BPCE - 2018 Risk report / Pillar III

CREDIT RISK Risk measurement and internal ratings

Review ofinternal ratings-based models The DRCCP is responsible for reviewing the Group’s internal models whenever a new model is being developed or an existing model changed. It also performs the annual review of backtests on credit, market and ALMrisk models. The validation team conducts independent analyses in compliance with a charter and procedures that describe interactions with the modelingentities and the steps of the review. This review is based on a set of qualitativeand quantitativecriteria,and mainly addressesthe

The level of detail in the review is adjusted for the type of work examined. In any event, it must at least include a document review focusing on the quantitative aspects of rating systems. For a new model or a major change to an existing model, in addition to this review, the computer codes are checked and additional tests are run (comparative calculations). The scope of the Validation division’s involvementmay be expanded before and after an investigation of data quality, system implementationand operationalintegration. In conclusion,the review generates an opinion on the validity of the models and the associated inputs for credit and counterparty risks, and for models authorized for use in determining capital requirements. It also generates an opinion on compliance with prudential regulations. Where necessary, the review is accompanied by recommendations.

following points: documentation; ● methodology, including the validity of assumptions; ● performance; ● robustness; ● compliance withregulations. ●

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Model mapping The DRCCP maps out all Group internal rating models, clearly indicating their scope in terms of Group segments and entities, as well as their main features,includinga generalscore derivedfrom the annual model review characterizingthe performanceand freshnessof each model (age/year of development). New models have been added to the system to better reflect the specific nature of certain scopes of operation. In particular, two rating models were introduced for small enterprises ( € 3 million < Revenue < € 10 million) in October 2017. These models draw on account

behavior variables and the company’s financial data. Separate LGD models have also been introduced for commodities trade financing agreements and financingwith listed equities. The followingtable lists the internal credit models used by the Group for risk management purposes and, where authorized by the supervisor,to calculatecapital requirementsfor the Banque Populaire and Caisse d’Epargne networks, Natixis and its subsidiaries, Crédit Foncier and Banque Palatine.

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Risk Report Pillar III 2018