BPCE - 2018 Risk report / Pillar III

7 SECURITIZATION TRANSACTIONS

Securitization management at Groupe BPCE

Securitization management at Groupe 7.2 BPCE

Banking book EAD amounted to € 14.9 billion at December 31, 2018 (up € 0.7 billion year-on-year). The positionswere mainly carried by Natixis ( € 10.2 billion) and BPCE ( € 3.3 billion, positionsarising from the transferof a portfolioof home loan and public asset securitizations from Crédit Foncier in September2014). The EAD increase canprimarilybe attributed to: the business lines comprisingNatixis’ roll-out plan (+ € 1.8 billion), ● Investment Banking division (formerly GAPC – workout portfolio management) and BPCE are managed under a run-off method, whereby positions are gradually amortized but still managed (including disposals) in order to safeguardthe Group’sinterestsby activelyreducingpositions under acceptable pricing conditions. Note: Crédit Foncier’s securitization positions, which boast solid credit ● quality, were sold to BPCE at their balance sheet value, with no impact on the Group’s consolidatedfinancialstatements(over 90% of the securitization portfolio was transferred to BPCE on September 25, 2014). These exposures are recognized in loans and receivables(“L&R”) and do not present a significant risk of loss on completion, as confirmed by the external audit carried out at the time of the transfer. This audit confirmed the robustness of the quarterly internal stress test carried out and the credit quality of the securitization portfolio, consisting predominantly of European Investment Grade RMBS; residual Natixis workout portfolio positions, transferred at ● end-June 2014 to the Corporate& InvestmentBankingdivision,are managed ona run-off basis; and particularly sponsoring and origination; the decrease in exposures comprising BPCE ● portfolio(- € 1.1 billion). The workout portfolio exposures of the Corporate & SA group’s workout

BRED also holds investments in securitization vehicles outside ● Groupe BPCE in the form of debt securities amounting to € 1.3 billion, mostly in the Consolidated Management of Investments (GCI) business line. This portfolio’s investment objectiveis to generate recurringincome or unrealizedcapital. NJR is a GCI subsidiary that invests mainly in securitizedassets eligible for CentralBank refinancing and inreal estate. The various relevant portfoliosare speciallymonitoredby the entities and subsidiaries, and by the central institution. Depending on the scope involved, special managementor steering committeesregularly review the mainpositionsand managementstrategies. The central institution’s DRCCP regularly reviews securitization exposures (quarterly mapping), changes in portfolio structure, risk-weighted assets and potential losses. Regular assessments of potential losses are discussed by the Umbrella Committee, as are disposal opportunities. At the same time, special purposesurveysare conductedby the teams on potential losses and changes in risk-weighted assets through internal stress scenarios (risk-weighted assets and loss on completion). Risk-weightedassets are monitored according to changes in ratings and impacts associated with methodologyadjustmentsmade by the rating agencies. In addition, performanceis also monitored with the aim of anticipatingrating changes and credit risk. RWA is calculated on the basis of ratings issued by authorizedagencies, which rate the transactions inwhich the Group invests. Finally, the DRCCP controlsrisks associatedwith at-risk securitization positions by identifying ratings downgradesand monitoring changes in exposures (valuation, detailed analysis). Major exposures are systematically submitted to the Group Watchlist and Provisions Committee, which meets quarterly to determine the appropriate level of provisioning.

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Risk Report Pillar III 2018