BPCE - 2019 Universal Registration Document

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FINANCIAL REPORT

IFRS CONSOLIDATED FINANCIAL STATEMENTS OF BPCE SA GROUP AS AT DECEMBER 31, 2019

indicate the insurance entities that apply IAS 39; • disclose specific additional information in the notes to the • financial statements. On November 14, 2018, the IASB decided to delay the implementation of IFRS 17 “Insurance Contracts” by one year to January 1, 2022. It also decided to defer the expiry of insurance companies’ temporary exemption from IFRS 9 to January 1, 2022, to align it with the application of IFRS 17. As BPCE SA group is a financial conglomerate, it elected to apply this provision to its insurance businesses, which continue to be covered by IAS 39. The main entities affected by this measure are CEGC, the insurance subsidiaries of COFACE, Natixis Assurances, BPCE Vie and its consolidated funds, Natixis Life, BPCE Prévoyance, BPCE Assurances, BPCE IARD and Surassur. In accordance with the Implementing Regulation of November 3, 2017, the Group took the necessary steps to prohibit any transfer of financial instruments between its insurance sector and the rest of the Group that would lead to derecognition for the transferring entity; this restriction is not, however, required for transfers of financial instruments measured at fair value through profit or loss by the two sectors involved. Regulation (EU) 2017/2395 dated December 12, 2017 relating to transitional arrangements for mitigating the impact of the introduction of IFRS 9 on capital and for the large exposures treatment of certain public-sector exposures was published in the Official Journal on December 27, 2017. BPCE SA group has decided not to opt to neutralize IFRS 9 transitional impacts at the prudential level due to the limited impact when applying the standard. IFRS 16 IFRS 16 “Leases” replaces IAS 17 “Leases” and the interpretations related to the accounting treatment of such contracts. Adopted by the European Commission on October 31, 2017, it been applied since January 1, 2019. IFRS 16 applies to contracts that, irrespective of their legal form, meet the definition of a lease as laid down by the standard. The standard requires the identification of an asset and that the lessee controls the right to use this asset for a period of time. Control is established if the lessee holds the following two rights throughout the period of use: the right to obtain almost all of the economic benefits arising • from use of the asset; the right to decide how the asset is used. • IFRS 16 affects how the lessee recognizes operating leases for which the associated lease payments were previously recognized in income. From the lessor’s perspective, the accounting principles do not change substantially in relation to IAS 17. With certain exceptions, lessees are required under IFRS 16 to record leases in the balance sheet as a right-of-use asset under “Property, plant and equipment” or “Investment property”, and as lease liabilities under “Other liabilities”. The accounting principles applied by BPCE SA group are described in Note 12.2.2. At its meeting of November 26, 2019, the IFRS Interpretation Committee (IFRS IC) issued clarifications on the application of

IFRS 16 pertaining to the methods used to assess lease terms. The impacts of these methods are currently being analyzed. They may lead the Group to review its deployment of accounting principles as applied at December 31, 2019, particularly for the determination of the terms of leases represented by commercial leases under French law. BPCE SA group has decided to use the exceptions laid down in the standard by not modifying the accounting treatment of short-term leases (less than 12 months) or that of low-value underlying assets, which will continue to be recognized in operating expenses as an expense for the period. BPCE SA group has also opted, as lessee, not to apply IFRS 16 to leases involving intangible assets. In view of the extremely limited impact of the recognition of leasing contracts for vehicles, the Group has decided not to change their accounting treatment. For leases recognized in the balance sheet, the expense relating to the lease liability is reported as an interest expense under net banking income while the depreciation expense on the right-of-use asset is reported as a depreciation expense under gross operating income. Regarding BPCE SA group’s activities, the implementation of IFRS 16 mainly affects real estate assets leased for operational purposes as offices and sales branches. For the first-time application of this standard, the Group has chosen the modified retrospective approach. This method involves assessing, at the date of application, the lease liability based on remaining lease payments using the lessee’s incremental borrowing rate applicable over the remaining term of the contracts. In particular, the option not to recognize on the balance sheet leases for low-value assets and leases with a remaining lease term of 12 months or less (in particular for leases set to be automatically renewed at January 1, 2019) was applied. The amount of lease liabilities so determined at January 1, 2019 totaled €1.5 billion, recorded under “Accrued expenses and other liabilities”. This amount is the present value of lease payments remaining to be paid over the residual term of the lease (within the meaning of IFRS 16) at January 1, 2019. The average weighted discount rate used at that date was 1.7%. This amount may be compared with the information presented in Note 12.2.2 of the 2018 Registration Document on future minimum payments under leasing transactions as lessee by taking into account the following differences: in accordance with IFRS 16, future minimum payments • relating to leases to which the Group is committed but whose underlying assets have not yet been made available are not recognized on the balance sheet prior to their commencement date and are thus not included in the amount of lease liabilities. lease liabilities are determined without VAT (including • non-recoverable VAT), whereas the information disclosed at December 31, 2018 included VAT; lease liabilities are initially determined by discounting lease • payments over the lease terms, in accordance with IFRS 16. Lease payments recognized in off-balance sheet commitments at December 31, 2018, are not discounted. The discounting effect recognized at January 1, 2019 amounted to -€109 million;

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UNIVERSAL REGISTRATION DOCUMENT 2019 | GROUPE BPCE

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