BPCE - 2018 Registration document

6 RISK REPORT

Capital management and capital adequacy

Leverage ratio The main purpose of the leverage ratio is to serve as an additional risk measurement for determining regulatory capital requirements. CRR Article 429, which sets forth the calculation method for the leverage ratio, was amended by Commission Delegated Regulation (EU) 2015/62 of October 10, 2014. The leverage ratio has been subject to mandatory disclosure since January 1, 2015, with a gradual implementation timetable. The ratio has been under review by the supervisory authority since 2014 and will not be officially implemented until CRR II comes into force, i.e. not before 2019.

The leverage ratio is determined by dividing Tier 1 capital by exposures, which consist of assets and off-balance sheet items, restated to account for derivatives, securities financing transactions and items deducted from capital. The minimum leverage ratio requirement is currently set at 3%. Groupe BPCE’s leverage ratio, as calculated under the rules of Commission Delegated Regulation No. 2015/62 of October 10, 2014, was 5.3% at December 31, 2018 based on phased-in Tier 1 capital.

TRANSITION FROM THE STATUTORY BALANCE SHEET TO LEVERAGE RATIO EXPOSURE ➡

12/31/2018 1,273,926

12/31/2017 1,259,850

in millions of euros

TOTAL CONSOLIDATED ASSETS AS PER PUBLISHED FINANCIAL STATEMENTS Adjustment for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation Adjustment for fiduciary assets recognized on the balance sheet pursuant to the operative accounting framework but excluded from the leverage ratio exposure measure

(105,014)

(99,239)

-

Adjustments for derivative financial instruments

(33,528) (20,356)

(36,598) (13,400)

Adjustment for securities financing transactions ( i.e. repos and similar secured lending) Adjustment for off-balance sheet items ( i.e. conversion to credit equivalent amounts of off-balance sheet exposures)

74,055 (5,672)

73,177 (6,377)

Other adjustments

LEVERAGE RATIO EXPOSURE 1,177,414 Without applying the phase-in measures (except for the 10% deduction of deferred tax assets on tax loss carryforwards) and without taking into account subordinated debt issues not eligible as additional Tier 1 capital, Groupe BPCE leverage ratio came to 5.3% at December 31, 2018 versus 5.1% at December 31, 2017. 1,183,411

Financial conglomerate ratio As an institution exercising banking and insurance activities, Groupe BPCE is also required to comply with a financial conglomerate ratio. This ratio is determined by comparing the financial conglomerate’s total capital against all the regulatory capital requirements for its banking and insurance activities. The financial conglomerate ratio demonstrates that the institution’s prudential capital sufficiently covers the total regulatory capital requirements for its banking activities (in accordance with CRR) and insurance activities, based on the solvency margin established under Solvency 1. The calculation of surplus capital is based on the statutory scope. Insurance company capital requirements, determined for the banking capital adequacy ratio by weighting the equity-method value, are replaced with capital requirements based on the solvency margin. Capital requirements within the banking scope are determined by multiplying risk-weighted assets by the rate in force under Pillar II, i.e. 12.13% at December 31, 2018 versus 11.25% at December 31, 2017. At December 31, 2018, Groupe BPCE’s surplus capital amounted to € 27 billion.

SUPERVISORY REVIEW AND EVALUATION PROCESS SREP-ICAAP process As the supervisory authority under Pillar II, the ECB conducts an annual assessment of banking institutions. This assessment, referred to as the Supervisory Review and Evaluation Process (SREP), is primarily based on: an evaluation based on information taken from prudential reports; ● documentation established by each banking institution, including in ● particular the Internal Capital Adequacy Assessment Process (ICAAP) and the Internal Liquidity Adequacy Assessment Process (ILAAP); an assessment of the institution’s governance, business model and ● information system. Based on the conclusions of the SREP carried out by the ECB in 2018, Groupe BPCE must maintain a consolidated Common Equity Tier 1 ratio of 9.75% as from March 1, 2019, including: 1.75% in respect of Pillar II requirements (excluding Pillar II ● guidance); 2.50% in respect of the capital conservation buffer; ● 1.00% in respect of the buffer for global systemically important ● banks (G-SIB buffer).

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Registration document 2018