BPCE - 2020 Universal Registration Document

FINANCIAL REPORT

BPCE PARENT COMPANY ANNUAL FINANCIAL STATEMENTS

COST OF RISK

3.8

Accounting principles “Cost of risk” includes only the cost related to credit risk (or counterparty risk). Credit risk is the existence of a potential loss related to the possibilityof the counterpartydefaultingon its obligations. The term “counterparty” refers to any legal entity that receives a loan or an off-balance sheet commitment, is party to a forward financial instrumentor the issuer of a debt security. Cost of credit risk is calculatedwhen the loan is classified as non-performing, i.e. when it is probablethat the Groupwill not collect all or part of the sums owed under the terms of the commitments made by the counterparty in accordance with the initial contractual provisions, notwithstanding any guarantees or collateral. The credit risk is also measuredwhen a credit risk is identified on performing loans showing a significant increase in credit risk since their initial recognition (see Notes 4.1, 4.2.1, and 4.3.1).

Cost of credit risk therefore consists of all the impairment charges and reversals related to receivables due from customersand banks, fixed-incomesecuritiesheld to maturity (if there is known to be a risk of default by the issuer), provisions for off-balance sheet commitments (excluding off-balance sheet financial instruments) as well as losses on irrecoverable loans and recoveries of bad debts written off. However, allocationsto and reversalsof provisions, losses on irrecoverable loans or recoveries of impaired loans relating to interest on non-performing loans and receivables for which provisioning is mandatory are classified under “Interest and similar income” and “Other banking income” in the income statement. For trading securities, available-for-salesecurities, equity securities available for sale in the medium term and forward financial instruments, cost of counterparty risk is recognizeddirectly in the items recordingthe gains and losses on these portfolios, except where there is a known risk of default by the counterparty that may effectively be isolated and where changes in counterparty risk provisions are therefore recorded in “cost of risk”.

Fiscal year 2020

Fiscal year 2019

Reversals and uses of funds

Recoveries of bad debts written off

Reversals and uses of funds

Recoveries of bad debts written off

Charges

Losses

Total

Charges

Losses

Total

in millions of euros Impairment of assets Interbank Provisions Off-balance sheet commitments Customers o/w: reversals of obsolete provisions NET AMOUNT OF REVERSALS TOTAL

5

(1) (2)

(1) (2)

(1)

(1)

1 1

1 0

1 1

1

(1)

0

0

0

(3)

0

(2)

1

1

1

1

1

1

1

1

As mentioned in Note 4.1, loans and advances due from banks mainly relate to institutions benefiting from the guarantee and solidarity system presented in Note 1.2, which explains the non-materiality of the cost of risk in the BPCE SA parent company financial statements.

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UNIVERSAL REGISTRATION DOCUMENT 2020 | GROUPE BPCE