BPCE - 2018 Risk report / Pillar III

5 CREDIT RISK

Credit risk mitigation techniques

Guarantors The Banque Populairenetwork has historicallyused professionalsand Mutual Guarantee Companies (such as SOCAMAs, which guarantee loans to craftsmen) to secure its loans, in addition to the real guarantees used. For loans to individual customers, it also turns to CASDEN Banque Populaire to back loans to civil servants in the French national education system, Crédit Logement, and increasingly Compagnie Européenne de Garanties et de Cautions (CEGC, a subsidiary of Natixis). For home loans, the Caisse d’Epargne network mainly calls on CEGC, FGAS (Fonds de garantie à l’accessionsociale à la propriété)and, to a lesser extent, Crédit Logement(a financialinstitutionand a subsidiary of most of the main French banking networks). These institutions specialize in the provision of guarantees for bank loans (predominantly home loans). FGAS offers guarantees from the French government for secured loans. Loans covered by FGAS guarantees granted before December 31, 2006 are given a 0% risk weight and loans covered by guarantees grantedafter that date have arisk weightof 15%. BY TYPE OF GUARANTOR For home loan exposures,most collateraltakes the form of mortgages (risk diversified by definition, bank better protected by basing credit approval decisions on customer income), Insurance-oriented guarantees such as those provided by CEGC (a subsidiary of Groupe BPCE, subject to regular stress testing), Crédit Logement (providing guarantees to multiple banks subject to the same constraints) and FGAS (controlled by the French State, considered equivalent to sovereign risk). The CASDEN guarantee, issued to government employees, currently offers solid resilience according to a model based onthe robust income of this particular customer base. For professional customer exposures, the most common guarantees are those provided by the Banque Publique d’investissement (BPI), subject to strict formal constraints, and mortgages. Guarantees provided by institutions such as SOCAMAs, whose solvency depends on the credit institutionsof Groupe BPCE,are also used. For corporate customers, the main guarantees used are Banque Publiqued’investissement mortgages and guarantees. Concentration of collateral volumes

Crédit Logementhas a long-termrating of Aa3 from Moody’s, with a stable outlook. For their home loans, the Banque Populaire and Caisse d’Epargne networks also use several mutual insurers, such as MGEN, Mutuelle de la Gendarmerie,etc. For professionaland corporate customers, the entire Group still uses Banque Publique d’Investissement, while calling on the European Investment Fund or European Investment Bank for guarantee packages inorder to substantially reduce credit risk. In some cases, organizationssuch as Auxiga are used for the seizure of inventory and the transfer of its ownership to the bank as collateral forcommitments made in the event of financialhardships. Finally, on an occasionalbasis, Natixis purchasescredit Insurancefor certain transactionsand in some circumstances,from private (SCOR) or public (Coface, Hermes, other sovereign agencies) reinsurance companies, while alsomakinguse of CreditDefault Swaps (CDSs). Credit derivatives serving as currency or interest rate hedges are entrustedto approvedclearinghouses in Europe or the US for Natixis operations inthis country. BY CREDIT DERIVATIVE PROVIDERS Regulationscall for the use of clearinghouses for interestrate risk on new exposures, which does not cover counterparty default risk, however (a granular risk). Volumes of collateral provided by clearing houses are gradually on the rise, generating a regulated and supervised risk. Currencyrisk is hedged for each CONTRACTby setting up margin calls at a frequencyappropriateto the risk in question: these transactions are secured by using specialist interbank counterparties, subject to individual limits authorized by the Group Credit and Counterparties Committee. BY CREDIT BUSINESS SECTOR GroupeBPCE has establishedsector-specificmechanismsto guide the guarantee policy based on the business sector in question. Appropriate recommendations are issuedto the institutions. BY GEOGRAPHIC AREA Groupe BPCE is mainly exposed to France and, via Natixis, to other countriesto a lesser extent. Accordingly,most guaranteesare located in France.

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Risk Report Pillar III 2018