The two banks showed a dip in investment banking income in the latest quarter, but more than made up for that with lower losses on personal and corporate loans as broad economic conditions improved.
Half-year profits for HSBC, Europe's biggest bank, hit $11.1bn, more than double the $5bn of a year ago and above the average forecast of $9.1bn from a poll.
Its loan impairment charges and other credit risk provisions fell to $7.5bn for the half-year, down $6.4bn from the year ago level. It was the lowest level since the start of the financial crisis, and below forecasts of near $10bn.
“HSBC and BNP have seen provisions cut in half year-on-year. We are very rapidly seeing big retail banks like BNP and HSBC return to a level of provisions that is very close to what it was before the crisis,” said Francois Chaulet, fund manager at Montsegur Finance Asset Management in Paris.
France's BNP Paribas, the eurozone's second biggest bank after Santander, said net profit rose 31 percent to 2.1bn euros ($2.7bn) in the second quarter. For the first half, profit rose 39 percent to 4.4bn euros.
The rise was also thanks to lower loan provisions and strong retail banking, offsetting volatile financial market conditions that hit investment banking. Its second-quarter provisions halved to 1.1 billion euros, the lowest in two years.
BNP said it reflected an improving but still challenging macroeconomic environment in its key eurozone markets.
That provides opportunity for BNP – which bought assets from crippled Benelux bank Fortis at the peak of the crisis – to grab market share, Chief Executive Baudouin Prot said.
Growth could remain anaemic in various western countries, HSBC warned, although it was bullish on the prospects for emerging markets, even if “some cooling off” in China's economy is possible.
The London-based bank moved its chief executive to Hong Kong earlier this year and is shifting its weight further to Asia. It said the positive impairment trends should remain, citing improving corporate health as companies refinance, and raised capital and better conditions in retail banking.
“The drivers of the lower bad debt performance continue to be in place,” said Douglas Flint, finance director. “Obviously if we have a double dip then things will be different, but at the moment the drivers of the first half continue to be in place.”
Montsegur's Chaulet said the results backed up the positive sentiment on banks after a health check of the European banking system and a relaxation of proposed capital rules.
Investment banking slips
The results set the foundation for decent results from British and French banks, following strong recent earnings from Swiss rivals and mixed results from Spain's banks.
The prospects of bumper profits for banks in Britain and elsewhere will raise pressure from politicians to force them to lend more and potentially revive talk of an industry tax, after the sector was lifted by the watering down of capital reform.
Investment banking at both HSBC and BNP slipped in the second quarter, after the eurozone debt crisis slowed capital markets activity and also hurt rivals including Goldman Sachs and Deutsche Bank.
BNP's investment bank arm suffered a 30 percent fall in second-quarter revenue from a year ago, and down 28 percent from the previous quarter.
Its equity advisory revenue – a key area of analyst concern and an important business line for domestic rival Societe Generale – fell 60 percent.
HSBC's investment bank made a profit of $5.6bn, half of group profit and the second-best half-year ever, although it was down 11 percent from the record level of a year ago.
Income slowed in the second quarter, in line with rivals, and Flint said he expected a slower second half of the year as appetite has reduced, coupled with seasonal factors.
