BPCE_PILLAR_III_2017

5 CREDIT RISK

Organization of credit risk management

Implementation

Impairment is recorded, for financial assets which have not been individuallysubject to ECL, based on observedpast losses but also on reasonableand supportableDCF forecasts.This more forward-looking credit risk approach is already partially factored in when collective provisionsare recognizedon similar financialasset portfoliospursuant to IAS 39. These financialassets will be divided into three categories dependingon the gradual increase in credit risk observed since their initial recognition. Impairment shall be recognized on outstanding amounts in each category, as follows: Stage 1 ● there is no significant increase incredit risk, - impairment for credit risk will be recorded in the amount of - 12-month expected credit losses, interest income will be recognized through profit or loss using - the effective interest rate method applied to the gross carrying amount of theasset before impairment; Stage 2 ● in the event of a significant increase in credit risk since initial - recognition, the financial asset will be transferred to this category, impairmentfor credit risk will be determinedon the basis of the - instrument’slifetimeexpected credit losses, interest income will be recognized through profit or loss using - the effective interest rate method applied to the gross carrying amount of theasset before impairment; Stage 3 ● there is objective evidence of impairment loss due to an event - which represents a counterparty risk occurring after the initial recognitionof the asset in question.This categoryis equivalentto individuallyimpairedassets under IAS39, impairmentfor credit risk will continueto be calculatedbased on - the instrument’slifetimeexpectedcredit losses, interestincomewill be recognizedthroughprofit or loss based on - the effective interest method applied to the net carrying amount of the asset after impairment.

Governance Since 2015, the IFRS 9 plan has been overseenby a strategicplanning committee covering both the Risk and Finance divisions. The committeemeets four times a year and most of its members also sit on the ManagementBoard of BPCE. The strategicplanningcommittee settles on guidelines, makes decisions, and defines the schedule for implementingand consolidatingthe budget for the plan. A steering committeealso meets five times a year for the purposesof the IFRS 9 plan. It is comprised of company directors or corporate officers of Caisses d’Epargne and Banque Populaire banks as well as their main subsidiaries (Crédit Foncier, Natixis). The steering committee settles on guidelines and operational decisions relating to the implementationof IFRS 9. It also reports on the progress of the work done by the Finance, Risk, IS and Change ManagementCommittees which meetonce everysix weeks. A completereviewof IFRS 9 implementation(progress,guidelinesand options taken) was presented and discussed during BPCE’s Audit Committeemeeting. IFRS 9 will also be on the agenda of upcoming Audit Committee meetings to update information on how the program is progressing. The stakes and challenges raised by IFRS 9 were also explained in October to members of the SupervisoryBoard of BPCE and its mainsubsidiaries. The second half of 2017 was mainly spent finalizing user tests for various projects, general user testing, preparing the opening balance sheet (first-time application), performing final model calibrations, measuring the impact of provisions on the third quarter, completing documentation,and adapting processesunder a change management program. Classification and measurement The “Classification and Measurement” work completed so far has concluded that most financial assets that were measured at amortizedcost under IAS 39 will continue to meet the conditionsfor measurement at amortized cost under IFRS 9. Similarly, most financial assets measured at fair value under IAS 39 (available-for-salefinancial assets and financial assets at fair value through profit or loss) will continue to be measured at fair value under IFRS9.

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Risk Report Pillar III 2017