BPCE - 2018 Risk report / Pillar III

CREDIT RISK Credit risk management

at each Group institution, a counter-analysis involving the Risk ● Managementfunction, which holds veto power. Use of this power may result in escalationto the higher-levelCredit Committee,or a duly authorized delegate. Decision-making at each Groupe BPCE entity is carried out within the framework of authorization procedures,and a veto may only be lifted by one of the institution’s companydirectorsin accordancewith the provisionsof the Group’s risk management, Compliance and Permanent Control Charter; a permanentcontrolsystem,subjectto a review that began in 2017 ● and is still under way, with the aim of ensuringthat these elements are being applied. The DRCCP monitors compliancewith regulatory caps at Group level for the Group Risk ManagementCommittee,in accordance with Regulation No. 93-05 of December 21, 1993 governing oversight of large risk exposures. Monitoring of compliancewith Group internalcaps and limits is regularlychecked by the Group Risk ManagementExecutiveCommitteeand the Audit and Risk Committees of the Supervisory Board. Each institution is responsible for ensuringcompliance with internal limits. Finally, the DRCCP coordinates the credit risk process, particularly throughmonthly audioconferences,national credit risk days, regional platforms or theme-based working groups. It also oversees change management with respect to standards to ensure the operational adoption of Group rules at the local level and to harmonizepractices within theGroup’sinstitutions. ACTIVITIES IN 2018 With regulations undergoing significant changes, all institutions are requiredto implementapplicablestandards,rules and policies in their operations,in order to ensure consistent implementationthroughout the Group. Risk policies and limits A private banking risk policy was established with the aim of governing credit approval in this business line. Individual risk policies and limits were reviewed and updated. This systemwas expandedto include a focus on the rest home and private clinic sector. Corporate and LBO policies were adjusted to incorporatethe rules of leveraged finance regulations. The Group’s credit risk appetite indicators were reviewed but not amended. Rating The TRIM (ECB’s target review of Groupe BPCE internal models) was continuedin 2018, resultingin the validationof the Small Enterprises (SE) model and areview of the retail and corporate models.

The method for classifying parent-subsidiary ties in the small enterprises model was redefined. The project finance ratingmodel was rolled out at the end of 2018 to all Group institutions. Standards and tools IFRS 9 was rolled out across all asset classes. Calculations are performed centrally by the DRCCP, except for Natixis: a consistency check is conducted on the results of methods employed, in order to ensure that a shared counterpartyis subject to the same accounting treatmentacross the entire Group. The standard used to identify and perform calculations on counterpartieswhose leverage ratio has been reached, in accordance with leveraged finance regulations, was rolled out across all Group institutions. The supervisorysystem in place at each institutionwas strengthened by increasing the number of best practices and implementing new regulatory risk indicators (triggers). The Watchlist standard was enhanced in terms of the contagion risk associated with counterparties shared by multiple institutions. Group BPCE’s Syndication and Transaction-sharing Charter was reviewed and updated. The escalation criteria for obtaining central decisions onGroup syndicatedloans were strengthened. The pricing process applied to the main credit applicationsdecidedby the umbrella committees was clarified, in connection with the implementationof IFRS 9. Efforts to roll out the new NPL Directive were continued and efforts to implementthe new defaultstandard by 2021 were initiated. In relation to regulations governing default and NPL standards, clarifications were made to the rules of the forbearance standard allowing forborne loans to be put back on probation before being reclassified as performing. Controls An ex-postcontrol wasperformed ona sample of LBOtransactions. The Level 2 permanent control system on credit processes was reviewedand will be rolled out in 2019 in the permanentcontrol tool (Pilcop). Reporting Initiatives were undertakento establish a report on syndicated loans and loans shared by multiple Group entities, with the aim of identifying all suchtransactions acrossthe Group. The report requested by the European Central Bank on exposures for which theleverage ratio has been reached was deployed. The monthlyGroup exposureconsolidationtool was linked to the new target IT architecture, asprovidedfor in BCBS 239.

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Risk Report Pillar III 2018