BPCE - 2019 RISK REPORT Pillar III

CAPITAL MANAGEMENT AND CAPITAL ADEQUACY

MANAGEMENT OF CAPITAL ADEQUACY

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; documentation established by each banking institution, • including in particular the Internal Capital Adequacy Assessment Process (ICAAP) and the Internal Liquidity Adequacy Assessment Process (ILAAP); an assessment of the institution’s governance, business • model and information system. Based on the conclusions of the SREP carried out by the ECB in 2019, Groupe BPCE shall maintain a consolidated Common Equity Tier 1 ratio of 9.98% at January 1, 2020, including: 1.75% in respect of Pillar II requirements (excluding Pillar II • guidance); 2.50% in respect of the capital conservation buffer; • 1.00% in respect of the buffer for global systemically • important banks (G-SIB buffer); 0.23% in respect of the countercyclical buffer. • At December 31, 2019, Groupe BPCE had already achieved the targets set for the Common Equity Tier 1 ratio (>15.5%) and TLAC ratio (>21.5%) in the 2018-2020 strategic plan. Even so, the Group as a whole will remain focused on continuously improving its financial strength in 2020. The Group remained on the list of G-SIBs (Global Systemically Important Banks) in November 2019. MREL – TLAC In addition to capital adequacy ratios, ratios aimed at verifying the Group’s capacity to carry out a bail-in in the event of default are implemented via the Minimum Requirement for own funds and Eligible Liabilities (MREL) and Total Loss Absorbing Capacity (TLAC). Groupe BPCE has established internal oversight of these indicators. The MREL (Minimum Requirement for own funds and Eligible Liabilities) ratio was introduced by BRRD 1. Senior unsecured debt with a maturity of more than one year and the Group’s own funds make up the numerator of the MREL ratio. In November 2015, the Single Resolution Board published a provisional methodology for setting the MREL requirement under the current regulatory framework. This methodology sets the MREL requirement based on risk-weighted assets equal to double the sum of total capital requirements, including buffers, minus 125 basis points. The Single Resolution Board set Groupe BPCE’s MREL requirement in 2018 and a new notification was received in January 2020. Outlook

The corresponding total capital requirement will be 13.48% (excluding Pillar II guidance). With a Common Equity Tier 1 ratio of 15.7% at end-2019, • Groupe BPCE has exceeded the specific capital requirements set by the ECB. As regards the internal capital adequacy assessment under • Pillar II, the principles defined in the ICAAP/ILAAP guidelines published by the ECB in February 2018 were applied in Groupe BPCE’s ICAAP. The assessment is thus carried out using two different approaches: a “normative” approach aimed at measuring the impact of • internal stress tests within three years of the initial Pillar I regulatory position; an “economic” approach aimed at identifying, quantifying and • hedging risks using internal capital over the short term (one year) and using internal methodologies. The methodologies developed by Groupe BPCE provide a better assessment of risks that are already covered under Pillar I, and also an additional assessment of risks that are not covered by Pillar I. The results obtained using these two approaches confirmed the Group’s financial soundness and no capital buffer is necessary in addition to the existing regulatory buffers. The new total MREL requirement has been set at a level equivalent to 24.2% of the Group’s risk-weighted assets (RWA) at end-December 2017, i.e. 23.2% at end-2019, down slightly from the initial requirement set in April 2018. Standing at 29.2% at December 31, 2019, Groupe BPCE’s total effective MREL ratio sits well above current requirements. With the notification received in January 2020, the Group also received its subordinated MREL requirement for the first time, set at a level equivalent to 19.5% of RWA at end-December 2017, i.e. 18.7% at end-2019 with a total effective ratio of 23.3%. For subordinated MREL, the numerator only includes junior liabilities through senior non-preferred debt. As BRRD2, published in June 2019, is being transposed into national law, the methodology for setting the requirement may change. The Single Resolution Board, the authority in charge of setting the requirement, will communicate its new methodology. The TLAC ratio serves the same purpose as subordinated MREL and only applies to G-SIBs. CRR 2, published at the same time as BRRD 2, transcribed TLAC into positive law. As indicated above, the Group has set its own TLAC target above the regulatory requirement, which is 19.74% of RWAs in 2020. TLAC (Total Loss Absorbing Capacity) amounted to €98.2 billion at end-December 2019. The TLAC ratio was 23.3% at December 31, 2019 versus 22.5% at December 31, 2018 (pro forma).

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RISK REPORT PILLAR III 2019 | GROUPE BPCE