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BNP Paribas profit tops forecast despite higher costs, debt markdown

Illustration shows BNP Paribas logo and stock graph

By Silvia Aloisi and Matthieu Protard

PARIS (Reuters) -BNP Paribas, the euro zone's biggest lender, posted a higher than expected net profit in the third quarter, with thriving trading revenue helping to offset rising costs and markdowns on some leverage financing deals.

Net income for the three months to end September rose by 10.3% from a year earlier to 2.76 billion euros ($2.73 billion), compared with an average of 2.36 billion euros expected in a Refinitiv poll of analysts. Revenue rose 8% to 12.3 billion euros.

The increase was driven by a better than expected performance in France, Turkey and Poland. Profits were also lifted by a 14.7% rise in global markets revenue, with market volatility boosting trading in commodity derivatives, rates, foreign exchange and emerging markets.

The equity and prime services, an area in which BNP has been expanding, also posted a small revenue rise, helping to counter a decline in deal-making and share sales.

BNP said it now expects rising interest rates to add 2 billion euros to its revenue by 2025. Its shares were up 1.2% by 0900 GMT.

Torrid markets and higher rates also had some negative effects however. BNP said investment banking revenue had been hit by markdowns of unsold positions in leveraged finance, as big lenders have been forced to hold debt on their books for longer than they would have liked, and incur losses on some financing packages.

BORROWING COSTS

Operating expenses rose 6% from a year earlier, due to the impact of restructuring and IT costs, while a 34% jump in the cost of risk - money set aside for failing loans - was due to a one-off 200 million euro charge in Poland, where a moratorium has allowed borrowers to suspend some mortgage payments.

BNP joins rivals like HSBC, Deutsche Bank and UniCredit reporting overall strong results for the quarter, helped by higher borrowing costs as central banks seek to fight inflation.

French lenders traditionally take longer than their continental peers to reap the benefits of rising interest rates.

This is because more than 90% of French mortgages are on fixed rates, the remuneration rate on popular savings accounts is linked to inflation and the government limits how quickly banks can reprice loans to customers.

Under pressure from the government, BNP Paribas and rival Societe Generale have also frozen their retail banking fees for 2023.

The French lender, which has a market value of 59 billion euros, also confirmed it still expects to close the sale of its Bank of the West U.S. retail banking unit for $16 billion this year. It has said it does not plan to buy another bank with the proceeds, and will use the money only for small purchases and a 4-billion euro share buyback.

($1 = 1.0126 euros)

(Reporting by Silvia Aloisi and Matthieu Protard;Editing by Emelia Sithole-Matarise)