BPCE - 2018 Registration document

FINANCIAL REPORT BPCE parent company annual financial statements

Note 2

Accounting principles and methods

Transactions with credit institutions and customers 2.3.2 Loans and advances to credit institutions cover all loans and advances made in connection with banking transactions with the exception of those represented by a security. They also include securities received under repurchase agreements, regardless of the type of underlying, and loans and advances relating to securities repurchase agreements. They are broken down between demand loans and advances and term loans and advances. Loans to credit institutions are recorded in the balance sheet at their nominal value, with the exception of buybacks of customer receivables which are recorded at acquisition cost, plus accrued interest and net of any impairment charges recognized for credit risk. Amounts due from customers include loans to entities other than credit institutions, with the exception of debt securities issued by customers, assets purchased under resale agreements, and receivables corresponding to securities sold under repurchase agreements. They are broken down between business loans, current accounts with overdrafts and other facilities granted to customers. Loans to customers are recorded in the balance sheet at their nominal value, with the exception of buybacks of customer receivables which are recorded at acquisition cost, plus accrued interest and net of any impairment charges recognized for credit risk. Amortized marginal transaction costs and fees are included in the relevant loan. Amounts due to credit institutions are recorded under demand deposits and current accounts or term deposits and borrowings. Amounts due to customers are classified into regulated savings accounts and other deposits for customers. Depending on the counterparty involved, these items include securities and other assets sold under repurchase agreements. Accrued interest is recorded under related payables. Guarantees received are recorded in the accounts as an off-balance sheet item. They are revalued on a regular basis. The total carrying amount of all guarantees received for a single loan is limited to the outstanding amount of the loan. Restructured loans Within the meaning of ANC Regulation No. 2014-07, restructured loans are doubtful loans and receivables whose initial characteristics (term, interest rate) are modified to allow the counterparties to repay the amounts due. A discount is taken on restructured loans to reflect the difference between the present value of the contractual cash flows at inception and the present value of expected principal and interest repayments after restructuring. The discount rate used for fixed-rate loans is the initial effective interest rate and the discount rate used for variable-rate loans is the most recent effective interest rate prior to the restructuring date. The effective rate is the contractual rate. This discount is expensed to “Cost of risk” in income and offset against the corresponding outstanding in the balance sheet. It is written back to net interest income in the income statement over the life of the loan using an actuarial method. A restructured loan may be reclassified as performing when the new repayment dates are observed. When a loan that has been reclassified becomes overdue, regardless of the restructuring terms agreed, the loan is downgraded to doubtful. Doubtful loans and receivables Doubtful loans and receivables consist of all outstanding amounts (whether or not they are due, guaranteed or other), where at least one commitment made by the debtor has involved a known credit risk, classified as such on an individual basis. A risk is considered to be

2.1

MEASUREMENT AND PRESENTATION

METHODS BPCE’s parent company financial statements are prepared and presented in accordance with rules that comply with Regulation No. 2014-07 of the Autorité des Normes Comptables (ANC – French Accounting Standards Authority). 2.2 There were no changes to accounting methods in respect of the 2018 fiscal year. The texts adopted by the ANC that had mandatory application in 2018 did not have a significant impact on the parent company financial statements. Unless otherwise stated, BPCE did not elect to apply in advance the texts adopted by the ANC for which application is optional. MEASUREMENT METHODS The financial statements for the fiscal year are presented in identical format to those for the previous fiscal year. Generally accepted accounting principles have been applied in compliance with the principle of prudence based on the following principles: the going-concern principle; ● consistency of accounting methods from one period to the next; ● independence of fiscal years; ● and observance of the general rules governing the preparation and presentation of annual financial statements. The basic method for valuing accounting entries is the historical cost method and all balance sheet items are presented, as appropriate, net of amortization, provisions and allowances for impairment. The principal methods used are as follows: 2.3.1 Income and expenses relating to foreign currency transactions are determined in accordance with ANC Regulation No. 2014-07. Receivables, liabilities, and off-balance sheet commitments denominated in foreign currencies are valued at the exchange rate at the end of the fiscal year. Definitive or unrealized foreign exchange gains and losses are recognized in income. Income and expenses paid or received in foreign currencies are recognized at the exchange rate on the date of the transaction. Fixed assets and investments in associates denominated in foreign currencies but financed in euros are valued at acquisition cost. Unsettled spot foreign exchange transactions are valued at the exchange rate at the fiscal year-end. Discounts or premiums on foreign exchange forward and futures contracts used for hedging purposes are recognized in income on a pro rata basis. Other foreign exchange contracts and forward and futures instruments denominated in foreign currencies are marked to market. Outright foreign exchange forward and futures contracts, and those hedged by forward and futures instruments, are revalued over the remaining term. Foreign exchange swaps are recognized as coupled spot buy/sell forward transactions. Currency swaps are subject to the provisions of ANC Regulation No. 2014-07. CHANGES IN ACCOUNTING METHODS ACCOUNTING PRINCIPLES AND 2.3 Transactions in foreign currencies

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Registration document 2018