BPCE - 2020 Universal Registration Document

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FINANCIAL REPORT

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

For Groupe BPCE, the “hold to collect” model applies to financing activities (excluding the loan syndication activity) carried out by retail banking, Corporate & Investment Banking and Specialized Financial Services; a mixed business model under which assets are managed • with the objective of both receiving contractual cash flows and disposing of financial assets (“hold to collect and sell model”). Groupe BPCE applies the hold to collect and sell model primarily to the portion of portfolio management activities for securities in the liquidity reserve that is not managed solely under a hold to collect model; a model intended for other financial assets, especially those • held for trading, for which the collection of contractual cash flows is incidental. This business model applies to the loan syndication activity (for the portion of outstandings to be sold that was identified at the outset) and to the capital market activities carried out primarily by Corporate & Investment Banking. Types of contractual cash flows: the SPPI (Solely Payments of Principal and Interest) test A financial asset is classified as generating solely payments of principal and interest if, on specific dates, it gives rise to cash flows that are solely payments of principal and interest on the outstanding amount due. The SPPI test should be performed for each financial asset on initial recognition. The principal amount is defined as the financial asset’s fair value at its acquisition date. Interest is the consideration for the time value of money and the credit risk incurred on the principal amount, as well as other risks such as liquidity risk, administrative costs and the profit margin. The instrument’s contractual terms must be taken into account to assess whether contractual cash flows are solely payments of principal and interest. All elements that may cast doubt as to whether only the time value of money and credit risk are represented must therefore be analyzed. For example: events that would change the amount and date of the cash; • any contractual option that creates risk exposure or cash flow volatility that is not consistent with a basic lending arrangement, such as exposure to fluctuations in the price of stocks or of a market index, or the introduction of leverage, would make it impossible to categorize contractual cash flows as SPPI; the applicable interest rate features (for example, consistency • between the rate refixing period and the interest calculation period. If a clear determination cannot be made through qualitative analysis, a quantitative analysis (a benchmark test) is carried out. This test involves comparing the contractual cash flows for the asset in question with the contractual cash flows of a benchmark asset; early redemption and extension conditions. For the borrower • or lender, a contractual option permitting prepayment of financial instruments does not violate the SPPI test for contractual cash flows if the prepayment amount mainly represents the unpaid amounts of principal and interest and, if applicable, a reasonable additional compensation for the early termination of the contract.

Furthermore, although they do not strictly meet the criteria for compensation of the time value of money, certain assets with a regulated interest rate are classified SPPI if this regulated rate provides consideration that corresponds substantially to the passage of time and presents no exposure to a risk that would be inconsistent with a basic lending arrangement. This is the case in particular for financial assets representing the portion of Livret A passbook savings account inflows that is centralized with Caisse des Dépôts et Consignations. Financial assets that generate SPPI are debt instruments such as fixed rate loans, floating rate loans without an interest rate tenor mismatch or that are not linked to a security or to a market index, and fixed rate or floating rate debt securities. Non-SPPI financial assets include UCITS units, convertible bonds and mandatory convertible bonds with a fixed conversion ratio and structured loans to local authorities. To qualify as SPPI assets, the securities held in a securitization vehicle must meet specific conditions. The contractual terms of the tranchemust meet the SPPI criterion. The pool of underlying assets must meet the SPPI conditions. The risk inherent in the tranche must be lower than or equal to the exposure to the vehicle’s underlying assets. A non-recourse loan ( e.g. infrastructure financing-type project financing) is a loan secured only by physical collateral. If there is no possible recourse to the borrower, the structure of other possible recourses or protection mechanisms for the lender in the event of default must be examined in order to categorize these loans as SPPI assets: acquisition of the underlying asset, collateral provided (security deposits, margin call, etc. ), Debt instruments (loans, receivables or debt securities) may be measured at amortized cost, at fair value through other comprehensiveincome recyclable to profit or loss or at fair value through profit or loss. A debt instrument is valued at amortized cost if it meets the following two conditions: the asset is held under a hold to collect business model; and • the contractual terms of the financial asset define it as • generating SPPI within the meaning of the standard. A debt instrument is valued at fair value through other comprehensive income if it meets the following two conditions: the asset is held under a hold to collect and sell business • model; and the contractual terms of the financial asset define it as • generating SPPI within the meaning of the standard. Equity instrumentsare, by default, recorded at fair value through profit or loss unless they qualify for an irrevocable option for valuation at fair value through other comprehensive income not recyclable to profit or loss (provided they are not held for trading purposes and accordingly classified as financial assets at fair value through profit or loss), without subsequently being reclassified through profit or loss. If opting for the latter category, dividends continue to be recognized in income. enhancements provided. Accounting categories

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UNIVERSAL REGISTRATION DOCUMENT 2020 | GROUPE BPCE

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