BPCE - 2020 Universal Registration Document

RISK FACTORS & RISK MANAGEMENT

LIQUIDITY, INTEREST RATE AND FOREIGN EXCHANGE RISKS

OBJECTIVES AND POLICIES The liquidity management policy aims mainly to refinance all of the Group’s business lines in an optimal and sustainable manner. This mandate involves the following duties: ensure a sustainable refinancing plan at the best possible – price, making it possible to finance the Group’s various activities over a period consistent with the assets created; distribute this liquidity between the various business lines – and monitor its use and changes in liquidity levels; comply with regulatory ratios and internal constraints – resulting in particular from stress tests guaranteeing the sustainability of the Group’s business model refinancing plan, even in the event of a crisis. To this end, the Group relies on three mechanisms: centralized funding management aimed primarily at – supervising the use of short-term funding, spreading out the maturity dates of medium- and long-term funds and diversifying sources of liquidity; supervision of each business line’s liquidity consumption, – predominantly by maintaining a balance between growth in the credit segment and customer deposit inflows; the creation of liquidity reserves, both in cash and collateral, – in line with future liabilities and the targets set for securing the Group’s liquidity. These systems are managed and overseen by way of a consistent set of indicators, limits and management rules are combined in a centralized framework of standards and rules for the Group’s institutions, so as to ensure the measurement and consolidated management of liquidity risk. OVERSIGHT AND MONITORING OF LIQUIDITY RISK OPERATIONAL LIQUIDITY RISK MANAGEMENT To keep track of its liquidity risks and define appropriate management and/or corrective actions, the Group has established a reliable, comprehensive and effective internal liquidity management and oversight system including a set of associated indicators and limits. Liquidity risk management and monitoring are carried out at the consolidated Group level and within each of its entities. The definition of these indicators, the calculation methodology and any associated limits are covered in a body of consolidated standards that is reviewed and validated by the decision-making bodies of the Group and its institutions. Liquidity consumption of the business lines The liquidity consumption of the Group’s various business lines and within the entities is governed by an internal liquidity allocation system based, on the one hand, on the setting of a target level of short-term, medium-term and long-term market footprint for the Group and, on the other hand, on its distribution among the Group’s various entities via a liquidity budget system. The Group’s market footprint measures its overall dependence to date on bond and money market funding. The sustainability of the Group’s market access is measured on a regular basis. The structure of the Group’s market footprint (schedule, type of vehicles, currencies, geographic area, investor categories, etc.) is thus closely monitored to ensure that it is not overly dependent on short-term financing and that sources of funds are diversified.

Each entity is required to meet the liquidity budget allocated to it both in terms of actual liquidity consumptionand in terms of the projected vision as part of the budget process and the multi-year forecast. This helps to ensure that the market footprint target set by the Group is adequate and to adapt the business line activity projections, if necessary. Moreover, this also makes it possible to adjust the implementation rate of the multi-year funding plan if necessary, based on the needs expressed by the business lines and the Group’s capacity to carry out public issues on the market. The financing needs of the business lines are closely correlated with changes in commercial assets and liabilities (customer loans and deposits) both in terms of the liquidity gap between the average assets and liabilities under management and due to the need for liquidity reserves that it can generate through compliance with the LCR (Liquidity Coverage Ratio). The liquidity gap resulting from commercial activity is measured using the Customer loan-to-deposit ratio (LTD) at both the consolidated and entity level. This indicator allows a relative measure of the Group’s autonomy with regard to the financial markets and monitors changes in the structure of the commercial balance sheet. Risk indicators The liquidity risk of the Group and its entities is measured based on regulatory ratios as defined by European regulations,with the LCR (liquidity coverage ratio for short-term liquidity) and the NSFR (Net Stable Funding Ratio for long-term liquidity). This regulatory approach is complemented by an internal “economic” approach that measures projected liquidity gaps over different periods: one-day and one-week liquidity gap indicators measure the • Group’s very short-termfunding requirements.These gaps are subject to Group and individual entity limits; the liquidity gap, which compares the amount of remaining • liabilitieswith remaining assets over a ten-year period, enables the Group to manage the schedule of medium- and long-term debt maturities and anticipate its funding requirements. It is governed by Group and individual entity limits; These liquidity gaps are measured using a so-called static approach, which only takes into account on-balance sheet and off-balance sheet positions to date, and incorporates outflow assumptions for many products. These assumptions are based either on internal modeling (early repayment of loans, closing and deposits on home savings plans or PELs, etc.) or on agreements established for all Group entities (notably for customer deposits with no fixed maturity date, demand deposits and passbook savings accounts). The validation of the models and agreements is based on a process shared between the Asset/Liability management function and the Risk function, which ensures a cross-examination of the relevance of the assumptions used and their suitability with respect to the current limit system. Stress simulation and liquidity reserve Liquidity crisis simulations are regularly carried out to test the Group’s ability to meet its commitments and continue its day-to-day business in a context of crisis. This stress test system aims to become a tool to support management decisions and to measure the Group’s resilience over a defined period of time, as well as the relevance of its management system.

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UNIVERSAL REGISTRATION DOCUMENT 2020 | GROUPE BPCE