BPCE_PILLAR_III_2017

3 CAPITAL MANAGEMENT AND CAPITAL ADEQUACY Management of capital adequacy

LEVERAGE RATIO The main purposeof the leverageratio is to serve as an additionalrisk measurement for determining regulatory capital requirements. Article 429 of the CRR, which sets forth the calculationmethod for the leverageratio, was amendedby CommissionDelegatedregulation (EU) 2015/62 of October10, 2014. The leverage ratio has been subject to mandatory disclosure since January 1, 2015, with a gradual implementationtimetable. The ratio has been under review by the supervisory authority since 2014 and will not be officially implementeduntil CRR II comes into force, i.e. not before 2019. The leverage ratio is determined by dividing Tier 1 capital by exposures, which consist of assets and off-balance sheet items, restated to account for derivatives, repo transactions and items deducted from capital. The minimum leverage ratio requirement is currently set at 3%. Groupe BPCE’s leverage ratio, as calculated under the rules of CommissionDelegated regulation No. 2015/62 of October 10, 2014, was 5.1%at December31, 2017 based onphased-inTier 1 capital.

Finally, in addition to TLAC, Groupe BPCE carries debt eligible for bail-in, the majority of which is acceptedfor the calculationof MREL when deemedby the supervisoryauthorityto have a high capacityfor activation:by that definition,senior preferred debt issued by BPCE is eligiblefor MREL, with GroupeBPCE leavingthe possibilityof meeting MREL requirements open, beyond its total loss absorbing capacity, with any“bail-inable”debt instrument. CAPITAL ALLOCATION MEASURES AND CAPITAL ADEQUACY SUPERVISION The Group implemented action plans in 2017 aimed specifically at ensuringthe capital adequacyof its networksand its subsidiaries.For example, BPCE granted redeemable subordinated loans to CASDEN Banque Populaire ( € 140 million) and Banque Palatine ( € 50 million) and subscribedfor two perpetualdeeply subordinatednotes issued by Natixis ($500 million each).

TABLE 10 – TRANSITION FROM THE STATUTORY BALANCE SHEET TO LEVERAGE RATIO EXPOSURE ➡

12/31/2017 1,259,850

in millions of euros

12/31/2016 1,235,240

TOTALCONSOLIDATEDASSETS AS PERPUBLISHED FINANCIALSTATEMENTS Adjustment for investments in banking, financial,insurance or commercial entitiesthat are consolidated for accounting purposes butoutsidethe scopeof regulatory consolidation Adjustment for fiduciaryassetsrecognized on thebalancesheet pursuantto the operative accountingframework butexcluded from the leverageratio exposure measure

(99,239)

(88,774)

-

-

Adjustmentsfor derivative financial instruments Adjustment for securities financingtransactions ( i.e.

(36,598) (13,400)

(59,513) (7,332)

reposand similar secured lending)

Adjustment for off-balance sheet items ( i.e. conversion tocreditequivalentamounts of off-balance sheetexposures)

73,177 (6,377)

74,010 (7,520)

Other adjustments

LEVERAGE RATIOEXPOSURE 1,146,111 Without applying the phase-inmeasuresand without includingsubordinateddebt issues which have become ineligible,Groupe BPCE’s leverage ratio stoodat 5.1% at December 31, 2017 compared with 4.9% at December 31, 2016. 1,177,414

Financial conglomerate ratio As an institution exercising banking and insurance activities, Groupe BPCE is also required to comply with a financial conglomerateratio. This ratio is determined by comparing the financial conglomerate’s total capital against all the regulatory capital requirements for its banking and insurance activities. The financial conglomerateratio demonstratesthat the institution’s prudential capital sufficiently covers the total regulatory capital requirementsfor its banking activities (in accordancewith the CRR) and insurance activities, based on the solvency margin established under Solvency1.

The calculation of surplus capital is based on the statutory scope. Insurance company capital requirements,determinedfor the banking capital adequacy ratio by weighting the equity-method value, are replaced with capital requirements based on the solvency margin. Capital requirements within the banking scope are determined by multiplying risk-weightedassets by the rate in force under Pillar II, i.e. 11.25% at December 31, 2017 versus 9.75% at December 31, 2016. At December 31, 2017, Groupe BPCE’s surplus capital amounted to € 27 billion.

40

Risk Report Pillar III 2017