BPCE - Risk Report - Pillar III 2020

CAPITAL MANAGEMENT AND CAPITAL ADEQUACY

MANAGEMENT OF CAPITAL ADEQUACY

Supervisory Review and Evaluation Process

SREP-ICAAP PROCESS As the supervisory authority under Pillar II, the ECB conducts an annual assessment of banking institutions. This assessment, referred to as the Supervisory Review and Evaluation Process (SREP), is primarily based on: an evaluation based on information taken from prudential • reports; documentation established by each banking institution, • including in particular the Internal Capital Adequacy Assessment Process (ICAAP) and the Internal Liquidity Adequacy Assessment Process (ILAAP); an assessment of the institution’s governance, business • model and information system. Based on the conclusions of the SREP carried out by the ECB in 2020, Groupe BPCE shall maintain a consolidated Common Equity Tier 1 ratio of 9.32% on January 1, 2021, including: 1.31% in respect of Pillar II requirements (excluding Pillar II • guidance); 2.50% in respect of the capital conservation buffer; • 1.00% in respect of the buffer for global systemically • important banks (G-SIB buffer); 0.01% in respect of the countercyclical buffer. • On December 31, 2020, Groupe BPCE had achieved the targets set for the Common Equity Tier 1 ratio (>15.5%) and the TLAC ratio (>21.5%) in the 2018-2020 strategic plan. Even so, the Groupe BPCE as a whole will remain focused on continuously improving its financial strength in 2021. The Group remained on the list of G-SIBs (Global Systemically Important Banks) in November 2020. MREL – TLAC In addition to capital adequacy ratios, ratios aimed at verifying the Group’s capacity to carry out a bail-in in the event of default are implemented via the Minimum Requirement for own funds and Eligible Liabilities (MREL) and Total Loss Absorbing Capacity. This second ratio is known as TLAC, according to the terminology of the Financial Stability Board, and in Europe it is defined in the BRRD directive and the CRR regulation as subordinated MREL. Groupe BPCE has established internal oversight of these indicators. The MREL (Minimum Requirement for own funds and Eligible Liabilities) ratio was introduced by BRRD 1. Senior unsecured debt with a maturity of more than one year and the Group’s own funds make up the numerator of the MREL ratio. The Group’s current MREL requirement was received in January 2020. Outlook

The corresponding total capital requirement will be 13.26% (excluding Pillar II guidance). With a Common Equity Tier 1 ratio of 16.0% at end-2020, • Groupe BPCE has exceeded the specific capital requirements set by the ECB. As regards the internal capital adequacy assessment under • Pillar II, the principles defined in the ICAAP/ILAAP guidelines published by the ECB in February 2018 were applied in Groupe BPCE’s ICAAP. The assessment is thus carried out using two different approaches: a “normative” approach aimed at measuring the impact of – internal stress tests within three years of the initial Pillar I regulatory position, an “economic” approach aimed at identifying, quantifying – and hedging risks using internal capital over the short-term (one year) and using internal methodologies. The methodologies developed by Groupe BPCE provide a better assessment of risks that are already covered under Pillar I, and also an additional assessment of risks that are not covered by Pillar I. The results obtained using these two approaches confirmed the Group’s financial soundness and no capital buffer is necessary in addition to the existing regulatory buffers. The updated total MREL requirement was set at a level equivalent to 24.2% of the Group’s RWA at the end of December 2017. For subordinated MREL, the numerator only includes junior liabilities through senior non-preferred debt. A new MREL requirement is expected from the resolution authorities in the first half of 2021, based on the revision of the BRRD of 2019, called BRRD2. The TLAC ratio serves the same purpose as subordinated MREL and only applies to GSIB. CRR2, published at the same time as BRRD2, transcribed TLAC into positive law in the form of a minimum subordinated MREL requirement applicable to GSIBs. As indicated above, the Group has set its own TLAC target above the regulatory requirement, which is 19.51% of RWAs in 2021, i.e. 16% plus the 3.51% solvency buffer. In 2022, this requirement will increase to 18% plus the solvency buffers. TLAC (Total Loss Absorbing Capacity) amounted to €101.8 billion at end-December 2020. The subordinated MREL ratio was 23.6% on December 31, 2020 compared to 23.3% on December 31, 2019.

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RISK REPORT PILLAR III 2020 | GROUPE BPCE