BPCE - 2018 Registration document

RISK REPORT Credit risk

6.5.2

Risk measurement and internal ratings

CURRENT SITUATION SCOPE OF STANDARDIZED AND IRB METHODS USED BY THE GROUP ➡

Crédit Foncier/ Banque Palatine/ BPCE International

Banque Populaire network

Caisse d’Epargne network

BPCE SA group

Customer segment

Natixis A-IRB A-IRB

Central banks and other sovereign exposures

F-IRB Standardized Standardized F-IRB Standardized Standardized

F-IRB F-IRB

Central governments

Public sector and similar entities

Standardized Standardized Standardized Standardized Standardized

A-IRB/ Standardized

Financial institutions

F-IRB Standardized Standardized

F-IRB

F-IRB/ Standardized

F-IRB/ Standardized Standardized

A-IRB/ Standardized Standardized

Corporates (Revenue > €3 million)

Retail customers

A-IRB

A-IRB Standardized Standardized

BREAKDOWN OF EAD BY APPROACH FOR THE MAIN CUSTOMER SEGMENTS ➡

12/31/2018

12/31/2017

EAD

EAD

Standardized

F-IRB 46% 31%

A-IRB 20% 21%

Standardized

F-IRB 45% 27%

A-IRB 25% 20%

% breakdown

Central banks and other sovereign exposures

35% 48% 99% 56% 40% 14%

30% 53% 99% 37% 37% 15%

Central governments

Public sector and similar entities

0% 9%

1%

0%

1%

Financial institutions

35% 41% 86%

24% 24%

39% 39% 85%

Corporates

19%

6

Retail customers

0%

0%

RATING SYSTEM Information provided in respect of IFRS 7

INTERNAL RATING SYSTEM GOVERNANCE The internal governance of rating systems is centered on the development, validation, monitoring and modification of these systems. The DRCCP is completely independent from the rest of the Group (Banque Populaire and Caisse d’Epargne networks, Natixis, Crédit Foncier and the other subsidiaries) in conducting performance and adequacy reviews of models for credit risks, counterparty risks, and structural ALM and market risks. This role assigned to the DRCCP is based on governance defined in a model validation charter, a Model Governance Committee and on a map of models used throughout the Group. The model validation charter models encompasses all types of quantitative models, and defines and specifies the duties and responsibilities of those involved throughout the model life cycle. It also specifies the conditions for delegating validation, within a specific scope, to another entity besides the DRCCP validation team: the entity in question must have the necessary expertise, be independent of the team developing the model, and have appropriate validation governance. Under these rules, the validation of certain specific PD and LGD models, IMM models for counterparty risk, IMA and standard models for market risk and prudent valuation models has been delegated to the independent validation team at Natixis.

Internal rating system models are developed based on historical data for observed defaults and losses. They are used to measure the credit risks to which Groupe BPCE is exposed, expressed as a one-year Probability of Default (PD), as a Loss Given Default (LGD) and as Credit Conversion Factors (CCF), depending on the characteristics of the transactions. The models are generally built and validated based on internal historical data from as far back as possible, in accordance with prudent valuation and representativeness constraints (affected portfolios and economic conditions). These internal rating systems are also applied to risk supervision, authorization systems, internal limits on counterparties, etc., and may also serve as a basis for other processes, such as statistical provisioning. The resulting risk metrics are then used to calculate capital requirements, once they have been validated by the supervisory authority in compliance with regulatory requirements.

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Registration document 2018