BPCE_REGISTRATION_DOCUMENT_2017

RISK REPORT Credit risk

Credit risk 3.5

3.5.1

Organization of credit riskmanagement

CREDIT RISK GOVERNANCE Credit risk measurement relies on rating systems adapted to each category of customer and transaction. The Risk, Compliance and Permanent Control division (DRCCP) is responsible for defining and controlling the performance of these rating systems. For credit risk oversight purposes, Groupe BPCE manages the following risks: regular, in-depthmonitoringof the credit quality of Groupe BPCE’s ● main portfolios or activities (home loans, consumer finance, professional customers, SMEs/ISEs) at the Group level, potentially leading to the establishment and/or revision of risk policies or management procedures and thereby updating risk coverage throughspecial policies,limits, sector-based supervision, etc.; concentration risks, by setting limits on major counterparties ● (corporates, banks, sovereigns) and by country; oversight of the consolidated amounts of loan outstandings by ● counterparty(on- and off-balance-sheet,non-retailcustomersand customers above a minimum level) and changes in these outstandings; average risk-weighted assets by entityand by asset class; ● counterparty risk using a Group-level consolidated approach ● through various regulatory measurements (CVA, EEPE and IRC in particular). The results of these management initiatives are presented to the Group Risk and Compliance Committee, the Group Credit and Counterparty Committee and the Group Credit Risk and Permanent Control Committee. Furthermore,special reviews, particularlysector- and portfolio-based reviews, are carried out at Group level to obtain a consolidatedview of the credit quality of a given sector or asset class and, where applicable, to be able to propose changes to risk policies or the corresponding management procedures(sectors“underwatch”). Decision-makingat the Group level takes place within a systemmade up of: risk policies taken up, adapted, or expanded at each Group ● institution; Group sector policies adapted locally; ● regulatory caps, Group internal caps, internal caps for institutions ● in the BP and CEnetworks; a systemof Group internallimits relatingto the major categoriesof ● counterparties(a companymade up of a parent and its subsidiaries) on a consolidatedbasis, for the main asset classes excludingretail, expandedas needed by local limit systems; at each Group institution, a counter-analysis involving the Risk ● Management function, which hold veto power. Use of this power may result in escalationto the higher-levelCredit Committee,or a

duly authorized delegate. Decision-making at each Groupe BPCE entity is carried out within the framework of authorization procedures,and a veto may only be lifted by the head of the entity in question; a permanent control system, which is currently being revised, to ● ensure that these systems and procedures are being enforced. The DRCCPmonitorscompliancewith regulatorycaps at Group level for the Group Risk Management Committee, in accordance with regulation No. 93-05 of December 21, 1993 governingoversightof large risk exposures.Monitoringof compliancewith Group internal caps and limits is regularlycheckedby the Group Risk Management Executive Committee and the Audit and Risk Committees of the Supervisory Board. Each institution is responsible for ensuring compliance withinternallimits. Finally, the DRCCP coordinates the credit risk process, particularly through monthly audioconferencesand national credit risk days, or through theme-based working groups. It also oversees change management with respect to standards to ensure the operational adoption of Group rules at the local level and to harmonizepractices within theGroup’sinstitutions. Risk policies and limits A provisionpolicy was introducedfor corporatecustomeroff-balance sheet commitments,based on the methodologyemployedby the ECB during the 2014 asset quality review. A collateral valuation method was defined and willbe rolledout in 2018. Individual risk policies and limits were reviewed and updated. This system was expanded to include policies for the renewable energy, agriculture, food & beverage, and electrical and mechanical construction sectors. The methodused to set Group limits for corporatecustomerswas also reviewed, improving the objectivity of proposed Group limits. Lastly, the Group’s credit risk appetite indicators were updated. € 3 million to € 10 million was rolled out at the end of 2017: this model is more conservativethan the internalcorporateratingmodel for this revenue bracket in terms of risk classification. The revenue line separating professional and corporate customers was thus standardized at € 3 million for all Group institutions. Rating tools for credit transactions carried out by real estate professionalswere rolled out on the networks in 2016, and the first complete rating exercise was performed in 2017, thereby ensuring that rating rules for these transactions are consist throughout the Group. Ratings A new rating model for corporates generating revenue of Activities in 2017

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Registration document 2017