BPCE - 2020 Universal Registration Document

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FINANCIAL REPORT

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

1.5.2.2

Fair value of financial assets impacted

adaptation of economic variables to take into account • economic uncertaintiesand the impact of government support measures; for Retail Banking, neutralization of the automatic • improvement in the ratings of Professional and SME portfolios due to the effect of government support measures; for Corporate & Investment Banking, the sector-based • adjustment of the probabilities of default replaces the use of the change in the rating of the sector as a criterion for monitoring the deterioration of the risk. This more granular approach better captures the influence of the sector on credit risk by making counterparty ratings more important as a discriminatory factor. It also helps mitigate the pro-cyclical effects of the previous methodology, which systematically downgraded to Stage 2 all counterparty contracts in a sector whose rating had fallen below a given threshold; in consumer finance, the introduction of a model that • translates the new economic assumptions into a more granular segmentation of portfolios. Based on the scenarios mentioned above and after taking into account the methodological adjustments and support measures, the calculation of expected credit losses led Groupe BPCE to recognize a cost of credit risk of €1,358 million in 2020, an increase of €1,348 million compared to 2019. ECL SENSITIVITY ANALYSIS The sensitivity of Retail Banking's expected credit loss to uncertainty about the level of the moderating factor and a 3-month delay to the economic scenario has been estimated: a variation of the moderating factor of +/- 10% around the • scenario value of 60% has an impact of approximately +/- €34 million; an additional three-month delay, to twelve months, would • result in an additional allocation of approximately€83 million; an increase in the probability of occurrence of the pessimistic • scenario by 5%, at the expense of the central scenario, would result in the recognition of an additional allocation of €6 million. REGULATORY FRAMEWORK 2.1 The consolidated financial statements of Groupe BPCE were prepared under International Financial Reporting Standards (IFRS) as adopted by the European Union and applicable at the reporting date, excluding certain provisions of lAS 39 relating to hedge accounting. 2.2 The standards and interpretations used and detailed in the annual financial statements as at December 31, 2019 were complemented by standards, amendments and interpretations whose application is mandatory for reporting periods starting from January 1, 2020. ACCOUNTING STANDARDS Note 2

by the public health crisis In view of the impact of the Covid-19 health emergency on the financial markets, the value of some products was affected by illiquid markets during the year 2020. In this context, Natixis’ Corporate & Investment Banking activities were exposed to significant adjustments on certain valuation inputs, for example the “dividend” component: the suspension of dividend payments by many companies • practically wiped out most short-term dividends and was also reflected in the consensus values used to revalue this component; as the stressed market environment generated wide • fluctuations, the “volatility” input was also revalued for all transactions concerned. Equity interests in unlisted private equity funds are valued according to the International Private Equity and Venture Capital Valuation (IPEV) Guidelines, which are also recommended by Invest Europe. The value of Groupe BPCE’s holdings in unlisted funds (around €3 billion) was subject to an in-depth review at December 31, 2020. In the absence of a recent net asset value (NAV) established by the management company, or when it does not (or only partially) incorporate the effects of the crisis, a discount determined on the basis of a sector-based approach has been applied to the last available NAV. The valuation of investments held in real estate funds was also reviewed at December 31, 2020 and a discount was applied where appropriate to reflect the impact of the crisis on the valuation of the underlying assets. Any property discounts are based on estimates by BPCE Solutions Immobilières, which are calculated using macro-economic and property indicators (GDP per region, household disposable income per department, rent forecasts, rate of return forecasts, risk premium forecasts).

Applicable accounting standards and comparability

IFRS 9 replaced IAS 39 on January 1, 2018. It defines the new rules for classifying and measuring financial assets and liabilities, the new impairment methodology for the credit risk of financial assets, and hedge accounting, except for macro-hedging,which the International Accounting Standards Board (IASB) is currently studying in a separate draft standard. Groupe BPCE used the option available in IFRS 9 not to apply the provisions of the standard relative to hedge accounting, and to continue to apply IAS 39 as adopted by the European Union for the recognition of these transactions, i.e. excluding certain provisions relating to macro-hedging. In view of the limited volume of asset reclassifications, most transactions recognized using hedge accounting under IAS 39 continue to be disclosed in the same way from January 1, 2018. However, IFRS 7 amended by IFRS 9 requires additional information on hedge accounting to be provided in the Notes.

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UNIVERSAL REGISTRATION DOCUMENT 2020 | GROUPE BPCE

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