BPCE - 2018 Registration document

FINANCIAL REPORT BPCE parent company annual financial statements

LONG-TERM EMPLOYEE BENEFITS Long-term employee benefits are generally linked to seniority accruing to current employees and payable 12 months or more after the end of the period in which the employee renders the related service. These consist mainly of long-service awards. A provision is set aside for the value of these obligations at the balance sheet date. The obligations are valued using an actuarial method that takes account of demographic and financial assumptions such as age, length of service, the likelihood of the employee being employed by the Group at retirement and the discount rate. The valuation also allocates costs over the working life of each employee (projected unit credit method). TERMINATION BENEFITS Termination benefits are granted to employees on termination of their employment contract before the normal retirement date, either as a result of a decision by the Group to terminate a contract or a decision by an employee to accept voluntary redundancy. A provision is set aside for termination benefits. Termination benefits payable more than 12 months after the balance sheet date are discounted to present value. POST-EMPLOYMENT BENEFITS Post-employment benefits include lump-sum retirement bonuses, pensions and other post-employment benefits. These benefits can be broken down into two categories: defined-contribution plans, which do not give rise to an obligation for the Group, and defined-benefit plans, which give rise to an obligation for the Group and are therefore measured and recognized by means of a provision. The Group records a provision in liabilities for employee benefit obligations that are not funded by contributions charged to income and paid out to pension funds or insurance companies. Post-employment benefits are measured in the same way as long-term employee benefits. The measurement of these obligations takes into consideration the value of plan assets as well as unrecognized actuarial gains and losses. Actuarial gains and losses on post-employment benefits, arising from changes in actuarial assumptions (early retirement, discount rate, etc.) or experience adjustments (return on plan assets, etc.) are amortized under the corridor method, i.e. for the portion exceeding a variation of +/-10% of the defined-benefit obligation or the fair value of plan assets. The annual expense recognized in respect of defined-benefit plans includes the current service cost, net interest cost (the effect of discounting the obligation) less hedging assets, and the amortization of any unrecognized items that are actuarial gains or losses. 2.3.8 This fund is intended to cover risks inherent in the company’s banking activities, in accordance with the provisions of Article 3 of CRBF Regulation No. 90-02. It also includes the amounts allocated to the funds set up as part of the guarantee mechanism (see Note 1.2). 2.3.9 Trading and hedging transactions in interest rate, currency or equity futures are recognized in accordance with the provisions of ANC Regulation No. 2014-07. Fund for general banking risks Financial futures

Commitments on these instruments are recorded as off-balance sheet items at the notional value of the contracts. At the balance sheet date, the amount recognized for these commitments represents the volume of unwound forward transactions at the balance sheet date. The accounting policies applied vary depending on the type of instrument and the original purpose of the transaction. Forward transactions Interest rate swaps and similar contracts (forward rate agreements, collars, etc.) are classified as follows according to their initial purpose: micro-hedging (assigned hedges); ● macro-hedging (overall asset and liability management); ● speculative positions/isolated open positions; ● for use with a trading book. ● Amounts received or paid in respect of the first two categories are recognized in income on a pro rata basis. Income and expenses related to instruments used for hedging an asset or a group of similar assets are recognized in income symmetrically with the income and expenses from the hedged item. Gains and losses on hedging instruments are recognized in the same line item as the income and expenses from the hedged item, under “Interest and similar income” and “Interest and similar expenses”. The line item “Net gains or losses on trading book transactions” is used when the hedged items are in the trading book. In the event of characteristic overhedging, a provision may be made for the hedging instrument, for the overhedged portion, if the instrument shows an unrealized loss. In this case, the charge to provisions will affect “Net gains or losses on trading book transactions”. Income and expenses related to forward and futures contracts used for hedging purposes or for managing overall interest rate risk are recognized in the income statement on a pro rata basis under “Interest and similar income” and “Interest and similar expenses”. Unrealized gains and losses are not recognized. Gains and losses on contracts qualified as isolated open positions are taken to income either when the contracts are settled or on a pro rata basis, depending on the type of instrument. Recognition of unrealized capital gains or losses is determined based on the type of market involved (organized, other markets considered as organized, or over the counter). For over-the-counter options (including transactions processed by a clearing house), a provision is recorded for unrealized mark-to-market losses at year-end. Unrealized capital gains are not recognized. Instruments traded on organized markets or other markets considered as organized are continuously quoted and liquid enough to justify being marked to market. Contracts classified as specialized asset management contracts are measured after applying a discount to take account of the counterparty risk and the net present value of future management costs, if these valuation adjustments are material. Derivatives that are traded with a counterparty that is a member of Groupe BPCE’s share support mechanism (see Note 1.2.) are not subject to these valuation adjustments. Changes in value from one accounting period to another are recognized immediately in the income statement under “Net gains or losses on trading book transactions”.

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Registration document 2018