BPCE - 2019 Universal Registration Document

FINANCIAL REPORT

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

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ASSETS AT AMORTIZED COST

Accounting principles Assets at amortized cost are SPPI financial assets managed under a hold to collect business model. Most loans originated by the Group are classified in this category. Information about credit risk is provided in Note 7.1. Financial assets at amortized cost include loans and receivables due from banks and customers as well as securities at amortized cost such as treasury bills and bonds. Loans and receivables are initially recorded at fair value plus any costs and less any income directly related to the arrangement of the loan or to the issue. When loans are extended under conditions that are less favorable than market conditions, a discount corresponding to the difference between the nominal value of the loan and the sum of future cash flows discounted at the market interest rate is deducted from the nominal value of the loan. The market interest rate is the rate applied by the vast majority of local financial institutions at a given time for instruments and counterparties with similar characteristics. On subsequent balance sheet dates, these financial assets are measured at amortized cost using the effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash flows (payments or receipts) to the carrying amount of the loan at inception. This rate includes any discounts recorded in respect of loans granted at below-market rates, as well as any external transaction income or costs directly related to issue or implementation of the loans, which are treated as an adjustment to the effective yield on the loan. No internal cost is included in the calculation of amortized cost. Loan renegotiations and restructuring When contracts are modified, IFRS 9 requires the identification of financial assets that are renegotiated, restructured or otherwise modified (whether or not as a result of financial hardship), but not subsequently derecognized. Any profit or loss arising from the modification of a contract is recognized in income. The gross carrying amount of the financial asset must be recalculated so it is equal to the present value of the renegotiated or amended contractual cash flows at the initial effective interest rate. The materiality of the modifications is, however, analyzed on a case by case basis. The treatment of loans restructured due to financial hardship is similar under IFRS 9 as under IAS 39: a discount is applied to loans restructured following a credit loss event (impaired, Stage 3) to reflect the difference between the present value of the contractual cash flows expected at inception and the present value of expected principal and interest repayments

after restructuring. The discount rate used is the original effective interest rate. This discount is expensed to “Cost of credit risk” in the income statement and offset against the corresponding item on the balance sheet. It is written back to net interest income in the income statement over the life of the loan using an actuarial method. If the discount is immaterial, the effective interest rate on the restructured loan is adjusted and no discount is recognized. The restructured loan is reclassified as performing (not impaired, Stage 1 or Stage 2) when no uncertainty remains as to the borrower’s capacity to honor the commitment. For substantially restructured loans (for example, the conversion of all or part of a loan into an equity instrument), the new instruments are booked at fair value and the difference between the carrying amount of the derecognized loan (or portion of the loan) and the fair value of the assets received in exchange is taken to income under “Cost of credit risk”. Any impairment previously recorded on the loan is adjusted and fully reversed if the loan is fully converted into a new asset. Fees and commissions Costs directly attributable to the arrangement of loans are external costs which consist primarily of commissions paid to third parties such as business provider fees. Income directly attributable to the issuance of new loans principally comprises set-up fees charged to customers, rebilled costs and commitment fees (if it is more probable than improbable that the loan will be drawn down). Commitment fees received that will not result in any drawdowns are apportioned on a straight-line basis over the life of the commitment. Expenses and income arising on loans with a term of less than one year at inception are deferred on a pro rata basis with no recalculation of the effective interest rate. For floating or adjustable rate loans, the effective interest rate is adjusted at each rate refixing date. Date of recognition Securities are recorded in the balance sheet on the settlement-delivery date. Temporary transfers of securities are also recorded on the settlement-delivery date. The first-in, first-out (FIFO) method is applied to any partial disposals of securities, except in special cases. For repurchase transactions, a loan commitment given is recorded between the transaction date and the settlement-delivery date.

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UNIVERSAL REGISTRATION DOCUMENT 2019 | GROUPE BPCE