BPCE - 2020 Universal Registration Document

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FINANCIAL REPORT

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

12.2.2

LEASES AS LESSEE

Accounting principles IFRS 16 applies to contracts that, irrespective of their legal form, meet the definition of a lease as laid down by the standard. The standard requires the identificationof an asset and that the lessee controls the right to use this asset for a period of time. Control is established if the lessee holds the following two rights throughout the period of use: the right to obtain almost all of the economic benefits • arising from use of the asset; the right to decide how the asset is used. • The existence of an identified asset requires that the lessor has no substantiverights to substitutealternativeassets, with this requirement being assessed according to facts and circumstances in place at the start of the contract. If the lessor can freely substitutethe leased asset, the contractbecomesa non-leasecontractwhosepurposeis to providecapacityrather than an asset. The asset can be comprised of a portion of a larger asset, such as a floor within a building. However, a portion of an asset that is not physicallydistinctwithin a groupingwithout a pre-determined location is not an identified asset. With certain exceptions, lessees are required under IFRS 16 to record leases in the balance sheet as a right-of-use asset under “Property, plant and equipment” or “Investment property”, and as lease liabilities under “Other liabilities”. On the date of initial recognition,no deferred tax is reported if the value of the asset is equal to the value of the liability. Deferred tax is recorded for subsequent net temporary differences arising from changes in amounts recognized as right-of-use assets and lease liabilities. At the commencementdate, the lessee measures the lease liability at the present value of the lease paymentsthat are not paid at that date. These payments include fixed lease payments and in-substance fixed lease payments, variable lease payments based on an index or a rate calculatedusing the latest index or rate in force, any residual value guarantees and, where appropriate, any amount to be paid to the lessor under options that are reasonably certain to be exercised. Lease payments used to determine the lease liability exclude variable payments that are not based on an index or a rate, taxes such as VAT, whether recoverable or not, and the housing tax. Right-of-useis recognizedas an asset on the commencement date of the lease for an amount equal to the lease liability on that date, adjusted for any paymentsmade to the lessor at or before that date and not taken into account for the measurement of the lease liability, less any lease incentives

received. If appropriate, this amount is adjusted for initial direct costs incurredby the lessee and an estimateof costs to be incurred in dismantlingor restoring the asset if requiredby the terms and conditionsof the lease, as long as the outflow of cash is probable and can be determined in a reliable manner. The right-of-useasset is amortizedon a straight-linebasis and the lease liability is calculated on an actuarial basis over the term of the lease using the lessees’ incremental borrowing rate mid-way through the contract. The amount of lease liabilities is subsequently readjusted to take into accountvariationsin the indicesor rates to which the leases are indexed. As this adjustment reflects the right of use, it has no impact on the income statement. For entities that are part of the financial solidaritymechanism that centralize their fundingwith the Group Treasury, the rate is calculatedat Group level and adjusted, as applicable, to the currency applicable to the lessee. The lease term is the non-cancellable period for which a lessee has the right to use an underlyingasset, togetherwith the periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and the periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. For French “3/6/9” commercial leases, the term used is usually nine years. The reasonable certainty of whether the options relating to the lease term will be exercised is assessed by considering Group entities’ real estate management strategy. At the end of the lease, the contract is no longer enforceable and the lessee and the lessor each has the right to terminate the lease without permission from the other party with no more than an insignificant penalty. The term of leases that are not extended or canceled at the end of the term (leaseswith automaticrenewal) is determined by expert appraisaland, in the absenceof specific information, assigned a reasonable term of three years. For leases recognized in the balance sheet, the expense relating to the lease liability is reportedas an interest expense under net banking income while the depreciationexpense on the right-of-useasset is recognizedas a depreciationexpense under gross operating income. Lease contracts not recognized in the balance sheet and variable payments that are excluded from lease liabilities are recorded as an expense for the period under operating expenses.

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UNIVERSAL REGISTRATION DOCUMENT 2020 | GROUPE BPCE

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