BPCE - Risk Report - Pillar III 2020

LIQUIDITY, INTEREST RATE AND FOREIGN EXCHANGE RISKS

LIQUIDITY RISK MANAGEMENT POLICY

The stress calculation methodology is based on the projection of the Group’s on-balance sheet and off-balance sheet flows with stressed assumptions defined in the context of stress scenarios and on changes in the liquidity reserve taking into account securities transactions and different valuations (Market, ECB haircuts) according to different scenarios. Thus, for example, we assume that we will only be able to partially renew all maturing refinancing operations, will have to cope with requests for early repayment of deposits or unexpected disbursements on off-balance sheet financing commitments, and will incur a loss of customer deposits or a substantial change in their structure, or a loss of liquidity in certain market assets. Liquidity stressors are based on different scenarios: idiosyncratic (Group-specific), a systemic crisis affecting all market players, and a combined crisis. Different intensity levels are also used to allow sensitivity analyzes. CONTINGENT FUNDING SYSTEM (CFP) The Group’s Contingency Funding Plan (CFP) summarizes the work implemented by the Group to facilitate its management of liquidity crisis situations. The document is updated annually. It is based on a monitoring and alert system via a dashboard listing Early Warning Indicators (EWI) likely to enlighten the Group as to whether or not the CFP should be activated. These EWIs are produced on a daily basis and mainly concern funding, liquidity gap and liquidity reserve indicators. Market indicators (interest rates, exchange rates, equities, CDS, etc.) are also monitored in this daily dashboard. In addition to these quantitative approaches, a qualitative assessment in the form of a confidence index is provided by the functions responsible for issues, the Treasury and Central Bank Collateral Management team, and the Asset/Liability management and financial risk management teams. The CFP can thus be triggered by a specific market environment that may expose the Group’s future liquidity position to increased risks. During the health crisis of March 2020, and while the Group’s liquidity position was solid both from a cash and regulatory perspective, the Group activated its CFP in a preventive manner, in order to ensure that all business lines within the Group were aligned if actions were to be implemented. The triggering of the CFP generates the establishment of a specific Crisis Management Committee with an escalation process based on the perceived magnitude of the crisis. In addition to this committee, which meets frequently, the CFP centralizes certain financial activities normally located at Natixis with the head of the Treasury and Central Bank Collateral Management team. The CFP also includes an inventory and an analysis ahead of the financial and business lines that the Group can implement, including potential liquidity gains and the associated costs (loss of profitability) and possible obstacles to their implementation. These levers can be grouped into three categories: liquidity collection. The Group comprises many entities, 1. which allows it to collect liquidity on an ad hoc basis;

reduction in liquidity consumption. In light of its activities, the 2. Group could, if necessary, reduce the financing it grants to the economy should its liquidity position be stressed; monetization of liquid assets. The Group has significant 3. collateral reserves that can be transformed into cash if necessary. The knowledge gained from the crisis in the first half of 2020 and the subsequent activation of the CFP were used to update the system in all of these components, namely the EWI system, the committee procedure and the related escalation process, together with the assessment of the various levers. CENTRALIZED FUNDING MANAGEMENT The Financial Management division organizes, coordinates and supervises the funding of Groupe BPCE on the markets. The short-term funding of Groupe BPCE is carried out by the Single Treasury and Central Bank Collateral Management team, created following the merger of BPCE and Natixis’ cash management teams. This integrated treasury team is capable of managing the Group’s cash position more efficiently, particularly during a credit crunch. The Group has access to short-term market funding through its two main issuers: BPCE and its subsidiary Natixis. For medium- and long-term funding requirements (more than one year), in addition to deposits from customers of the Banque Populaire and Caisse d’Epargne networks, which are the primary source of funding, the Group also issues bonds on the financial markets with BPCE as principal operator, offering the broadest range of bonds to investors: directly as BPCE for subordinated debt issues (Additional • Tier 1 and Tier 2), senior non-preferred debt and vanilla senior preferred debt issues, in multiple currencies, with the main currencies being the EUR, USD, JPY, AUD and GBP; or as BPCE SFH, the Group’s main issuer of covered bonds; • this issuer, operated by BPCE, specializes in obligations de financement de l’habitat (OH), a category of secured bond guaranteed by French legislation (backed by residential home loans in France). Groupe BPCE works with two other highly specialized operators to round out its MLT funding sources: Natixis for structured senior preferred debt issues (private • placements only) under the Natixis name, and for covered bonds under German law (backed by commercial real estate loans) under the Natixis Pfandbriefbank AG name; Crédit Foncier for covered bonds, known as obligations • foncières (OF), under the Compagnie de Financement Foncier (a subsidiary of Crédit Foncier) name; OFs are a category of covered bond based on French legislation (backed by public sector loans and assets, in line with the new positioning decided in 2018 for this Group issuer, bearing in mind that the collateral still includes residential home loans in France previously manufactured by Crédit Foncier).

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RISK REPORT PILLAR III 2020 | GROUPE BPCE