BPCE - 2020 Universal Registration Document

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RISK FACTORS & RISK MANAGEMENT

CREDIT RISKS

It was agreed that the Group would measure outflows generated by reviewing all the Group’s master agreements or credit support annexes on the OTC market, in order to assess the amount of the deposit/collateral required following a downgrade of three notches in the institution’s long-term credit rating by three rating agencies (Moody’s, S&P, Fitch). The calculation also includes the amount of the deposit/collateral required following a downgrade of one notch in the institution’s short-term credit rating, with the Group considering such a downgrade inevitable if the institution’s LT credit rating is downgraded three notches. At Groupe BPCE level, the calculation covers BPCE SA, Natixis, Crédit Foncier and their funding vehicles: BP CB, GCE CB, BPCE SFH, FCT HL, SCF and VMG. Some intragroup contracts generate outflows at the individual institution level, but are neutralized at the Groupe BPCE consolidated level. Information provided in the respect of IFRS 7. Credit risk mitigation techniques are widely used within the Group and are divided into real guarantees and personal guarantees. A distinction is made between guarantees having an actual impact on collections in the event of hardships and guarantees recognized by the supervisory authority in the weighting of exposures used to reduce capital consumption. For example, a personal and joint guarantee provided in due form by a company director who is a customer of the Group, and collected in accordance with regulations, may be effective without being eligible as a statistical risk mitigation factor. In some cases, the Group’s institutions choose, in addition to employing risk mitigation techniques, to take opportunities to sell portfolios of disputed loans, particularly when the techniques used are less effective or non-existent. Credit derivatives are also used to reduce risks, and apply almost exclusively to the Corporate customers asset class (and mainly Natixis). Credit risk mitigation techniques 6.5.3

The Group uses a conservative approach in its calculation: the impact for each contract is the maximumamount between • the three rating agencies between a 1-notch downgrade in the ST rating and a 3-notch downgrade in the LT rating; the amount of ratings triggers reported is the sum of all • impacts of a one-notch downgrade in the ST rating and a three-notch downgrade in the MLT rating; the assumption is made that all external ratings are • downgraded simultaneously by the three agencies and for all rated entities; as the national competent authority has not issued a • recommendation, a weighting of 100% is applied to reported outflows for the calculation of the LCR.

DEFINITION OF GUARANTEES A real guarantee involves one or more solidly measured movable or immovable assets that belong to the debtor or a third party. This guarantee consists of granting the creditor a real right to said asset (mortgage, pledge of real property, pledge of listed liquid securities, pledge of listed liquid merchandise with or without divestiture, pledge, third party guarantee, etc.). The effect of this collateral is to: reduce the credit risk incurred on an exposure, given the rights • of the institution subject to exposure, in the event of default or other specific credit events affecting the counterparty; obtain the transfer of ownership of certain amounts or assets. • A personal guarantee is collateral that reduces the credit risk on an exposure, due to the commitment provided by a third party to pay a set amount if the counterparty defaults or due to any other specific event.

ACCOUNTING RECOGNITION UNDER THE STANDARDIZED OR IRB APPROACH

Under the standardized approach:

Under the IRB approach:

For retail customers under IRBA:

Personal guarantees and real guarantees are accounted for, subject to eligibility, using an enhanced weighting of the guarantee portion of the exposure. Real guarantees such as cash or liquid collateral are deducted from the gross exposure.

Excluding retail customers, real guarantees are taken into account, subject to eligibility, by decreasing the Loss Given Default applicable to the transactions. Personal guarantees are recognized, subject to eligibility, by substituting a third party’s PD with that of a guarantor.

Personal and real guarantees are taken into account, subject to eligibility, by decreasing the Loss Given Default applicable to the transactions.

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UNIVERSAL REGISTRATION DOCUMENT 2020 | GROUPE BPCE

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