BPCE - 2020 Universal Registration Document

FINANCIAL REPORT

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

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ASSETS AT AMORTIZED COST

Accounting principles Assets at amortized cost are SPPI financial assets managed under a hold to collect businessmodel. Most loans originated by the Group are classified in this category. Informationabout credit risk is provided in Note 7.1. Financial assets at amortized cost include loans and receivables due from banks and customers as well as securities at amortized cost such as treasury bills and bonds. Loans and receivables are initially recorded at fair value plus any costs and less any income directly related to the arrangement of the loan or to the issue. When loans are extended under conditions that are less favorable than market conditions,a discount correspondingto the differencebetween the nominal value of the loan and the sum of future cash flows discounted at the market interest rate is deducted from the nominal value of the loan. The market interest rate is the rate applied by the vast majority of local financial institutions at a given time for instrumentsand counterparties with similar characteristics. On subsequentbalancesheet dates, these financial assets are measured at amortized cost using the effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash flows (payments or receipts) to the carrying amountof the loan at inception.This rate includesany discounts recorded in respect of loans granted at below-market rates, as well as any external transaction income or costs directly related to the implementationof the loans, which are treated as an adjustment to the effective yield on the loan. No internal cost is included in the calculation of amortized cost. Loan renegotiations and restructuring When contracts are modified, IFRS 9 requires the identification of financial assets that are renegotiated, restructuredor otherwisemodified (whetheror not as a result of financial hardship),but not subsequentlyderecognized.Any profit or loss arising from the modification of a contract is recognized in income. The gross carrying amount of the financial asset must be recalculated so it is equal to the present value of the renegotiated or amended contractual cash flows at the initial effective interest rate. The materiality of the modificationsis, however, analyzed on a case by case basis. "Restructured" amounts correspond to loans where an arrangementhas been reached that represents a concession to debtors in financial hardship or in danger of being so. "Restructured" amounts therefore require a combination of two elements: a concession and financial difficulties. To qualify as a "restructuring",an arrangementmust result in a more favorable situation for the debtor ( e.g. suspended paymentsof interest or principle,extensionof maturities, etc. ) and take the form of additional clauses to an existing contract or the full or partial refinancing of an existing loan.

Financial difficultyis measuredby a numberof criteria, such as payments more than 30 days past due or an at-risk classification. The arrangement of a restructuring does not necessarilymean the counterpartyin question is classed as in default by Basel standards. Whether they are classed as in default depends on the viability test carried out during the counterparty's restructuring. Under IFRS 9, the treatment of loans restructured due to financial hardship is similar to that applied under IAS 39: a discount is applied to loans restructuredfollowinga credit loss event (impaired, Stage 3) to reflect the difference between the present value of the contractual cash flows expected at inception and the present value of expected principal and interest repayments after restructuring. The discount rate used is the original effective interest rate. This discount is expensed to “Cost of credit risk” in the incomestatementand offset against the correspondingitem on the balance sheet. It is writtenback to net interest income in the incomestatement over the life of the loan using an actuarial method. If the discount is immaterial, the effective interest rate on the restructured loan is adjusted and no discount is recognized. The restructured loan is reclassified as performing (not impaired, Stage 1 or Stage 2)when no uncertaintyremains as to the borrower’s capacity to honor the commitment. For substantially restructured loans (for example, the conversion of all or part of a loan into an equity instrument), the new instrumentsare booked at fair value. The difference between the carrying amount of the derecognized loan (or portion of the loan) and the fair value of the assets received in exchange is taken to income under “Cost of credit risk”. Any previously establishedimpairmentloss on the loan is adjusted. It is fully reversed in the event of full conversion of the loan into new assets. The widespreadmoratoria granted to business customers in response to temporary cash flow difficulties arising from the Covid-19 crisis modified these loans’ repayment schedules without substantially modifying their features. These loans were therefore amended without being derecognized. In addition, the granting of the moratorium is not in itself an indication of financial distress for the companies in question (see Note 1.5). Fees and commissions Costs directly attributable to the arrangement of loans are external costs which consist primarily of commissionspaid to third parties such as business provider fees. Income directly attributable to the issuance of new loans principally comprises set-up fees charged to customers, rebilled costs and commitment fees (if it is more probable than improbable that the loan will be drawn down). Commitment fees received that will not result in any drawdowns are apportioned on a straight-line basis over the life of the commitment. Expensesand incomearisingon loanswith a termof less than one year at inceptionare deferred on a pro rata basis with no recalculation of the effective interest rate. For floating or adjustable-rateloans, the effective interest rate is adjusted at each rate refixing date.

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UNIVERSAL REGISTRATION DOCUMENT 2020 | GROUPE BPCE