BPCE - 2018 Registration document

RISK REPORT Risk governance and management system

Models are used for each risk category to determine the impacts of scenarios on the various profit and loss items and capital requirements. The methodologies used to calculate projections vary for an internal stress test versus a regulatory stress test: the methodology is stipulated by the ECB and the EBA for ● regulatory stress tests; internal methodologies are used for internal stress tests, making ● the results easier to use for oversight, risk management and budget planning purposes: stress tests are taken into consideration in identifying the areas of vulnerability of the Group and its constituent entities, and also serve to guide management decisions. The following types of scenarios are tested: a baseline scenario serving as the budget scenario; ● two stress scenarios which are both severe and plausible, used to ● provide relevant information on the Group’s resilience in crisis situations with a high probability of occurrence; two reverse scenarios, i.e. based on areas of vulnerability, used to ● explore highly adverse conditions for the Group or some of the regions it serves, one for ICAAP and the other for the recovery plan; specific scenarios for the Preventive Recovery Plan (PRP) and the ● recovery and resolution options. In addition to the risk supervision conducted both individually and by type of risk, Groupe BPCE’s Risk, Compliance and Permanent Control division (DRCCP) also consolidates the Group’s risks. It calculates and consolidates credit risk-weighted assets at Group level, produces regulatory reports (particularly COREP statements on loans, large exposures, etc.) and internal dashboards. In particular, it produces a quarterly consolidated risk dashboard, which is used to monitor the risk appetite defined by the Group as well as for comprehensive monitoring of risks based on an analysis of the Group’s risk profile in each area (mapping of risk-weighted assets, credit risks and counterparty risks – by customer segment –, market risks, structural ALM risks, operational risk and risks related to insurance activities). The DRCCP also conducts or coordinates cross-business risk analyses on the Group’s main portfolios or activities and, if needed, for the entities. It has also developed half-yearly forward-looking risk analyses aimed at identifying economic risk factors (known and emerging; international, national and regional), circumstantial threats (regulations, etc.) and their potential impact on the Group. These prospective analyses are presented at Group Supervisory Board Risk Management Committee meetings. It also develops internal credit risk measures targeting counterparties and transactions, used to make lending decisions, as well as portfolio-based risk measures (statistical collective provisions, etc.) and, when authorized by the supervisory body, for the calculation of credit risk-weighted assets. It reviews and validates risk models CROSS-BUSINESS RISK ANALYSIS Organization

developed internally. Finally, it contributes to efforts to define internal capital requirements as well as internal and external solvency stress tests aimed at measuring the Group’s sensitivity to a series of risk factors and its resilience in the face of a severe shock, by determining impacts in terms of cost of risk. Activities in 2018 As part of its consolidated risk monitoring system, the Risk, Compliance and Permanent Control division has produced several cross-business analyses for Group governance bodies (Umbrella Committee, Risk Management Committee of the Supervisory Board, Supervisory Board): enhancement of consolidated risk management by carrying out ● Groupe BPCE’s annual risk appetite review and developing an appropriate system of indicators and limits tracked operationally via the Group consolidated risk dashboard; the Group risk dashboard (produced quarterly), used to supervise ● cross-business risks, which is continuously improved in terms of coverage and granularity. In addition, the Executive Management Committee is provided with monthly analyses; two forward-looking risk analyses (produced semi-annually), aimed ● at identifying the main risk factors and quantifying their impacts for Groupe BPCE based on its exposures; several in-depth cross-business analyses of loan book risks (loans to ● Large Corporates & ISEs, professional retail loans and retail home loans) were conducted in 2018. For the purposes of risk supervision and operational management of rating models, a new model reserved for Small Enterprises (revenue of € 3 million to € 10 million) and another for Professional customers (launched in July 2018) were examined during the TRIM (target review of internal models). The Group was also very busy in 2018 with the application of IFRS 9, and specifically Phase 2 “Impairments”, EBA stress tests and the ongoing implementation of Basel III/Basel IV regulatory requirements. COORDINATION OF PERMANENT CONTROLS Organization The DRCCP: is responsible for Level 2 controls of certain processes used to ● prepare financial information and implements a Group Level 2 permanent risk control system covering matters of governance, risk, organization, the work of the Risk Management and Compliance functions, and the implementation of standards, norms and charters. The main role of the DRCCP’s Permanent Control Coordination department is to coordinate the Group’s Level 1 and 2 permanent control system; manages a Group-level permanent control tool (Pilcop) in close ● collaboration with the Group’s institutions; oversees the Level 1 control standards with the business lines;

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Registration document 2018

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