BPCE - Risk Report - Pillar III 2020

RISK MANAGEMENT SYSTEM

RISK MANAGEMENT

Consolidated risk oversight

ORGANIZATION In addition to the risk supervision conducted both individually and by type of risk, Groupe BPCE’s Risk division also performs consolidated monitoring of the Group’s risks. It produces a quarterly Group risk dashboard, which is used to monitor the risk appetite defined by the Group as well as for comprehensive monitoring of risks based on an analysis of the Group’s risk profile in each area (mapping of risk-weighted assets, credit risks and counterparty risks – by customer segment –, market risks, structural ALM risks, non-financial risks and risks related to insurance businesses). In addition to the dashboard, a monthly flash report provides the Group with a more responsive and updated overview of Group risks. The Risk division also conducts or coordinates cross-business risk analyses and specific stress tests on the Group’s main

portfolios or activities and, if needed, for the entities. It has also developed half-year forward-looking risk analyses aimed at identifying economic risk factors (known and emerging; international, national and regional), circumstantial threats (regulations, etc.) and their potential impact on the Group. These forward-looking analyses are presented at meetings of the Group Supervisory Board Risk Committee. In addition, it performs specific analyses of counterparties, as well as risk measurements on a portfolio basis. It reviews and validates risk models developed internally. Finally, it contributes to efforts to define internal capital requirements as well as internal and external solvency stress tests aimed at measuring the Group’s sensitivity to a series of risk factors and its resilience in the event of a severe shock, by determining impacts in terms of cost of risk and RWA.

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Stress testing system

Groupe BPCE has been developing stress tests since 2011 that can be performed using the risk modules for Group strategic analysis purposes and regulatory purposes.

There are two types of stress tests: internal stress tests; • regulatory stress tests (including in particular the EBA’s 2018 stress test published on • November 2, 2018). Governance of the Group’s stress testing system is based on a comprehensive approach covering all Group entities, taking into consideration their specific characteristics, and covering the following risks: credit risk: change in cost of risk and risk-weighted assets; • securitization portfolio and counterparty risk: change in impairment and risk-weighted • assets; market risks: market shocks, change in securities portfolios and risk-weighted assets; • operational risks; • insurance risk. • Risks associated with sovereign exposures are addressed according to their accounting classification in market risk or credit risk.

The methodologies used to determine the projections are based on: the methodology stipulated by the ECB and the EBA for regulatory stress • tests. Internal methodologies facilitating the use of stress tests for risk oversight and management purposes, and in budget exercises.

Several scenarios are tested in order to assess all impacts: Scenario 1

Baseline scenario comprising the budget scenario Two severe yet plausible scenarios generating relevant information on the Group’s resilience capacity Two reverse scenarios: one for ICAAP and the other for theRecovery Plan (RP), based on areas of vulnerability and serving toinvestigate highly adverse conditions for the Group

Scenario 2

Scenario 3

Scenario 4 Specific scenarios for the Recovery Plan (RP) and therecovery and resolution options Models are used for each risk category to determine the impacts of scenarios on the various income statement items and capital requirements.

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RISK REPORT PILLAR III 2020 | GROUPE BPCE