BPCE - 2020 Universal Registration Document

FINANCIAL REPORT

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

7.1.1

COST OF CREDIT RISK

Accounting principles Cost of risk applies to debt instrumentsclassifiedas financial assets at amortizedcost or at fair value throughother comprehensive income recyclable to profit or loss as well as to loan commitmentsand financial guaranteesgiven that are not recognizedat fair value through profit or loss. It also applies to receivables relatintog leasing contracts, business loans and contract assets. This item therefore covers net impairment and provision charges for credit risk. Credit losses related to other types of instruments (derivatives or securities designated at fair value through profit or loss) recorded as a result of the default of the counterparty of the credit institution are also included under this item. Irrecoverable loans not covered by provisions for impairment are loans that have acquired the character of permanent loss before being provisioned in Stage 3.

Cost of credit risk for the period

Fiscal year 2020

Fiscal year 2019

in millions of euros

Net charge to provisions and provisions for impairment

(2,901)

(1,280)

Recoveries of bad debts written off

35

69

Irrecoverable loans not covered by provisions for impairment

(132)

(156)

(2,998)

(1,367)

TOTAL COST OF CREDIT RISK

Cost of credit risk for the period by type of asset

Fiscal year 2020

Fiscal year 2019

in millions of euros

Interbank transactions Customer transactions Other financial assets

(72)

8

(2,864)

(1,320)

(62)

(54)

TOTAL COST OF CREDIT RISK

(2,998)

(1,367)

5

This item also includes impairment charges potentially recognized when there is a known risk of counterparty default on financial instruments traded over-the-counter and recorded as financial assets at fair value through profit or loss, for €33 million in 2020.

7.1.2

CHANGE IN GROSS CARRYING AMOUNTS AND EXPECTED CREDIT LOSSES ON FINANCIAL ASSETS

AND COMMITMENTS

Accounting principles General principles

Stage 1 (S1) these are performing loans for which credit risk has not • increased materially since the initial recognition of the financial instrument; the impairment or the provision for credit risk corresponds • to 12-month expected credit losses; interest income is recognized in income using the effective • interest method applied to the gross carrying amount of the instrument before impairment. Stage 2 (S2) performing loans for which credit risk has increased • materially since the initial recognition of the financial instrument are transferred to this category; the impairment or the provision for credit risk is • determined on the basis of the financial instrument’s lifetime expected credit losses;

Expected credit losses are represented by impairments of assets classified at amortized cost and at fair value through other comprehensiveincome, and by provisions for loan and guarantee commitments. The financial instruments concerned (see Note 7.1.1) are impaired or covered by a provision for expected credit losses (ECL) as of the date of initial recognition. When the financial instruments do not individually show objective evidence of loss, impairment or provisions for expected credit losses are measured based on past losses and reasonable and justifiable discounted future cash flow forecasts. Financial instruments are divided into three categories (Stages) depending on the increase in credit risk observed since initial recognition. A specific credit risk measurement method applies to each category of instrument:

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UNIVERSAL REGISTRATION DOCUMENT 2020 | GROUPE BPCE