BPCE - 2018 Registration document

5 FINANCIAL REPORT

IFRS Consolidated Financial Statements of BPCE SA group as at December 31, 2018

Impairment The new IFRS 9 provisioning model leads to an increase in the amount of impairment on loans and securities measured at amortized cost or at fair value through other comprehensive income recyclable to income, as well as impairment recorded on off-balance sheet commitments and on lease receivables, trade receivables and contract assets. Under IAS 39, there was a separate provisioning model for: (i) instruments measured at amortized cost, (ii) debt instruments measured as “Available-for-sale assets,” (iii) equity instruments measured as “Available-for-sale assets,” and (iv) instruments recognized at cost. In contrast, under IFRS 9, there is just one provisioning model. This model applies equally to instruments measured at amortized cost and to debt instruments measured at fair value through other comprehensive income recyclable to income. Additionally, under IFRS 9, equity instruments are no longer impaired since they are measured either at fair value through profit or loss or at fair value through other comprehensive income and not recyclable to income. Under IAS 39, impairment on initial recognition was expressly prohibited. An asset or group of assets could be impaired only if: there was objective evidence of impairment resulting from one or ● more events having occurred since the initial recognition of the asset ( i.e. loss events); and these loss events had an impact on the estimated cash flows of the ● financial asset. IFRS 9 now requires that entities recognize impairment at an earlier stage than under IAS 39, i.e. from the date of initial recognition of the financial instrument. Accordingly, application of the new IFRS 9 provisioning model leads to an increase in the amount of impairment recorded on loans and securities carried at amortized cost or at fair value through other comprehensive income recyclable to income and on loan or guarantee commitments given (excluding those recognized at fair value through profit or loss) as well as on lease receivables.

The impact of first-time application of IFRS 9 on opening equity related to the implementation of the new impairment model is - € 504 million before tax (- € 341 million after tax). Impairment for credit risk amounted to € 4,223 million under IFRS 9, versus € 3,738 million at December 31, 2017 under IAS 39 and IAS 37. It includes € 249 million for financial assets and loan and guarantee commitments classified as Stage 1 (corresponding to a calculation based on 12-month expected losses), € 643 million classified as Stage 2 (corresponding to a calculation based on lifetime expected losses) and € 3,331 million classified as Stage 3, corresponding to non-performing assets and commitments. Impairment on a portfolio basis recorded under IAS 39 was € 515 million at December 31, 2017. It related primarily to loans and receivables at amortized cost ( € 3,828 million) and, to a lesser extent, loan and guarantee commitments ( € 245 million), securities at amortized cost ( € 137 million) and debt instruments at fair value through other comprehensive income recyclable to income ( € 12 million). Reclassifications between categories of financial assets did not have a significant impact on the Group’s equity at January 1, 2018. Most financial assets measured at amortized cost under IAS 39 continue to meet the conditions for measurement at amortized cost under IFRS 9. Similarly, most assets measured at fair value under IAS 39 (available-for-sale financial assets and financial assets at fair value through profit or loss) continue to be measured at fair value under IFRS 9. The following table provides a breakdown of the impacts of the change from IAS 39 to IFRS 9 related to reclassifications and to the application of the new provisioning method, by category of financial asset and liability. The general principles for classifying financial instruments under IFRS 9 are presented in Note 2.5.1.

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Registration document 2018