BPCE - 2019 RISK REPORT Pillar III

SECURITIZATION TRANSACTIONS

REGULATORY FRAMEWORK AND ACCOUNTING METHODS

“Securities at amortized cost” is impaired under “Cost of credit risk” in respect of Stage 1 or Stage 2 expected credit losses following a significant increase in credit risk. Where a position booked to “Securities at amortized cost” is transferred to Stage 3 (defaulted exposures), the impairment is recorded under “Cost of credit risk” (Note 6.1.2 to the financial statements – “Change in gross carrying amounts and expected credit losses on financial assets and commitments”). If a position is sold, the Group recognizes capital gains or losses on disposal in profit or loss under “Net gains or losses resulting from derecognition of financial assets at amortized cost”, unless the debt is in default: in such case, it is booked to “Cost of credit risk”. Securitization positions classified as “Financial assets at fair value through other comprehensive income” are remeasured at their fair value at the closing date. Interest income accrued or received on debt instruments is recognized in income based on the effective interest rate under “Interest and similar income” in net banking income (NBI), while changes in fair value (excluding revenues) are recorded on a separate line in other comprehensive income under “Gains and losses recognized directly in other comprehensive income”. They are impaired in respect of Stage 1, 2 or 3 expected credit losses, in accordance with the same methodology used for positions classified as “Securities at amortized cost”. This impairment is recorded on the liabilities side of the balance sheet under other comprehensive income recyclable to profit or loss, with a corresponding entry to “Cost of credit risk” in the income statement (Note 6.1.2 to the financial statements – “Change in gross carrying amounts and expected credit losses on financial assets and commitments”). If the position is sold, the Group recognizes the capital gains or losses on disposal in profit or loss under “Net gains or losses on financial instruments at fair value through other comprehensive income” unless the position is in Stage 3. In such case, the loss is recognized in “Cost of credit risk”. Securitization positions classified as “Financial assets at fair value through profit or loss” are measured at fair value, at both the initial recognition date and the reporting date. Changes in fair value over the period, interest, and gains or losses on disposals related to securitization positions are recognized in

“Net gains or losses on financial instruments at fair value through profit or loss”. Synthetic securitizations such as Credit Default Swaps are subject to accounting recognition rules specific to trading derivatives (Note 4.10 to the financial statements – “Financial assets and liabilities at fair value through profit or loss”). In accordance with IFRS 9, securitized assets are derecognized when Groupe BPCE has transferred substantially all of the risks and rewards of ownership of the asset. If the Group transfers the cash flows of a financial asset but neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, and has not retained control of the financial asset, the Group derecognizes the financial asset and then recognizes separately, if necessary, as assets or liabilities any rights and obligations created or retained in the transfer. If the Group retains control of the financial asset, it continues to recognize the financial asset to the extent of its continuing involvement in the financial asset. When a financial asset at amortized cost or at fair value through other comprehensive income is fully derecognized, a gain or loss on disposal is recorded in the income statement. The amount is equal to the difference between the carrying amount of the asset and the value of the consideration received, corrected for impairment, and where applicable for any unrealized profit or loss previously recognized directly in other comprehensive income. Given the relatively low value of the assets in question and relative infrequency of securitization transactions, assets pending securitization continue to be recognized in their original portfolio. Specifically, they continue to be recognized under “Loans and receivables due from customers at amortized cost” when that is their original classification. For synthetic securitization transactions, assets are not derecognized as long as the institution retains control over them. The assets continue to be recognized in accordance with their original classification and valuation method. Consolidation or non-consolidation of securitization vehicles is analyzed in accordance with IFRS 10 based on the institution’s ties with the vehicle. These principles are reiterated in Note 3.2.1 to the financial statements – “Entities controlled by the Group”.

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RISK REPORT PILLAR III 2019 | GROUPE BPCE