BPCE - Risk Report - Pillar III 2020

RISK FACTORS

The banking and financial environment in which Groupe BPCE operates is exposed to numerous risks which obliges it to implement an increasingly demanding and strict policy to control and manage these risks. Some of the risks to which Groupe BPCE is exposed are set out below. However, this is not a comprehensive list of all of the risks incurred by Groupe BPCE in the course of conducting its business or given the environment in which it operates. The risks presented below are those identified to date as significant and specific to Groupe BPCE, and liable to have a material adverse impact on its business, financial position and/or results.

For each of the risk sub-classes listed below, the risk factor considered to date by Groupe BPCE as the most significant is listed first. The risks presented below are those identified to date as liable to have an adverse impact on the businesses of BPCE SA group and BPCE SA. The risk factors described below are presented as of the date of this document and the situation described may change, even significantly, at any time.

Strategic, business and ecosystem risks

The ongoing coronavirus (Covid-19) pandemic and its economic consequences may continue to adversely impact the Group’s operations, results and financial position. The emergence of Covid-19 in late 2019 and rapid spread of the pandemic across the globe have adversely impacted economic conditions in multiple business sectors, sparked a declined in the financial position of economic agents, while also disrupting the financial markets. In response, many affected countries have been forced to implement preventive health measures (closed borders, lockdown measures, restrictions on certain economic activities, etc.). In particular, the sudden recession gripping affected countries and the drop in global trade have had and will continue to have negative effects on global economic conditions for as long as global production, investments, supply chains and consumer spending are impacted, in turn impacting the business operations of the Group, its customers and its counterparties. The resurgence of the virus in the autumn of 2020 led to new restrictions (in particular, another lockdown in France and a number of European countries) and, following a rebound during the summer, the economic environment may take another hit. A virus that is still active, with variants that are more contagious or more resistant to vaccines, could trigger the extension or repetition of restrictive measures, which could last several months, and thus continue to adversely affect the Group’s business, financial performance and results. In response, massive fiscal measures and monetary policy initiatives have been undertaken to stimulate activity. The French government, for example, has instituted a state -guaranteed loan program for businesses and professionals, as well as many other tax and social security measures for employees and their employers (short-time working measures). For its part, the European Central Bank has made access to highly substantial refinancing operations more abundant and less expensive. Groupe BPCE has actively participated in the French state-guaranteed loan program in the interest of financially supporting its customers and helping them overcome the effects of this crisis on their activities and income ( e.g. automatic six-month deferral on loans for certain professional customers and micro-enterprises/SMEs). Such measures may be insufficient to offset the negative impacts of the pandemic on the economy or to fully stabilize the financial markets over the long-term. The economic environment may get worse before it starts to get better.

In France, the Group’s maincountry of operation (76% of net exposures were located in France on December 31, 2020), the lockdown and curfew measures and temporary administrative closure of certain activities have taken a major toll on thebusiness of economic agents. The Group’s results and financial position have been impacted by such measures, as a result of the decline in revenues and the significant increase in credit risk provisioning (cost of risk) to deal with the proven and, for the most part, future deterioration in asset quality in general and in certain specific sectors that have been particularly affected. Within the Corporate and Professional portfolios, the sectors most likely to be affected at present are mainly the Wholesale and non-food retail sectors (gross exposure on December 31, 2020 of €16.4 billion), Tourism-Hotels-Catering (gross exposure on December 31, 2020 of €14.1 billion), Automotive (gross exposure on December 31, 2020 of €9.6 billion), Consumer goods excluding cosmetics and personal care (gross exposure on December 31, 2020 of €5.8 billion) and Real Estate Professionals excluding residential exposure (gross exposure on December 31, 2020 of €5.4 billion). The Oil & Gas sector has been very significantly impacted by a sharp drop in demand brought on by the pandemic and by the initially uncoordinated supply-side action taken by certain oil-producing countries ( e.g. OPEC countries, Russia), causing the price of the barrel to plummet and sparking major price volatility (net EAD of €10.0 billion on December 31, 2020 within the scope of Natixis). Finally, the aviation sector has been and continues to be particularly affected by this crisis (net EAD of €3.8 billion on airlines and companies specializing in aircraft leasing as of December 31, 2020 within the scope of Natixis). For 2020, the cost of risk, the impact of which was however mitigated by the support measures for businesses and individuals put in place by the French government, amounted to €2,998 million, corresponding to 41 basis points (compared to 19 basis points for 2019) when compared to gross customer loans outstanding at the beginning of the period. The significant increase in the cost of risk is mainly related to the impact of the Covid-19 crisis in forward-looking information when assessing expected losses (future risk), but also to a lesser extent the increase in individual provisions (proven risk) concentrated on the Energy and Natural Resources sector, and more particularly Oil and Gas, in Corporate & Investment Banking. The method applied to impairment of credit risk and the assumptions made in the scenarios are described in § 1.5.2.1 “Impairment of credit risk” in the consolidated financial statements of Groupe BPCE included in the 2020 universal registration document.

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RISK REPORT PILLAR III 2020 | GROUPE BPCE

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