BPCE_PILLAR_III_2017

CREDIT RISK Organization of credit risk management

Project finance rating tools were also rolled out: staff will be trained on how to use the new tools in early 2018, ensuring perfectly consistent ratingsacross the Groupfor projectfinancing. Projects were undertakenwith BPCE’s 89C3 Digital Factory, focusing in particularon the credit approval process. Standards The sector classification standard was reviewed in a bid to draw clearer distinctions in the real estate professionals sector. The standard now clearly separates the real estate leasing and the real estate services segments. LBO and leveragetransactionstandardswere definedand began to be deployed. LBO transaction reporting was updated and, in today’s higher-risk market environment, the frequency of publication increased. Group reporting on leverage transactions will be introduced during the firsthalf of 2018. The watchlist standard was reviewed and reinforced, a shadow-bankingstandard was drafted and is currently being rolled out. The Directorcreditworthinessrule was extendedto apply to employee representative directors. Syndicatedloans are governed by a risk policy that clearly delineates the rights and obligations of lead arrangers and Groupe BPCE participants.The syndicatedloan charter increasesthe lead arranger’s disclosure obligations. The definition of home loan indicators was reviewed and the indicators consistently rolled out to each institution’s information system. Credit policy The overall risk policy is governed in particular by the risk appetite system, structured around the definition of the level of risk established by the Supervisory Board and risk appetiteindicators. The balance between profitability and risk tolerance is reflected in Groupe BPCE’s risk profile and is written into the Group’s risk managementpolicies. Within its remit and across its entire scope, the Risk, Complianceand Permanent Control division: presents the ManagementBoard and SupervisoryBoard with a risk ● appetite framework for the Group and ensures its implementation and roll-out at eachmajor entity; helps draw up risk policieson a consolidatedbasis, examinesoverall ● risk limits, takes part in discussions on capital allocation and ensuresthat portfoliosare managedin accordancewith these limits and allocations;

Lastly, the Risk division began working to incorporate EBA guidance on non-performing loans in the Group risk management system. Controls A methodology for selecting ex-post controls was established and tested. The methodology explains how the items subject to ex-post controls are selected. The review of the Groupwideframeworkfor Level 1 and 2 permanent controls was initiated in 2017 and will continue in 2018. Over the course of the review, the nature and content of each institution’s permanent control standardswill be examined. The ECB’s bad loans plan on the public works and real estate professionals sector resulted in an in-depth review of the main exposures in this sector. Moreover, a comprehensive review of watchlist counterparties was very nearly completed over the fiscal year. Change management and communication Major change management initiatives were carried out in close coordination with all of the Group’s institutions on home loan indicators,syndicationsand allocated provisions. The Banque Populaire network’s commitment oversight tool was updated to include all financial triggers, and a new commitment oversight tool isbeing rolled out forthe Caisse d’Epargne network. A credit risk briefing was introduced in addition to the information already addressedto companydirectors.

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Groupe BPCE does not conduct business unless it has the associated risks strictly under control, nor does it exercise proprietary trading activities. Activities with high risk-reward profiles are strictly limited. From a structural standpoint,Groupe BPCE’s business model incurs a lower-than-average cost of risk for the French market.

Credit risk monitoring and supervision system

helps the Groupe BPCE ManagementBoard identify emerging risks, ● the concentration of risk and other adverse developments and devise strategy and adjust risk appetite; performs stress tests with the goal of identifyingareas of risk and the Group’sresilienceunder various predetermined shock scenarios; defines and implementsrisk taking and managementstandardsand ● methods for consolidated risk measurement, risk mapping, risk-taking approval, risk control and reporting, and compliance with laws and regulations;

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Risk Report Pillar III 2017