PARIS (Reuters) - Credit Agricole, France’s second-largest listed bank, on Thursday said profit growth would slow over the next four years, adopting a cautious outlook in the face of low interest rates and a potential deterioration in its loan portfolio.

A logo is pictured on a Credit Agricole bank branch in Paris, France, May 16, 2018. REUTERS/Charles Platiau

Major European banks such as Credit Agricole have struggled to drive profitability because low interest rates have constrained returns from retail banking, while corporate and investment banking is vulnerable to financial market volatility.

While its French rivals BNP Paribas and Societe Generale have experienced wild swings from their corporate and investment banking units over the past few quarters, Credit Agricole has enjoyed more stable profits.

In its previous plan, Credit Agricole had targeted a 10% increase in net profit over the three years to 2019, but managed to deliver that a year ahead of schedule by reporting a 25% profit increase over the two years to 2018.

The bank on Thursday said it expected annual net profit above 5 billion euros ($5.6 billion) in 2022 - an increase of at least 3% annually from the 4.4 billion euros reported in 2018.

“We are prudent, this is part of our DNA,” said the bank’s Chief Financial Officer Jerome Grivet. “We believe we are able to deliver even in the case of an increase of the cost of risk.”

Profitability - as measured by return on tangible equity - is likely to slow down as a result of a deterioration of the quality of its loan portfolio, the bank said.

The bank’s return on tangible equity will be at least 11% in 2022, down from 12.7% in 2018. The bank had targeted a 10% return on tangible equity over the 2016-2019 period.

Shares were up 0.5% in mid-morning trade at 10.47 euros after falling by more than 1% at market open.

CAUTIOUS NOTE

Credit Agricole was also conservative in its interest rates expectations for the period to 2022. Grivet said he expected economic growth to remain “soft” as it has during the past few quarters.

“The group became more cautious on macro assumptions, especially regarding the cost of risk,” brokerage Jefferies said in a note to investors.

The bank plans to grow by winning clients for its retail banks in Italy and France and attracting mid-sized companies with corporate banking services such as cash management.

CEO Philippe Brassac reiterated the bank had no plans for a large cross-border merger or deal that would significantly change its size or scope, but was open to acquiring specific businesses from rivals.

“We don’t have any pressure or need to carry out strategic operations,” Brassac said. “Critical size is not an issue.”

Over the past couple of years, Credit Agricole has bought up asset managers, custodian and small banks in other European countries and plans to continue that growth strategy.

In a bid to deliver steady profit increases, Credit Agricole said it would free up capital to boost the size of its loan portfolio by lowering its common equity tier one ratio - a measure of the bank’s solvency - to 11% in 2022 from 11.5% at the end of 2018.

Credit Agricole’s parent bank, Groupe Credit Agricole - which also owns French regional banks - will instead raise its ratio in 2022 to 16% from 15% in 2018.

The bank will also invest 15 billion euros in new technology to keep pace with trends in mobile banking and real-time payment services.