BPCE - 2018 Risk report / Pillar III

1 SUMMARY OF RISKS Risk factors

Strategic, business andecosystem risks ECOSYSTEM RISKS Macroeconomic risks Over the last ten years, economic and financial conditions in Europe have had and may continue to have an impact on Groupe BPCE and its markets of operation. The European markets have experienced major upheavals over the past ten years which have affected economic growth, particularly during the 2008 financial crisis. Initially originating from concerns over the ability of certain euro zone countriesto refinancetheir debt securities, thesedisruptionshave created uncertaintiesmore generally regarding the short-term economic outlook of European Union countries as well as the quality of the debt securities of sovereign European Union issuers. There has also been an indirect impact on financial marketsin Europe and worldwide. While the impact on its sovereign bond holdings has remained limited, Groupe BPCE has been indirectly affected by the consequences of the financial crisis spreading to most countries in the euro-zone, including France, the Group’s historic domestic market. In the wake of these crises, anti-austerity sentiment has triggered political uncertaintiesin a number of European companies, while the financialand bankingmarketshave been impactedby other factors, including the many unconventional economic stimulus measures launched by the European Central Bank (the “ECB”) along with other centralbanks aroundthe world. The financialmarketshave also been subject to strong volatility in response to various events, including but not limited to the decline in oil and commodityprices, the slowdown in emerging economies and turbulence on the equity markets, which have directly or indirectly impacted several Groupe BPCE businesses (primarily securities transactions and financial services). If economic or market conditions in France or elsewhere in Europe were to deteriorate further, Groupe BPCE’s markets of operation could be more significantly disrupted, and its business, results and financialpositioncould be adverselyaffected. A persistently low interest rate environment may be detrimental to the profitability and financial position of Groupe BPCE. The global markets have been subject to low interest rates in recent years, and it appearsthis situationwill not be changinganytimesoon. When interest rates are low, credit spreads tend to tighten, meaning Groupe BPCE may not be able to sufficientlylower interest rates paid on deposits to offset the drop in revenues associated with issuing loans at lower market rates. Groupe BPCE’s efforts to reduce the cost of deposits may be restricted by the high volumes of regulated products, especially on the French market, including in particular Livret A passbook savings accounts and PEL home savings plans, which earn interest above the current market rate. In addition, Groupe BPCE may incur an increase in prepayments and renegotiationsof home loans and other fixed-rateloans to individuals and corporates, as customers seek to take advantage of lower borrowing costs. Combined with the issuance of new loans at low interest rates prevailing on the markets, Groupe BPCE may see an overall decrease in the average interest rate in the loan book. Reduced credit spreads and weaker retail banking revenuesstemming from this decrease may undermine the profitability of the retail

banking activities and overall financial position of Groupe BPCE. Furthermore,if market rates begin climbing again and Groupe BPCE’s hedging strategies prove ineffective or only partially offset this fluctuationin value, its profitabilitymay be affected.An environment of persistently low interest rates may also cause the market yield curve to flattenmore generally,which in turn may lower the premium generated by Groupe BPCE’s financing activities and negatively impact its profitability and financial position. The flattening of the yield curve may also encourage financial institutions to enter into higher-risk activities in an effort to obtain the targeted level of return, whichmay heighten risk and volatility on the market. Political risk The United Kingdom’s vote to leave the European Union could have an adverse impact on Groupe BPCE and its markets of operation. On June 23, 2016, the United Kingdom held a referendumthat saw the majority of voters choose to exit the European Union (“Brexit”). On March 29, 2017, the governmentof the United Kingdom invoked Article 50 of the Treaty on the European Union (the “Lisbon Treaty”) relating to withdrawal.Negotiationshave begun to determine future relations between the United Kingdom and the European Union, particularly in terms of commercial, financial and legal agreements. The nature, timetable and economic/politicalimpacts of a potential Brexit are still highly uncertain and will depend on the outcome of negotiations between the United Kingdom and the European Union. Brexit has sparked uncertainties,volatility and major disturbanceson the Europeanmarkets, and more broadly on the global economicand financial markets, and may well continue to do so, potentially harming the credit rating, activity, results and financial position of Groupe BPCE. Regulatory risk Groupe BPCE is subject to significant regulation in France and in several other countries around the world where it operates; regulatory measures and changes could adversely affect Groupe BPCE’s business and results. The businessand results of Group entitiesmay be materiallyimpacted by the policies and actions of various regulatoryauthoritiesin France, other governmentsof the EuropeanUnion, the United States, foreign governments and international organizations. Such constraints may limit the ability of Groupe BPCE entities to expand their businessesor conductcertain activities.The nature and impact of future changesin such policies and regulatory measures are unpredictable and are beyond Groupe BPCE’s control. Moreover, the general political environment has evolved unfavorably for banks and the financial industry,resultingin additionalpressureon the part of legislativeand regulatory bodies to adopt more stringent regulatory measures, despite the fact that these measuresmay have adverse consequences on lending and other financial activities, and on the economy. Because of the continuing uncertainty surrounding the new legislativeand regulatorymeasures,it is not possible to predict what impact they will have on Groupe BPCE; however, this impact may be highly adverse.

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Risk Report Pillar III 2018