BPCE - 2019 Universal Registration Document

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RISK REPORT

SECURITIZATION TRANSACTIONS

Given the relatively low value of the assets in question and relative infrequency of securitization transactions, assets pending securitization continue to be recognized in their original portfolio. Specifically, they continue to be recognized under “Loans and receivables due from customers at amortized cost” when that is their original classification. For synthetic securitization transactions, assets are not derecognized as long as the institution retains control over them. The assets continue to be recognized in accordance with their original classification and valuation method. Consolidation or non-consolidation of securitization vehicles is analyzed in accordance with IFRS 10 based on the institution’s ties with the vehicle. These principles are reiterated in Note 3.2.1 to the financial statements – “Entities controlled by the Group”. TERMINOLOGY Traditional securitization: the economic transfer to investors of financial assets such as loans or receivables, transforming these loans into financial securities issued on the capital market via SSPEs (securitization special purpose entities). Synthetic securitization: in a synthetic transaction, ownership of the asset is not transferred but the risk is transferred through a financial instrument, i.e. the credit derivative. Resecuritization: a securitization in which the credit risk associated with a portfolio of underlying assets is divided into tranches and for which at least one of the underlying asset exposures is a securitization position. Tranche: a contractually established segment of the credit risk associated with an exposure or number of exposures. Securitization position: an exposure to a securitization. Liquidity facility: the securitization position arising from a contractual agreement to provide funding to ensure timeliness of cash flows to investors. Originator: either an entity which, on its own or through affiliates, was directly or indirectly involved in the original agreement which created the obligations (or contingent obligations) of the obligor, giving rise to the securitization transaction or arrangement; or an entity that purchases a third party’s on-balance sheet exposures and then securitizes them. Sponsor: an institution other than an originator institution that establishes and manages an asset-backed commercial paper program or other securitization scheme that purchases exposures from third-party entities. Investor: the Group’s position when it holds securitization positions in which it has invested, but in which it does not act as originator or sponsor. These are mainly tranches acquired in programs initiated or managed by external banks.

Interest income accrued or received on debt instruments is recognized in income based on the effective interest rate under “Interest and similar income” in net banking income (NBI), while changes in fair value (excluding revenues) are recorded on a separate line in other comprehensive income under “Gains and losses recognized directly in other comprehensive income”. They are impaired in respect of Stage 1, 2 or 3 expected credit losses, in accordance with the same methodology used for positions classified as “Securities at amortized cost”. This impairment is recorded on the liabilities side of the balance sheet under other comprehensive income recyclable to profit or loss, with a corresponding entry to “Cost of credit risk” in the income statement (Note 6.1.2 to the financial statements – “Change in gross carrying amounts and expected credit losses on financial assets and commitments”). If the position is sold, the Group recognizes the capital gains or losses on disposal in profit or loss under “Net gains or losses on financial instruments at fair value through other comprehensive income” unless the position is in Stage 3. In such case, the loss is recognized in “Cost of credit risk”. Securitization positions classified as “Financial assets at fair value through profit or loss” are measured at fair value, at both the initial recognition date and the reporting date. Changes in fair value over the period, interest, and gains or losses on disposals related to securitization positions are recognized in “Net gains or losses on financial instruments at fair value through profit or loss”. Synthetic securitizations such as Credit Default Swaps are subject to accounting recognition rules specific to trading derivatives (Note 4.10 to the financial statements – “Financial assets and liabilities at fair value through profit or loss”). In accordance with IFRS 9, securitized assets are derecognized when Groupe BPCE has transferred substantially all of the risks and rewards of ownership of the asset. If the Group transfers the cash flows of a financial asset but neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, and has not retained control of the financial asset, the Group derecognizes the financial asset and then recognizes separately, if necessary, as assets or liabilities any rights and obligations created or retained in the transfer. If the Group retains control of the financial asset, it continues to recognize the financial asset to the extent of its continuing involvement in the financial asset. When a financial asset at amortized cost or at fair value through other comprehensive income is fully derecognized, a gain or loss on disposal is recorded in the income statement. The amount is equal to the difference between the carrying amount of the asset and the value of the consideration received, corrected for impairment, and where applicable for any unrealized profit or loss previously recognized directly in other comprehensive income.

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UNIVERSAL REGISTRATION DOCUMENT 2019 | GROUPE BPCE

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