BPCE_PILLAR_III_2017

5 CREDIT RISK

Credit risk mitigation techniques

Credit risk mitigation techniques 5.3

Credit risk mitigation techniques are widely used within the Group and are divided into real guarantees and personal guarantees. In some cases, the Group’s institutions choose to include opportunitiesfor eliminating disputed loans among their use of risk Definition of guarantees A real guarantee involves one or more movable or immovable assets that belong to the debtor or a third party. This guaranteeconsists of granting the creditor a real right to said asset (mortgage, pledge of real property, pledge, third party guarantee, etc.). The effect of this collateral is to: reduce the credit risk incurred on an exposure given the rights of ● the institutionsubject to exposure,in the event of default or other specific credit events affecting the counterparty;

mitigationtechniques,particularlywhen the techniquesused are less effectiveor absent. Credit derivatives are also used to reduce risks, and apply almost exclusively to the Corporate customers asset class.

obtain the transfer of ownership of certain amountsor assets. ● A personal guarantee is collateral that reduces the credit risk on an exposure, due to the commitmentprovided by a third party to pay a set amount if the counterpartydefaults or due to any other specific event.

Accounting method using the standardizedor IRB approach Under the standardized approach, personal guarantees and real guaranteesare accountedfor, subjectto eligibility,using an enhanced weighting of the guarantee portion of the exposure. Real guarantees such as cash or liquid collateral are deducted from the gross exposure.

Given Default applicableto the transactions.Personal guaranteesare taken into account, subject to eligibility, by substituting a third party’s PD with that of aguarantor. Under the A-IRB approach for retail customers, personal guarantees and real guarantees are taken into account, subject to eligibility, by decreasing the Loss Given Default applicable to the transactions in question.

Under the IRB approach, excluding retail customers, real guarantees are taken into account, subject to eligibility, by decreasing the Loss

Conditionsfor the incorporation of guarantees Articles 207 to 210 of Capital Requirements Regulation (CRR) No. 575/2013 set out the conditions for the incorporation of guarantees, inparticular:

the guarantee is duly documented and accompanied by a strict ● procedureauthorizing rapid debt collection; the bank has duly documented procedures in place, which are ● adapted to the various types and amountsof instruments used; the bank sets the market value of the instrument and restates it ● where necessary, in particular when this market value deteriorates significantly.

there is no significant positive correlation between the borrower’s ● credit quality and the instrument’svalue. Debt securities issued by the borrowerare not eligible;

Risk diversification

Risk diversification is one technique for mitigating credit risk. In bank’s sensitivity to risks deemed excessive, either individually or practice, individual or topical limits are defined, thus reducing the industry-wide,in the event of amajor incident.

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Risk Report Pillar III 2017