BPCE - 2018 Registration document

RISK REPORT Capital management and capital adequacy

6.3.5

Management of capital adequacy

The methods used by Groupe BPCE to calculate risk-weighted assets are described in section 3.4 “Regulatory capital requirements and risk-weighted assets”.

REGULATORY CAPITAL AND CAPITAL RATIOS REGULATORY CAPITAL AND BASEL III PHASED-IN CAPITAL RATIOS ➡

12/31/2018 Basel III phased-in

12/31/2017 Basel III phased-in

in millions of euros

Common Equity Tier 1 (CET1) Additional Tier 1 (AT1) capital TOTAL TIER 1 (T1) CAPITAL

62,178

59,042

344

448

62,522 14,360 76,882 341,436

59,490 14,557 74,047 335,718

Tier 2 (T2) capital

TOTAL REGULATORY CAPITAL

Credit risk exposure

Settlement/delivery risk exposure

6

10

CVA risk exposure Market risk exposure

2,317

1,848

10,604 38,057 392,420

10,700 38,055 386,331

Operational risk exposure TOTAL RISK EXPOSURE Capital adequacy ratios Common Equity Tier 1 ratio

15.8% 15.9% 19.6%

15.3% 15.4% 19.2%

Tier 1 ratio

Total capital ratio

Changes in Groupe BPCE’S capital adequacy in 2018 Groupe BPCE’s capital adequacy was strengthened in 2018: despite the impact of -17 basis points stemming from the entry into force of IFRS 9, the Common Equity Tier 1 ratio, which takes into account phase-in measures set out in CRR/CRD IV, was 15.8% at December 31, 2018, improving on the ratio of 15.3% at December 31, 2017. The 56 bp gain in the Common Equity Tier 1 ratio in 2018 can be primarily attributed to the increase of approximately € 3 billion in CET1 capital, largely driven by retained earnings. Risk-weighted assets amounted to € 392 billion at end-2018, an increase of € 6 billion compared to end-2017, consistent with business expansion. At end-2018, the Tier 1 ratio stood at 15.9%, representing an increase compared with end-2017. Finally, the total capital ratio stood at 19.6% at December 31, 2018, as no Tier 2 issues were carried out in 2018. Excluding the CRR/CRD IV phase-in measures, the Common Equity Tier 1 ratio was 15.9% at December 31, 2018 versus 15.4% at end-2017. Groupe BPCE capital adequacy management policy Capital and Total Loss Absorbing Capacity (TLAC) objectives are determined according to Groupe BPCE’s target ratings, in line with prudential constraints. Capital adequacy management is therefore subject to a high management buffer which not only greatly exceeds prudential

constraints on capital adequacy ratios, but is also well below the trigger for the Maximum Distribution Amount. Capital and TLAC management is thus less sensitive to prudential changes ( e.g. not dependent on G-SIB classification). As a result, the Group very predominantly builds its Total Loss Absorbing Capacity from CET1 and additionally from TLAC-eligible debt (mainly Tier 2 capital and senior non-preferred debt). Moreover, taking a “single point of entry” (SPE) approach, BPCE issues TLAC-eligible debt. Finally, in addition to TLAC, Groupe BPCE carries debt eligible for bail-in, the majority of which is accepted for the calculation of MREL when deemed by the supervisory authority to have a high capacity for activation: by that definition, senior preferred debt issued by BPCE is eligible for MREL, with Groupe BPCE leaving open the possibility of meeting MREL requirements, beyond its Total Loss Absorbing Capacity, with any “bail-inable” debt instrument. The Single Resolution Board set the Group’s MREL requirement in 2018 (equivalent to 24.97% of risk-weighted assets at end-2016), which has now been met with room to spare. As a result, the Group does not need to modify or increase its issuance program.

6

Capital allocation measures and capital adequacy supervision

The Group implemented action plans over the course of 2018 aimed specifically at ensuring the capital adequacy of its networks and its subsidiaries. BPCE subscribed for shares issued in a capital increase carried out by BPCE International ( € 70 million), perpetual deeply subordinated notes (ADT1) issued by Banque Palatine ( € 100 million) and BPCE International ( € 100 million), and a Tier 2 issue by Natixis ( € 300 million).

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Registration document 2018