BPCE - 2020 Universal Registration Document

FINANCIAL REPORT

IFRS CONSOLIDATED FINANCIAL STATEMENTS OF GROUPE BPCE AS AT DECEMBER 31, 2020

The health crisis has heavily impacted the economy, with major repercussions for many sectors. Owing to the exceptional circumstances and uncertainties, Groupe BPCE used various communicationsfrom ESMA, the EBA, the ECB and the IASB as guidance when determining expected credit losses in the context of the Covid-19 crisis. Accordingly, Groupe BPCE revised its forward-lookingeconomic forecasts to take account of the Covid-19 situation and the economic support measures taken in response. The Group applied three main scenarios to calculate its IFRS 9 provisions with projections to 2023: the core scenario was updated based on the scenarios • determined by the Group’s economists in September 2020;

a pessimistic scenario, corresponding to a more severe • deterioration in the macro-economic variables defined in relation to the core scenario; an optimistic scenario, corresponding to an improvement in • the macro-economic variables defined in relation to the core scenario. Following the historic economic shock from Covid-19 in 2020, the core scenario sees a sharp recovery in GDP as from 2021, returning gradually to a more normal long-term economic growth trend over the years that follow. Economic activity should get back to pre-crisis (2019) levels by 2023. We show below the 4-year projections for key economic variables used, based on the scenario of the Group's economists for each range limit:

Optimistic

Core

Pessimistic

GDP Unemp.

10Y yld.

GDP Unemp.

10Y yld.

GDP Unemp.

10Y yld.

2020 2021 2022 2023

(5.8%)

7.4% 0.30% (9.6%)

8.5% (0.11%)

(12.3%)

11.5% (0.60%)

10.0% 8.7% 0.70% 7.2% 10.0% 0.01% 4.0% 12.5% (0.40%) 4.3% 7.9% 0.82% 2.6% 9.3% 0.13% 0.9% 11.7% (0.28%) 2.8% 7.6% 0.94% 1.6% 9.0% 0.25% 0.4% 11.4% (0.16%)

In addition, Groupe BPCE has extended and adapted this approach by adjusting for a number of factors specific to certain scopes or significant markets: Each scenario is therefore weighted based on how close it is to the consensus forecast for the main economic variables in each scope or significant market of the Group. For Retail Banking, projections are calculated using the main economic variables such as GDP, unemployment and interest rates on 10-year French sovereign debt. For Corporate & Investment Banking, the economic variables applied relate to the international situation and make greater use of financial and market data. For Retail Banking, economic scenarios have been adapted to take account of uncertainties surrounding economic forecasts and economic support measures (SGL, partial furlough, tax breaks). The result of these adaptations is to: mitigate the suddennessand intensity of the crisis with a 60% • moderating factor applied to GDP impacts under the scenarios. For instance, in the central scenario, the GDP figure projected is a weighted average of the scenario's starting value (-9.6% weighted 40%) and long-term growth in France (+1.4%, weighted 60%). This adjustment is consistent with the ECB's communications on accounting for the Covid-19 under IFRS 9 and the EBA's guidance on moratoria; and spread the effects of the crisis over a longer period, pushing • back the scenario by nine months, which means it takes an additional nine months for the worsening of GDP and other variables to feed through to probabilities of default. These adjustments reflect the positive impacts of the various measures taken by the government to prop up the economy: most notably defaults are reduced and delayed. In addition, due to the difficulty of accurately assessing the risk situation of counterparties, additional conservative adjustments to ECL were made for an amount of €239 million:

for Medium-sized Companies’ credit portfolios, which do not • have automatic ratings, the ratings of certain counterparties have been downgraded using a rating scale distributed within the Group’s institutions.Ratings take into account the debtor's additional debt resulting from their recourse to economic support measures (such as SGLs); on the credit portfolios of Professionalsand Small Enterprises, • which are automatically rated, the mechanical improvement of ratings under the effect of government support measures (positive impact of the moratoria and SGLs on the cash position of these counterparties) was neutralized and the lowest rating since March 2020 has been taken into account. Lastly, additional provisions amounting to €795 million have been recognized by the entities within Groupe BPCE to cover specific risks in their portfolios, in addition to the provisions described above and calculated using Group tools. These provisions mainly concern the tourism, hotel, restaurant, specialized retailing and aeronautics sectors. With the Covid-19 crisis, the Group has considerably strengthened the monitoring of the affected sectors. A sector-based approach to monitoring market developments in each economic sector and sub-sector has been implemented. It aims to improve on the existing sector monitoring framework and is applied centrally by the risk management department with monthly updates. In summary, the main changes made in 2020 to the calculation of expected credit loss were on: updating of economic scenarios in September to better reflect • changes in forecasts (pre-crisis, scenarios were only updated annually, in June); adaptation of the method for weighting economic scenarios to • reflect the high levels of uncertainty in current circumstances, which translate as widely disparate upper and lower limits for each scenario;

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UNIVERSAL REGISTRATION DOCUMENT 2020 | GROUPE BPCE