BPCE - 2018 Registration document

6 RISK REPORT Credit risk

Under the IRB approach, excluding retail customers, real guarantees are recognized, subject to eligibility, by decreasing the Loss Given Default applicable to the transactions. Personal guarantees are recognized, subject to eligibility, by substituting a third party’s PD with that of a guarantor. Under the A-IRB approach for retail customers, personal guarantees and real guarantees are recognized, subject to eligibility, by decreasing the Loss Given Default applicable to the transactions in question. CONDITIONS FOR THE RECOGNITION OF GUARANTEES Articles 207 to 210 of Capital Requirements Regulation (CRR) No. 575/2013 set out the conditions for the recognition of guarantees, in particular: the credit quality of the obligor and the value of the collateral shall ● not have a material positive correlation. Securities issued by the obligor shall not qualify as eligible collateral; the institution shall properly document the collateral arrangements ● and have in place clear and robust procedures for the timely liquidation of collateral; the institution shall have in place documented policies and ● practices concerning the types and amounts of collateral accepted; the institution shall calculate the market value of the collateral, ● and revalue it accordingly, whenever it has reason to believe that a significant decrease in the market value of the collateral has occurred. RISK DIVERSIFICATION Risk diversification is one technique for mitigating credit risk. In practice, individual or topical limits are defined, thus reducing the bank’s sensitivity to risks deemed excessive, either individually or industry-wide, in the event of a major incident. Risk supervision mechanisms can reduce risk exposures if the risk is deemed too high, thus also contributing to good risk diversification. GUARANTORS The Banque Populaire network has historically used professionals and Mutual Guarantee Companies (such as SOCAMAs, which guarantee loans to craftsmen) to secure its loans, in addition to the real guarantees used. For loans to individual customers, it also turns to CASDEN Banque Populaire to back loans to civil servants in the French national education system, Crédit Logement, and increasingly Compagnie Européenne de Garanties et de Cautions (CEGC, a subsidiary of Natixis).

For home loans, the Caisse d’Epargne network mainly calls on CEGC, FGAS (Fonds de garantie à l’accession sociale à la propriété) and, to a lesser extent, Crédit Logement (a financial institution and a subsidiary of most of the main French banking networks). These institutions specialize in the provision of guarantees for bank loans (predominantly home loans). FGAS offers guarantees from the French government for secured loans. Loans covered by FGAS guarantees granted before December 31, 2006 are given a 0% risk weight and loans covered by guarantees granted after that date have a risk weight of 15%. Crédit Logement has a long-term rating of Aa3 from Moody’s, with a stable outlook. For their home loans, the Banque Populaire and Caisse d’Epargne networks also use several mutual insurers, such as MGEN, Mutuelle de la Gendarmerie, etc. For professional and corporate customers, the entire Group still uses Banque Publique d’Investissement, while calling on the European Investment Fund or European Investment Bank for guarantee packages in order to substantially reduce credit risk. In some cases, organizations such as Auxiga are used for the seizure of inventory and the transfer of its ownership to the bank as collateral for commitments made in the event of financial hardships. Finally, on an occasional basis, Natixis purchases credit Insurance for certain transactions and in some circumstances, from private (SCOR) or public (Coface, Hermes, other sovereign agencies) reinsurance companies, while also making use of Credit Default Swaps (CDSs). Credit derivatives serving as currency or interest rate hedges are entrusted to approved clearing houses in Europe or the US for Natixis operations in this country. CONCENTRATION OF COLLATERAL VOLUMES By type of guarantor For home loan exposures, most collateral takes the form of mortgages (risk diversified by definition, bank better protected by basing credit approval decisions on customer income), Insurance-oriented guarantees such as those provided by CEGC (a subsidiary of Groupe BPCE, subject to regular stress testing), Crédit Logement (providing guarantees to multiple banks subject to the same constraints) and FGAS (controlled by the French State, considered equivalent to sovereign risk). The CASDEN guarantee, issued to government employees, currently offers solid resilience according to a model based on the robust income of this particular customer base. For professional customer exposures, the most common guarantees are those provided by the Banque Publique d’investissement (BPI), subject to strict formal constraints, and mortgages. Guarantees provided by institutions such as SOCAMAs, whose solvency depends on the credit institutions of Groupe BPCE, are also used. For corporate customers, the main guarantees used are Banque Publique d’investissement mortgages and guarantees.

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Registration document 2018