UPDATE 4-BNP Paribas expects end to trading boom, COVID loan pain to ease

* Net income down 13.9% in Q4

* FICC revenue jumped by 22%

* Debt-trading bonanza unlikely to persist in 2021

* BNP may consider increasing payout ratio, says COO (Adds COO comment on payout ratio)

PARIS, Feb 5 (Reuters) - BNP Paribas warned investors on Friday that a debt-trading bonanza that supported its earnings last year was unlikely to last, though the worst of the global coronavirus crisis was over for its loan book.

Provisions linked to the COVID-19 pandemic took their toll on fourth-quarter net profit, with the lender saying it had set aside more money to cover loans that could turn sour.

But the eurozone’s biggest listed bank struck a more upbeat note for 2021. It said it expects the cost of risk, which reflects provisions for bad loans, to drop from 2020 levels as the outlook improves in the second half.

Another side-effect of the pandemic, a surge in fixed income trading business, provided a boost to fourth-quarter earnings, but BNP Paribas warned that this level of market activity was unlikely to persist in 2021.

The Paris-based bank said revenue at its corporate and institutional banking business rose 6.9% in the quarter as fixed income, currencies and commodities (FICC) trading revenue jumped by 22%, mirroring gains among its global competitors.

“FICC is unlikely to experience the same magnitude of revenues that it generated in 2020 on the back of exceptionally intense client activity,” it said in a statement.

While BNP Paribas has benefited from market volatility fuelled by the COVID-19 crisis, it is also grappling with the economic chaos sparked by the pandemic. Like rivals such as Spain’s Santander, BNP is bracing for repayment problems by setting aside more funds against loans that could turn sour.

Its cost of risk, which reflects bad loan charges, rose by 65.5% year on year to 1.59 billion euros ($1.9 billion) in the last quarter of 2020.

Although net profit fell 13.9% to 1.59 billion euros, this was a less sharp drop than expected by analysts and BNP Paribas said its cost of risk should fall this year.

Revenue at the bank, the shares of which were up 3.1% by 1236 GMT, fell 4.5% to 10.83 billion euros - broadly in line with expectations.

“This set of results continue to confirm the resilience of the group’s profitability and balance sheet, as well as the benefit of the diversification,” Citi analysts said in a note.

At its equity and prime services unit, traditionally a strength, revenue fell by 4.5%, underperforming most of its rivals.

BNP Paribas said it planned to pay a dividend of 1.11 euros per share in May, based on a 21% payout ratio, within limits set by the European Central Bank to preserve capital.

It is considering paying out more in the fourth quarter, it said, with the combined distribution to shareholders helping the bank towards a targeted 50% payout target.

BNP Paribas chief operating officer Philippe Bordenave said the bank could consider increasing its payout ratio from excess capital. “Being overcapitalised may lead us to consider an increase in the payout ratio,” he told reporters.

The bank’s capital cushion stood at 12.8% at the end of the year, above of its 12% target for 2020. ($1 = 0.8359 euros) (Reporting by Matthieu Protard and Marc Angrand Editing by Alexander Smith and David Goodman)