BPCE - 2019 Universal Registration Document

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RISK REPORT

CAPITAL MANAGEMENT AND CAPITAL ADEQUACY

Without applying the phase-in measures (except for the 10% deduction of deferred tax assets on tax loss carryforwards) and without taking into account subordinated debt issues not eligible as additional Tier 1 capital, Groupe BPCE leverage ratio came to 5.3% at December 31, 2019 versus 5.3% at December 31, 2018. Financial conglomerate ratio As an institution exercising banking and insurance activities, Groupe BPCE is also required to comply with a financial conglomerate ratio. This ratio is determined by comparing the financial conglomerate’s total capital against all the regulatory capital requirements for its banking and insurance activities. The financial conglomerate ratio demonstrates that the institution’s prudential capital sufficiently covers the total regulatory capital requirements for its banking activities (in accordance with CRR) and insurance activities, based on the solvency margin established under Solvency 2. The calculation of surplus capital is based on the statutory scope. Insurance company capital requirements, determined for the banking capital adequacy ratio by weighting the equity-method value, are replaced with capital requirements based on the solvency margin. Capital requirements within the banking scope are determined by multiplying risk-weighted assets by the rate in force under Pillar II, i.e. 13.48% at December 31, 2019 versus 12.13% at December 31, 2018. Groupe BPCE expects to take into account the positive effect of the Decree of 24 December 2019 on life insurance surplus capital. At December 31, 2019, Groupe BPCE’s surplus capital amounted to €21 billion. 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. • SUPERVISORY REVIEW AND EVALUATION PROCESS SREP-ICAAP PROCESS

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. OUTLOOK 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. 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.

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UNIVERSAL REGISTRATION DOCUMENT 2019 | GROUPE BPCE

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