BPCE_REGISTRATION_DOCUMENT_2017

FINANCIAL REPORT IFRS Consolidated Financial Statements of Groupe BPCE as at December 31, 2017

These liabilities are measured at fair value at the date of initial recognition and at each balance sheet date. Fair-value fluctuations over the period, interest, and gains or losses related to these instruments are booked as “Net gains or losses on financial instrumentsat fair value through profit or loss,” except for fair-value fluctuationsattributableto the change in own credit risk, which since January 1, 2016 (see Note 2.2) are booked as “Revaluation of own credit risk of financial liabilities designated as at fair value through profit or loss” within “Gains and losses recognizeddirectly in equity”. In the event of early redemption, fair value gains or losses attributableto own credit risk are directly transferredto consolidated reserves under equity. Debt securities Issues of debt securities (which are not classified as financial liabilities at fair value through profit or loss or as equity) are initially recognized at fair value less any transaction costs. They are subsequentlymeasured at amortizedcost at each balance sheet date using theeffectiveinterest method. These instruments are recognized on the balance sheet under “Amounts due to credit institutions”,“Amounts due to customers”or “Debt securities”. Subordinated debt Subordinateddebt differs from other debt and bonds in that it will be repaid only after all the senior and unsecuredcreditors,but before the repayment of participating loans and securities and deeply subordinated notes. Subordinateddebt which the issuer is obliged to repay is classifiedas debt and initiallyrecognizedat fair value less any transactioncosts. It is subsequently measured at amortized cost at each balance sheet date using the effective interest method. Cooperative shares IFRIC 2 “Cooperative shares in cooperative entities and similar instruments” clarifies the provisions of IAS 32. In particular, the contractual right of the holder of a financial instrument (including cooperativeshares in cooperativeentities)to requestredemptiondoes not, in itself, automaticallygive rise to an obligation for the issuer. Rather,the entitymust considerall of the terms and conditionsof the financial instrument in determining its classification as a debt or equity. Based on this interpretation, cooperative shares are classified as equity if the entity has an unconditionalright to refuse redemptionof the cooperative shares or if local laws, regulations or the entity’s bylaws unconditionally prohibit or curtail the redemption of cooperative shares. Based on the existing provisions of the Group’s bylaws relating to minimumcapitalrequirements,cooperativesharesissuedby the Group are classified asequity. profit or loss The amendment to IAS 39 adopted by the European Union on November 15, 2005 allows entities to designate financial assets and liabilities on initial recognition at fair value through profit or loss. However,an entity’s decisionto designatea financialasset or liability at fair valuethroughprofit or loss maynot be reversed. Compliancewith the criteriastipulatedby the standardmustbe verified priorto any recognition of an i strument using the fair value option. Financial assets and liabilities at fair value through 4.1.4

In practice, this option may be applied only under the specific circumstances described below: Elimination of or significant reduction in a measurement or recognition inconsistency (accounting mismatch) Applying the option enables the elimination of accounting mismatches stemming from the application of different valuation rules to instruments managed in accordance with a single strategy. This accounting treatment applies in particular to certain structured loans granted tolocal authorities. Harmonization of accounting treatment and performance management and measurement The option applies for a group of assets and/or liabilities managed and measured at fair value, provided that it is based on a formally documented risk management or investment strategy, and informationabout the Group is also reportedinternallyon a fair value basis. This circumstance mainly arises in connection with Natixis’ capital market activities. Hybrid financial instruments containing one or more embedded derivatives An embedded derivative is a component of a financial or non-financial hybrid (combined) instrument that qualifies as a derivative.It must be separatedfrom the host contractand accounted for as a derivative if the hybrid instrument is not measured at fair value through profit or loss, and if the economic characteristicsand risks associatedwith the derivativeare not closely related to those of the hostcontract. The fair value optionmay be appliedwhen the embeddedderivative(s) substantially modify the cash flows of the host contract and when the separate recognition of the embedded derivative(s) is not specifically prohibited by IAS 39 (e.g. an early redemption option at cost embedded in a debt instrument). The option allows the entire instrument to be measured at fair value, and therefore avoids the need to extract, recognize or separately measure the embedded derivative. This accounting treatment applies in particular to some structured debt issuescontaining material embedded erivatives. accounting A derivativeis a financial instrumentor other contract with all three of the followingcharacteristics: its value changes in response to the change in a specific interest ● rate, financial instrumentprice, commodityprice, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided that, in the case of a non-financialvariable, this variable may not be specific to ne of the parties to the contract; it requires no initial net investment or an initial net investment ● that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and it is settled at afuture date. ● All derivative financial instruments are recognized on the balance sheet at the trade date and measuredat fair value at inception.They are remeasured at their fair value at each balance sheet date regardless of whether they were acquired for trading or hedging purposes. Changes in the fair value of derivativesare recognizedin income for the period, except for derivatives qualifying as cash flow hedges for Derivative financial instruments and hedge 4.1.5

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Registration document 2017