BPCE - 2018 Registration document

6 RISK REPORT Credit risk

Standards and tools IFRS 9 was rolled out across all asset classes. Calculations are performed centrally by the DRCCP, except for Natixis: a consistency check is conducted on the results of methods employed, in order to ensure that a shared counterparty is subject to the same accounting treatment across the entire Group. The standard used to identify and perform calculations on counterparties whose leverage ratio has been reached, in accordance with leveraged finance regulations, was rolled out across all Group institutions. The supervisory system in place at each institution was strengthened by increasing the number of best practices and implementing new regulatory risk indicators (triggers). The Watchlist standard was enhanced in terms of the contagion risk associated with counterparties shared by multiple institutions. Group BPCE’s Syndication and Transaction-sharing Charter was reviewed and updated. The escalation criteria for obtaining central decisions on Group syndicated loans were strengthened. The pricing process applied to the main credit applications decided by the umbrella committees was clarified, in connection with the implementation of IFRS 9. Efforts to adapt Non-Performing Loan (NPL) regulations were continued and efforts to implement the new default standard by 2021 were initiated. In relation to regulations governing default and NPL standards, clarifications were made to the rules of the forbearance standard allowing forborne loans to be put back on probation before being reclassified as performing. Controls An ex-post control was performed on a sample of LBO transactions. The Level 2 permanent control system on credit processes was reviewed and will be rolled out in 2019 in the permanent control tool (Pilcop). Reporting Initiatives were undertaken to establish a report on syndicated loans and loans shared by multiple Group entities, with the aim of identifying all such transactions across the Group. The report requested by the European Central Bank on exposures for which the leverage ratio has been reached was deployed. The monthly Group exposure consolidation tool was linked to the new target IT architecture, as provided for in BCBS 239. CREDIT POLICY The overall risk policy is governed in particular by the risk appetite system, structured around the definition of the level of risk established by the Supervisory Board and risk appetite indicators. The balance between profitability and risk tolerance is reflected in Groupe BPCE’s risk profile and is written into the Group’s risk management policies.

Groupe BPCE is willing to take, based on updated information at its disposal at the time of its decision; at each Group institution, a counter-analysis involving the Risk ● Management function, which holds veto power. Use of this power may result in escalation to the higher-level Credit Committee, or a duly authorized delegate. Decision-making at each Groupe BPCE entity is carried out within the framework of authorization procedures, and a veto may only be lifted by one of the institution’s company directors in accordance with the provisions of the Group’s risk management, Compliance and Permanent Control Charter; a permanent control system, subject to a review that began in 2017 ● and is still under way, with the aim of ensuring that these elements are being applied. The DRCCP monitors compliance with regulatory caps at Group level for the Group Risk Management Committee, in accordance with Regulation No. 93-05 of December 21, 1993 governing oversight of large risk exposures. Monitoring of compliance with Group internal caps and limits is regularly checked by the Group Risk Management Executive Committee and the Audit and Risk Committees of the Supervisory Board. Each institution is responsible for ensuring compliance with internal limits. Finally, the DRCCP coordinates the credit risk process, particularly through monthly audioconferences, national credit risk days, regional platforms or theme-based working groups. It also oversees change management with respect to standards to ensure the operational adoption of Group rules at the local level and to harmonize practices within the Group’s institutions. Activities in 2018 With regulations undergoing significant changes, all institutions are required to implement applicable standards, rules and policies in their operations, in order to ensure consistent implementation throughout the Group. Risk policies and limits A private banking risk policy was established with the aim of governing credit approval in this business line. Individual risk policies and limits were reviewed and updated. This system was expanded to include a focus on the rest home and private clinic sector. Corporate and LBO policies were adjusted to incorporate the rules of leveraged finance regulations. The Group’s credit risk appetite indicators were reviewed but not amended. Rating The TRIM (ECB’s target review of Groupe BPCE internal models) was continued in 2018, resulting in the validation of the Small Enterprises (SE) model and a review of the retail and corporate models. The method for classifying parent-subsidiary ties in the small enterprises model was redefined. The project finance rating model was rolled out at the end of 2018 to all Group institutions.

638

Registration document 2018