BPCE_REGISTRATION_DOCUMENT_2017

RISK REPORT Credit risk

The different levels of control at Groupe BPCE operate under the supervision of the DRCCP, which is also responsible for consolidated summary reporting to the various decision-making bodies and committees, in particular the Group Watchlist and Provisions Committee. The aim of risk supervision is to: improve the identificationof various degrees of situations that are ● stressed or becoming stressed, which may worsen and veer into default. A set of indicators used to identify incidents on customer accounts (past due payments, irregular payments, etc.) or external events (rejected notes, external ratings, customer life events) contributesto this supervisory system; enhance the quality of customer data through a data quality ● supervisionand gradualimprovementsystem,in additionto seeking out high-quality exposures. Risk prevention and monitoring at Groupe BPCE focuses on the quality of information, which is a heightened concern under the requirementsof regulationBCBS 239 and is necessaryfor proper risk assessment,as well as the amount of risk taken and changes in these risks. The supervision teams are responsible for ensuring that the sector-based watch is updated by focusing on sectors of activity identifiedas high-riskand for analyzingportfoliosto help identifythe main concentrations of risk. This system is enhanced by a set of industry-based limits. High-risk loans and counterparties (on the watchlist) and the provisioning policy for the main risks shared by several entities (includingNatixis)are regularlyexaminedby the GroupWatchlistand ProvisionsCommittee. RATING POLICY Credit risk measurementrelies on internal rating systems adapted to each categoryof customerand transaction.The Risk, Complianceand PermanentControl division is responsiblefor defining and controlling the performance of these rating systems. Groupe BPCE applies an internal rating methodology,shared by both networks and the main subsidiaries (specific to each customer segment), for individual and professionalretail customers, as well as for corporate customers, “real estate professionals”, “central banks and other sovereign exposures”, “central administrations”, “public-sectorand similardebt” and “financial institutions” segments. CAPS AND LIMITS The system of internal caps used across the Group, which are lower than the regulatory caps, is applied to all Group entities. Likewise, the internal caps system used by the institutions is lower than the Group internal caps, and is applied to all entities of the Banque Populaireand Caisse d’Epargne networks. A Groupwide set of limits has also been established for the major asset classes, major counterpartygroups within each asset class, and exposure levels for countries and industries. These limits apply to all Group institutions. The risk supervision mechanisms were strengthened at the end of 2016 through the addition of a general credit risk policy for the Group, aswell as arisk policy specific to corporates.

Finally, risk supervision is adapted to each sector and structured in accordancewith a monthlysector-basedwatch that is sharedwith all Group institutions, resulting in procedures that focus on recommendationsfor all Group institutions in at-risk sectors. On behalf of the Group Risk Management and Compliance Committee, the DRCCP measures and verifies that these risk supervision mechanisms (individual and topical limits) are correctly implementedat each institution. The Group SupervisoryBoard is kept informedas Group internallimits are monitored, and of any breaches of the limits defined in accordance withthe risk appetiteframework. QUALITY ASSESSMENT OF LOAN OUTSTANDINGS AND IMPAIRMENT POLICY System governance From a regulatory standpoint,Article 118 of the Ministerial Order of November 3, 2014 on internal control specifies that “at least once each quarter, supervised companies shall perform an analysis of changes in the quality of their loan commitments.In particular, this review should determine, for material transactions, whether any reclassificationsneed to be conductedamong the internal risk credit risk assessment categories and, if necessary, the appropriate allocations to non-performing loans and charges to provisions.” When a counterpartyis placed on either a local Watch List (WL) or the Group WL, supervision of the counterparty in question is enhanced or the decision is made to record an appropriate provision. The statisticalprovisionsapplied to retail and corporateexposuresare calculated at Group level for the networks, with the subsidiaries defining appropriate levels for their exposures based on the Group’s ground rules. Netting of on-balance sheet and off-balance sheet transactions For credit transactions, Groupe BPCE is not required to carry out nettingof on-balancesheet and off-balance sheet transactions. Provisioning methods IAS 39 defines the methods for calculating and recognizing impairment of loans and receivables. Generally speaking, loans and receivables measured at amortized cost in accordance with IAS 39 may be impaired due to a loss of valuestemming from credit risk. Under IAS 39, only incurred losses are provisioned,not losses related to future events. The approaches used to determine value adjustments are applied routinely at the end of each accountingperiod, first on an individual basis (specific risk), then on a collective basis (general risk) for each asset group with consistent risk properties. Contagion principle: Groupe BPCE applies this principle, which holds that, given the ties between entities of a single group, contagion must be recognized for a company undergoing hardships if those hardships are expected to result in another company struggling to meet its commitments.This principle is applied early in the process, when KYC data are collected on groups of customer counterparties, throughthe tiesbinding thegroups together.

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Registration document 2017