BPCE - 2020 Universal Registration Document

FINANCIAL REPORT

BPCE PARENT COMPANY ANNUAL FINANCIAL STATEMENTS

cost, plus accrued interest and net of any impairmentcharges recognized for credit risk. Amounts due to banks are recorded under demand deposits and current accounts or term deposits and borrowings. Amounts due to customers are classified into regulated savings accounts and other deposits for customers. Depending on the counterparty involved, these items include securities and other assets sold under repurchase agreements. Accrued interest is recorded under related payables. Guarantees received are booked as off-balance sheet items. They are remeasured on a regular basis. The total carrying amount of all guaranteesreceivedfor a single loan is limited to the principal amount outstanding on the loan. Restructured loans Within the meaning of ANC Regulation No. 2014-07, restructured loans are non-performing loans and receivables whose initial characteristics(term, interest rate) are modified to allow the counterparties to repay the amounts due. A discount is taken on restructured loans to reflect the difference between the present value of the contractual cash flows at inceptionand the present value of expectedprincipal and interest repaymentsafter restructuring.The discount rate used for fixed-rateloans is the initial effectiveinterest rate and the discount rate used for variable-rate loans is the most recent effective interest rate prior to the restructuring date. The effective rate is the contractual rate. This discount is expensed to “Cost of risk” in income and offset against the corresponding outstanding in the balance sheet. It is written back to net interest income in the income statementover the life of the loan using an actuarial method. A restructured loan may be reclassified as performing when the new repaymentdates are observed.When a loan that has been reclassified becomes overdue, regardless of the restructuring terms agreed, the loan is downgraded to non-performing. Non-performing loans and receivables Non-performing loans and receivables consist of all outstanding amounts (whether or not they are due, guaranteed or other), where at least one commitmentmade by the obligor has involved a known credit risk, classified as such on an individual basis. Loans are considered “at risk” when it is probablethat the Groupwill not collect all or part of the sums due under the terms of the commitmentsmade by the counterparty, notwithstanding any guarantees or collateral. Non-performingloans are identified in compliance with ANC RegulationNo. 2014-07,particularly in the case of loans with payments more than three months past due (more than six months past due for real estate loans and more than nine months past due for loans to local authorities). Non-performingloans are consideredto be irrecoverablewhen full or partial collection is deemed to be highly unlikely and a write-off is considered. Loans and receivables whose terms have lapsed, terminated lease financing arrangements and perpetual loans which have been rescinded,are consideredas irrecoverable.The existence of guaranteescovering nearly all risks, along with the conditions for classification as

non-performing loans and receivables, shall be taken into consideration in order to qualify a non-performing loan as irrecoverable and to assess the associated impairment provision. A debt that has been classified as non-performing for more than one year is assumedto be irrecoverable,unless a write-off is not foreseen. Reclassification of a debt from non-performingto irrecoverabledoes not automaticallyentail the reclassificationof the counterparty’sother non-performing loans and commitments to irrecoverable. For non-performingloans and receivables,accrued interest or interest due but not yet received is recognized in banking income and impaired accordingly. For irrecoverableloans and receivables, accrued interest due but not yet received is not recognized. Non-performing loans and receivables are reclassified as performing once the obligor resumes regular payments in accordance with the original repayment schedule, provided that the counterparty is no longer considered to be at risk of default. Repurchase agreements Securities repurchase agreements are recognized in accordance with ANC RegulationNo. 2014-07,supplemented by FBF Instruction No. 94-06, as amended. The assets sold continue to be recorded in the vendor’s balance sheet of the vendor, with a correspondingentry for the amount collected, representingits debt to the purchaser, under liabilities. The buyer records the amount paid under assets, representingthe amount owed to the vendor. At each balance sheet date, the assets, as well as the liability towards the buyer or the amount owed to the vendor, are measuredin accordance with the rules specific to these transactions. Impairment Loans for which recovery is uncertainresult in the recognition of an impairment loss on the asset to cover the risk of loss. Impairment losses are calculated on a case-by-case basis, taking into account the present value of guarantees received. They are determined at least quarterly and are calculated in reference to available guarantees and a risk analysis. At a minimum, impairment losses cover the interest not received on non-performing loans. Impairment for probable losses includes all impairment charges, calculated as the difference between the principal amount outstandingand the projected cash flows discounted at the initial effective interest rate. Projected cash flows are determined by category of receivables, based on past losses and/or expert analysis, and are positioned over time using debt schedules based on past collection records. Impairment chargesand reversalsrecognizedfor non-recovery risk are recorded under “Cost of risk” except for the impairment of interest on non-performing loans and receivables, which is recorded as impaired interest under “Interest and similar income”. The reversal of the impairmentrelated to the passageof time alone is recorded under “Cost of risk”. Irrecoverable loans and receivables are written off as losses and the corresponding impairment allowances are reversed.

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UNIVERSAL REGISTRATION DOCUMENT 2020 | GROUPE BPCE