* To spend 3 bln euros in “transformation costs” in 2017-2020
* Q4 net profit worse than expected, shares fall
* Aims to keep capital cushion amid uncertain times (Updates with CEO quotes)
PARIS, Feb 7 (Reuters) - BNP Paribas, one of Europe’s biggest banks, plans to spend 3 billion euros ($3.2 billion) from 2017-2020 to boost profitability, it said on Tuesday, after reporting 2016 results that showed its retail businesses in the region struggling.
The French bank said it would invest in digital technologies to improve efficiency and continue to adapt its branch network accordingly, which analysts said could signal more closures.
Its annual results benefited from cost cutting and the sale of a stake in Visa Europe, but profits in the final three months of last year missed market forecasts, sending its shares lower.
“The group is ready to accelerate,” Chief Executive Jean-Laurent Bonnafe told journalists, summing up plans the bank has dubbed a digital transformation.
Its new targets are for a 6.5 percent annual increase in net income on average over 2017-2020, a 50 percent dividend payout versus 45 percent in 2016, and an improved return on equity (ROE) of 10 percent.
BNP shares were down 3.8 percent at 1350 GMT.
“It’s a bit of a mixed bag,” said Terry Torrison, managing director at Monaco-based McLaren Securities. “The numbers were a little bit disappointing but their longer-term strategy looks like a sensible one, in terms of their general restructuring and plans to do more digital banking.”
Bonnafe defended the strategy and dividend payout, when asked by journalists whether that might disappoint investors.
“A company should invest in itself and keep some room for manoeuvre,” he said.
BNP executives also told a call with analysts the bank would reach its common equity tier one target - a measure of financial strength - of 12 percent long before 2020. Any excess capital would be a safety net amid growing uncertainties around the world, they said, adding a share buyback was not on the cards.
BNP and other French banks face a year of political uncertainty, with presidential elections looming and far-right leader Marine Le Pen - who has advocated a retreat from the euro currency - performing strongly in polls.
“The elections are evolving in an unexpected way in a global political context that is complicated,” Bonnafe told Reuters. “This creates a bit of volatility.”
Last year, BNP’s revenues edged up about 1 percent to 43.4 billion euros, while net income rose to 7.7 billion from 6.7 billion in 2015.
But revenues and pretax income in its French retail banking operation fell, despite its assets growing in size. France’s economy is growing, albeit modestly. BNP has said it is taking a conservative view, when making its plans.
Low interest rates, which have been around zero for more than four years in the euro zone, make it harder to profit from the bank’s vast pool of deposits. Parking this money with the European Central Bank even incurs a penalty charge.
“Revenues are up despite a lacklustre environment,” Bonnafe said, adding costs had been kept under control.
Fourth-quarter net income rose to 1.44 billion euros, more than doubling from 665 million a year ago, but below analysts’ average estimate of 1.5 billion in a Reuters poll.
A surge in trading helped quarterly revenues rise 2 percent.
BNP Paribas shares have risen 47 percent since February last year, outperforming the European banking sector, as it grows market share while rivals retreat. ($1 = 0.9337 euros)
Additional reporting by Sudip Kar-Gupta; Writing by John O’Donnell and Maya Nikolaeva; Editing by Mark Potter
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