BPCE_PILLAR_III_2017

2 SUMMARY OF RISKS Risks factors

Risks factors 2.4

The banking and financial environment in which Groupe BPCE operates is exposed to numerous risks which obliges it to implement an increasingly demanding and strict policy to control and manage these risks. Some of the risks to which GroupeBPCE is exposedare set out below. However,this is not a comprehensivelist of all of the risks incurredby

Groupe BPCE in the course of conducting its business or given the environmentin which it operates. The risks presented below, as well as other risks which are not currently known or not considered significantby Groupe BPCE, could have a material adverse impact on its business, financialpositionand/or results.

Risks relating to macroeconomic conditions, the financial crisis and stricter regulatoryrequirements

Over the last ten years, economic and financial conditions in Europe have had and may continue to have an impact on Groupe BPCE and its markets ofoperation The European markets have experienced major upheavals over the past ten years which have affected economic growth, particularly during the 2008 financial crisis. Initially originating from concerns over the ability of certain euro zone countriesto refinancetheir debt securities, thesedisruptionshave created uncertaintiesmore generally regarding the shortterm economic outlook of European Union countries as well as the quality of the debt securities of sovereign European Union issuers. There has also been an indirect impact on financial markets in Europe and worldwide. While the impact on its sovereign bond holdings has remained limited, Groupe BPCE has been indirectly affected by the consequences of the crisis spreading to most countries in the euro-zone, including France, the Group’s historic domestic market. Some rating agencies have downgraded the rating on French sovereign bonds in recent years, in some cases leading these same agencies to automatically downgrade the ratings on senior and subordinated bonds issued by French commercial banks, including Groupe BPCE. In the wake of these crises, anti-austerity sentiment has triggered political uncertainties in a number of European companies, while the financial and banking markets have been impacted by other factors, including the many unconventional economic stimulus measures launched by the European Central Bank (the “ECB”) along with other central banks around the world. The financial markets have also been subject to strong volatility in responseto various events, includingbut not limited to the decline in oil and commodityprices, the slowdown in emerging economies and turbulenceon the equity markets. If economic or market conditions in France or elsewhere in Europe were to deterioratefurther,GroupeBPCE’smarketsof operationcould be more significantlydisrupted,and its business,results and financial position could be adversely affected. The United Kingdom’svote to leave the EuropeanUnion could have an adverse impact on Groupe BPCE and its markets of operation, imposing restructuringcosts on some subsidiaries On 23 June 2016, the United Kingdom held a referendum that saw the majority of voters choose to exit the European Union (“Brexit”). The referendumis not an obligationto leave the EuropeanUnion, but it is highly likely that the United Kingdomwill trigger the appropriate measuresto implementBrexit. On 29 March 2017, the governmentof the United Kingdominvoked Article 50 of the Treaty on the European Union (the “Lisbon Treaty”) relating to withdrawal.Negotiationshave begun to determinefuture relationsbetweenthe United Kingdomand the European Union, particularly in terms of commercial, financial and legal agreements.The nature, timetable as well as the economic

and political impacts of a potential Brexit are still highly uncertain and will depend on the outcome of the negotiations between the United Kingdom and the European Union. Brexit has sparked uncertainties, volatility and major disturbances on the European markets, and more broadly on the global economic and financial markets, and may well continue to do so, potentially harming the credit rating, activity, results and financialpositionof GroupeBPCE. A persistentlylow interest rate environmentmay be detrimentalto the profitabilityand financialposition of Groupe BPCE The global markets have been subject to low interest rates in recent years, and it appearsthis situationwill not be changinganytimesoon. When interest rates are low, credit spreads tend to tighten, meaning Groupe BPCE may not be able to sufficientlylower interest rates paid on deposits to offset the drop in revenues associated with issuing loans at lower market rates. Groupe BPCE’s efforts to reduce the cost of deposits may be restricted by the high volumes of regulated products, especially on the French market, including in particular Livret A passbook savings accounts and PEL home savings plans, which earn interest above the current market rate. In addition, Groupe BPCE may incur an increase in prepayments and renegotiationsof home loans and other fixed-rateloans to individuals and businesses, as customers seek to take advantage of lower borrowing costs. Combined with the issuance of new loans at low interest rates prevailing on the markets, Group BPCE may see an overall decrease in the average interest rate in the loan book. Reduced credit spreads and weaker retail banking revenuesstemming from this decrease may undermine the profitability of the retail banking activities and overall financial position of Groupe BPCE. Furthermore,if market rates begin climbing again and Groupe BPCE’s hedging strategies prove ineffective or only partially offset this fluctuationin value, its profitabilitymay be affected.An environment of persistently low interest rates may also cause the market yield curve to flattenmore generally,which in turn may lower the premium generated by Groupe BPCE’s financing activities and negatively impact its profitability and financial position. The flattening of the yield curve may also encourage financial institutions to enter into higher-risk activities in an effort to obtain the targeted level of return, which may heighten risk and volatility on the market. Given the difference in economic cycle between the United States and Europe, rising interest rates are expected to affect the dollar before the euro, and Groupe BPCE may be more affected by interest rate rises in EUR thanin USD. Legislation and regulatory measures in response to the global financial crisis may materially impact Groupe BPCE and the financialand economic environment in which the Groupoperates Legislation and regulations have recently been enacted or proposed with a view to introducinga number of changes, some permanent,in the global financial environment. While the objective of these new

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Risk Report Pillar III 2017