BPCE - 2018 Risk report / Pillar III

3 CAPITAL MANAGEMENT AND CAPITAL ADEQUACY Management of capital adequacy

CAPITAL ALLOCATION MEASURES AND CAPITAL ADEQUACY SUPERVISION The Group implementedaction plans over the course of 2018 aimed specificallyat ensuring the capital adequacy of its networks and its subsidiaries.BPCE subscribed for shares issued in a capital increase carried out by BPCE International ( € 70 million), perpetual deeply subordinatednotes (ADT1) issued by Banque Palatine ( € 100 million) and BPCE International( € 100 million), and a Tier 2 issue by Natixis ( € 300 million).

leverage ratio, was amended by Commission Delegated Regulation(EU) 2015/62 of October10, 2014. The leverage ratio has been subject to mandatory disclosure since January 1, 2015, with a gradual implementationtimetable.The ratio has been under review by the supervisory authority since 2014 and will not be officially implementeduntil CRR II comes into force, i.e. not before 2019. The leverage ratio is determined by dividing Tier 1 capital by exposures, which consist of assets and off-balance sheet items, restated to account for derivatives,securities financing transactions and items deducted from capital. The minimum leverage ratio requirement is currently set at 3%. Groupe BPCE’s leverage ratio, as calculated under the rules of CommissionDelegatedRegulationNo. 2015/62of October 10, 2014, was 5.3%at December31, 2018 based onphased-inTier 1 capital.

LEVERAGE RATIO

The main purpose of the leverage ratio is to serve as an additional risk measurement for determining regulatory capital requirements. CRR Article 429, which sets forth the calculation method for the

TABLE 11 – TRANSITION FROM THE STATUTORY BALANCE SHEET TO LEVERAGE RATIO EXPOSURE ➡

12/31/2018 1,273,926

12/31/2017 1,259,850

in millionsof euros

TOTALCONSOLIDATEDASSETS AS PERPUBLISHED FINANCIALSTATEMENTS Adjustment for investments in banking, financial,insurance or commercial entitiesthat are consolidated for accounting purposes butoutsidethe scopeof regulatory consolidation Adjustment for fiduciaryassetsrecognized on thebalancesheet pursuantto the operative accountingframework butexcluded from the leverageratio exposure measure

(105,014)

(99,239)

-

Adjustmentsfor derivative financial instruments Adjustment for securities financingtransactions ( i.e.

(33,528) (20,356)

(36,598) (13,400)

reposand similar secured lending)

Adjustment for off-balance sheet items ( i.e. conversion tocreditequivalentamounts ofoff-balance sheet exposures)

74,055 (5,672)

73,177 (6,377)

Other adjustments

LEVERAGE RATIOEXPOSURE 1,177,414 Withoutapplyingthe phase-inmeasures(exceptfor the 10% deductionof deferredtax assets on tax loss carryforwards)and withouttaking into accountsubordinateddebt issues not eligibleas additionalTier 1 capital,GroupeBPCE leverageratio came to 5.3%at December 31, 2018 versus 5.1% at December31, 2017. 1,183,411

Financial conglomerate ratio As an institution exercising banking and insurance activities, Groupe BPCE is also required to comply with a financial conglomerateratio. This ratio is determined by comparing the financial conglomerate’s total capital against all the regulatory capital requirements for its banking and insurance activities. The financial conglomerateratio demonstratesthat the institution’s prudential capital sufficiently covers the total regulatory capital requirementsfor its banking activities (in accordancewith CRR) and insurance activities, based on the solvency margin established under Solvency1.

The calculation of surplus capital is based on the statutory scope. Insurance company capital requirements,determinedfor the banking capital adequacy ratio by weighting the equity-method value, are replaced with capital requirements based on the solvency margin. Capital requirements within the banking scope are determined by multiplying risk-weightedassets by the rate in force under Pillar II, i.e. 12.13% at December 31, 2018 versus 11.25% at December 31, 2017. At December 31, 2018, Groupe BPCE’s surplus capital amounted to € 27 billion.

Supervisory Review and Evaluation Process

SREP-ICAAP PROCESS As the supervisory authority under Pillar II, the ECB conducts an annual assessment of banking institutions. This assessment, referred to as the Supervisory Review and Evaluation Process (SREP), is primarily based on:

an evaluation based on information taken from prudential reports; ● documentationestablishedby each bankinginstitution,includingin ● particular the Internal Capital Adequacy Assessment Process (ICAAP) and the Internal Liquidity Adequacy Assessment Process (ILAAP);

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Risk Report Pillar III 2018