director at Fitch's Financial Institutions group. "Although by no means overly exposed to the US subprime mortgage problem, for H207, France's large banks will inevitably be affected by the turmoil surrounding the global financial markets." Thus, Fitch expects some fall-out from common global issues, such as widening credit spreads, tighter liquidity, rising funding costs, waning confidence and a growing mistrust of the pricing of complex structured assets. Home equity loans and mortgage refinancing loans are not common in France and the housing market remains robust. Market upheavals may, nevertheless, contribute to a slowdown in consumer and retail housing loan demand in France. There is also a risk that business confidence will diminish and a downturn in CIB results at the leading banks is likely, reflecting lower trading and debt capital markets activity and slack demand for complex products. The Outlooks for the Issuer Default Ratings (IDRs) of all large French banks are Stable.