BPCE - 2019 Universal Registration Document

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FINANCIAL REPORT

BPCE PARENT COMPANY ANNUAL FINANCIAL STATEMENTS

For non-performing loans and receivables, accrued interest or interest due but not yet received is recognized in banking income and impaired accordingly. For irrecoverable loans and receivables, accrued interest due but not yet received is not recognized. Non-performing loans and receivables are reclassified as performing once the obligor resumes regular payments in accordance with the original repayment schedule, provided that the counterparty is no longer considered to be at risk of default. Repurchase agreements Securities repurchase agreements are recognized in accordance with ANC Regulation No. 2014-07, supplemented by FBF Instruction No. 94-06, as amended. The assets sold continue to be recorded in the vendor’s balance sheet of the vendor, with a corresponding entry for the amount collected, representing its debt to the purchaser, under liabilities. The buyer records the amount paid under assets, representing the amount owed to the vendor. At each balance sheet date, the assets, as well as the liability towards the buyer or the amount owed to the vendor, are measured in accordance with the rules specific to these transactions. Impairment Loans for which recovery is uncertain result in the recognition of an impairment loss on the asset to cover the risk of loss. Impairment losses are calculated on a case-by-case basis, taking into account the present value of guarantees received. They are determined at least quarterly and are calculated in reference to available guarantees and a risk analysis. At a minimum, impairment losses cover the interest not received on non-performing loans. Impairment for probable losses includes all impairment charges, calculated as the difference between the principal amount outstanding and the projected cash flows discounted at the initial effective interest rate. Projected cash flows are determined by category of receivables, based on past losses and/or expert analysis, and are positioned over time using debt schedules based on past collection records. Impairment charges and reversals recognized for non-recovery risk are recorded under “Cost of risk” except for the impairment of interest on non-performing loans and receivables, which is recorded as impaired interest under “Interest and similar income”. The reversal of the impairment related to the passage of time alone is recorded under “Cost of risk”. Irrecoverable loans and receivables are written off as losses and the corresponding impairment allowances are reversed.

Restructured loans Within the meaning of ANC Regulation No. 2014-07, restructured loans are non-performing loans and receivables whose initial characteristics (term, interest rate) are modified to allow the counterparties to repay the amounts due. A discount is taken on restructured loans to reflect the difference between the present value of the contractual cash flows at inception and the present value of expected principal and interest repayments after restructuring. The discount rate used for fixed-rate loans is the initial effective interest rate and the discount rate used for variable-rate loans is the most recent effective interest rate prior to the restructuring date. The effective rate is the contractual rate. This discount is expensed to “Cost of risk” in income and offset against the corresponding outstanding in 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. A restructured loan may be reclassified as performing when the new repayment dates are observed. When a loan that has been reclassified becomes overdue, regardless of the restructuring terms agreed, the loan is downgraded to non-performing. Non-performing loans and receivables Non-performing loans and receivables consist of all outstanding amounts (whether or not they are due, guaranteed or other), where at least one commitment made by the obligor has involved a known credit risk, classified as such on an individual basis. Loans are considered “at risk” when it is probable that the Group will not collect all or part of the sums due under the terms of the commitments made by the counterparty, notwithstanding any guarantees or collateral. Non-performing loans are identified in compliance with ANC Regulation No. 2014-07, particularly in the case of loans with payments more than three months past due (more than six months past due for real estate loans and more than nine months past due for loans to local authorities). Non-performing loans are considered to be irrecoverable when full or partial collection is deemed to be highly unlikely and a write-off is considered. Loans and receivables whose terms have lapsed, terminated lease financing arrangements and perpetual loans which have been rescinded, are considered as irrecoverable. The existence of guarantees covering nearly all risks, along with the conditions for classification as non-performing loans and receivables, shall be taken into consideration in order to qualify a non-performing loan as irrecoverable and to assess the associated impairment provision. A debt that has been classified as non-performing for more than one year is assumed to be irrecoverable, unless a write-off is not foreseen. Reclassification of a debt from non-performing to irrecoverable does not automatically entail the reclassification of the counterparty’s other non-performing loans and commitments to irrecoverable.

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UNIVERSAL REGISTRATION DOCUMENT 2019 | GROUPE BPCE

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