BPCE - 2019 Universal Registration Document

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RISK REPORT

CREDIT RISKS

DIVISION OF RISKS The division of risks is a credit risk mitigation technique. It is reflected in the individual or topical limit systems and helps reduce each institution’s sensitivity to risks considered either individually or sectorally to be too significant to carry in the event of major incidents. Risk supervision activities may be implemented to reduce exposure to a given risk if it is deemed too high. They also contribute to effective division of risks. GUARANTORS The Banque Populaire network has historically used professionals and Mutual Guarantee Companies (such as SOCAMAs, which guarantee loans to craftsmen) to secure its loans, in addition to the real guarantees used. For loans to individual customers, it also turns to CASDEN Banque Populaire (and primarily its Parnasse Garanties structure) to back loans to all civil servants, to Crédit Logement and increasingly to Compagnie Européenne de Garanties et de Cautions (CEGC, a subsidiary of BPCE SA). For home loans, the Caisse d’Epargne network mainly calls on CEGC, FGAS (Fonds de garantie à l’accession sociale à la propriété) and, to a lesser extent, Crédit Logement (a financial institution and a subsidiary of most of the main French banking networks). These institutions specialize in the provision of guarantees for bank loans (predominantly home loans). FGAS offers guarantees from the French government for secured loans. Loans covered by FGAS guarantees granted before December 31, 2006 are given a 0% risk weigh, and loans covered by guarantees granted after that date have a risk weight of 15%. Crédit Logement has a long-term rating of Aa3 from Moody’s, with a stable outlook. For their home loans, the Banque Populaire and Caisse d’Epargne networks also use several mutual insurers, such as MGEN, Mutuelle de la Gendarmerie, etc. For professional and corporate customers, the entire Group still uses Banque Publique d’Investissement, while calling on the European Investment Fund or European Investment Bank for guarantee packages in order to substantially reduce credit risk. In some cases, organizations such as Auxiga are used for the seizure of inventory and the transfer of its ownership to the bank as collateral for commitments made in the event of financial hardships. Finally, on an occasional basis, Natixis purchases credit insurance for certain transactions and in some circumstances, from private (SCOR) or public (Coface, Hermes, other sovereign agencies) reinsurance companies, while also making use of Credit Default Swaps (CDS). Credit derivatives serving as currency or interest rate hedges are entrusted to approved clearing houses in Europe or the US for Natixis operations in this country.

The effect of this collateral is to: reduce the credit risk incurred on an exposure, given the rights • of the institution subject to exposure, in the event of default or other specific credit events affecting the counterparty; obtain the transfer of ownership of certain amounts or assets. • A personal guarantee is collateral that reduces the credit risk on an exposure, due to the commitment provided by a third party to pay a set amount if the counterparty defaults or due to any other specific event. Under the standardized approach: Personal guarantees and real guarantees are accounted for, subject to eligibility, using an enhanced weighting of the guarantee portion of the exposure. Real guarantees such as cash or liquid collateral are deducted from the gross exposure. Under the IRB approach: Excluding retail customers, real guarantees are taken into account, subject to eligibility, by decreasing the Loss Given Default applicable to the transactions. Personal guarantees are recognized, subject to eligibility, by substituting a third party’s PD with that of a guarantor. Retail customers subject to A-IRB approach: Excluding retail customers, real guarantees are taken into account, subject to eligibility, by decreasing the Loss Given Default applicable to the transactions. Articles 207 to 210 of Capital Requirements Regulation (CRR) No. 575/2013 set out the conditions for the recognition of guarantees, in particular: the credit quality of the obligor and the value of the collateral • shall not have a material positive correlation. Securities issued by the obligor shall not qualify as eligible collateral; the institution shall properly document the collateral • arrangements and have in place clear and robust procedures for the timely liquidation of collateral; the institution shall have in place documented policies and • practices concerning the types and amounts of collateral accepted; the institution shall calculate the market value of the collateral, • and revalue it accordingly, whenever it has reason to believe that a significant decrease in the market value of the collateral has occurred. Risk diversification is one technique for mitigating credit risk. In practice, individual or topical caps and limits are defined, thus reducing the bank’s sensitivity to risks deemed excessive, either individually or industry-wide, in the event of a major incident. Risk supervision mechanisms can reduce risk exposures if the risk is deemed too high, thus also contributing to good risk diversification. ACCOUNTING RECOGNITION UNDER THE STANDARDIZED OR IRB APPROACH CONDITIONS FOR THE RECOGNITION OF GUARANTEES

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UNIVERSAL REGISTRATION DOCUMENT 2019 | GROUPE BPCE

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