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By Julien Ponthus
PARIS (Reuters) - French bank BNP Paribas reported better than expected profit in the second quarter after bad loan provisions dipped and business remained buoyant in both investment and retail banking, amid torrid global markets and an economic slowdown.
France's biggest-listed lender said on Friday its net income rose 9.1% year-on-year to 3.2 billion euros ($3.25 billion). An informal consensus forecast circulating among analysts saw net income at only about 2.7 billion euros.
BNP shares jumped over 4% in morning trading, outperforming the European banking sector which was rising at only about half that pace.
Revenues rose 8.5% to 12.78 billion euros, faster than operating expenses, which were up 7.6% at 7.72 billion euros.
"There's a positive 'jaws effect'" with revenue growth outpacing expenses, noted Arnaud Journois, a credit analyst for DBRS Morningstar.
"But while these results are good, it doesn't mean that the outlook has improved," he added, pointing to the provisions taken by the bank to cover potential losses on loans should the euro zone economy deteriorate further.
"It's possible that the third and fourth quarter won't be as good for European banks," he cautioned.
Europe's lenders this week offered some positive surprises on profits, but investors are watching for signs a weaker economy, surging inflation and the war in Ukraine could hit their prospects.
In the second quarter, however, BNP's cost of risk - money set aside for failing loans - stood at 789 million euros, about 100 million below analysts' average forecast.
Activity grew across business lines, with revenues in the unit home to retail banking up 11.1% and investment banking up 10.6%.
With financial markets experiencing one of the worst first six months in living memory, demand for financial instruments grew strongly, the bank said.
Demand was "driven in particular by reallocation and hedging needs in rates, forex, emerging markets and commodity derivatives products", it said, adding it enjoyed a "good level of activity overall on equity markets, particularly in derivatives".
BNP's revenue in fixed-income, currency and commodities trading rose by 14.8% in the quarter, while equity trading revenue gained 16.1%.
The French bank's push to increase market share in that business came under the spotlight last week after the global head of prime services, Ashley Wilson, resigned, having joined from Deutsche Bank just a year ago.
Noting a slight decrease in the key CET 1 capital ratio from 12.4% to 12.2%, Citi analysts said that while a short term boost could be expected for BNP shares, visibility remained low.
"We expect the market to have a positive initial reaction to these numbers, but to have questions on the 2022/23 outlook, the development of asset quality/provisions, capital trends, sensitivity to macro developments, trend in AM (asset management), growth and capital return", they wrote in a note. (Graphic: BNPParibas, https://fingfx.thomsonreuters.com/gfx/mkt/gdpzylxrlvw/Pasted%20image%201659070548504.png)
($1 = 0.9790 euros)
(Reporting by Julien Ponthus and Matthieu Protard; Editing by Tomasz Janowski and Mark Potter)