BNP Paribas slightly increased its 2020 profitability target on the back of a strengthening European economy but that was overshadowed by the disappointing fourth quarter figures.

Net profit slipped to 1.43 billion euros (£1.29 billion) in the fourth quarter from 1.44 billion a year earlier, below the 1.59 billion euros expected by analysts in a Reuters poll.

Revenues also fell 1.2 percent to 10.53 billion euros, versus the 10.47 billion predicted by analysts, although BNP Paribas increased its dividend by 11.9 percent from last year to 3.02 euros.

The bank said it was now targeting a return on equity of above 10 percent in 2020 versus a target of 10 percent disclosed in March last year.

BNP shares traded 3.5 percent lower at 0815 GMT.

"The numbers looked generally pretty weak across the board, and anything that misses forecasts on a morning like today is going to get hit hard," said Terry Torrison, managing director at Monaco-based McLaren Securities.

BNP Paribas' cost of risk, a measure which reflects how much is set aside for bad loans, rose to 264 million euros in the fourth quarter at its investment banking unit, from 70 million a year ago.

Revenues at the corporate and institutional banking (CIB) division also dropped by 6.9 percent. Fixed income trading declined by 27.4 percent, although equity and prime services revenue rose 12.1 percent.

The French bank outperformed the big five U.S. banks that on average reported fixed income, currencies and commodities revenues down 31 percent, and equities trading 7 percent lower.

BNP Paribas has said it aims to grab market share from rivals pulling back from investment banking even as its moves ahead with its own cutbacks.

The bank has also embarked this year on a 3 billion euros plan to bring in new digital technologies in response to changing customers' behaviour, with an aim to making it run more efficiently by 2020.($1 = 0.8085 euros)

(Reporting by Maya Nikolaeva and Matthieu Protard, Additional reporting by Sudip Kar-Gupta; Editing by Keith Weir)

By Maya Nikolaeva and Matthieu Protard