BPCE_REGISTRATION_DOCUMENT_2017

RISK REPORT Credit risk

The validation team conducts independent analyses in compliance with a charter and procedures that describe interactions with the modelingentitiesand the steps of the review.This review is based on a set of qualitative and quantitative criteria, and mainly addresses the followingpoints: documentation; ● methodology, including the validity of assumptions; ● performance; ● robustness; ● compliance withregulations. ● The level of detail in the review is adjusted for the type of work examined. In any event, it must at least include a document review focusing on the quantitative aspects of rating systems. For a new model or a major change to an existing model, in addition to this review, the computercodes are checked and additionaltests are run (comparative calculations). The scope of the Validationdivision’s involvementmay be expanded prior to and after an investigation of data quality, system implementationand operationalintegration. In conclusion, the review issues an opinion on the validity of the models and the associated inputs for credit and counterparty risks, and for models authorized for use in determining capital

requirements. It also issues an opinion on compliance with prudential regulations.Where necessary, the review is accompanied by recommendations.

MODEL MAPPING The DRCCP keeps an up-to-date map of Group internal rating models, clearly indicating their scope in terms of Group segments and entities,as well as their main features,includinga general score derived from the annual model review characterizing the performance and freshness of each model (age/yearof development). The table below lists the Group’s internal credit models used for risk management purposes and, when authorized by the supervisor, for the determinationof capital requirementsfor the Banque Populaire and Caisse d’Epargne networks, Natixis and its subsidiaries, Crédit Foncier and Banque Palatine. New models have been added to the system since 2016, to better reflect the specific nature of certain scopes of operation. In particular, two rating models were introduced for small enterprises ( € 3 million < Revenue<  € 10 million) in October 2017. These models draw on account behavior variables and the company’s financial data. Separate LGD models have also been introduced for commodities trade financing agreements and financing with listed equities.

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Registration document 2017