BPCE - Risk Report - Pillar III 2020

5

CREDIT RISKS

FOREWORD

Foreword

The Credit Risk division established special measures in response to the health crisis and its economic consequences. This section covers the main measures implemented.

Background information

French marketplace institutions managed the crisis with two primary measures to support Corporate and Professional customers: general or specific moratoria; • state-guaranteed loans. • These measures are governed by forbearance and default management standards. In a guideline dated April 2, 2020, the European Banking Authority (EBA) clarified the definition of a

“general moratorium” to help avoid the classification of exposures under the definition of forbearance. However, customers benefiting from such moratoria shall continue to be assessed by banks, which may, depending on the presence of risk indicators, declassify a customer as defaulted. Pursuant to EBA recommendations, Groupe BPCE has elected to carry out a forbearance analysis based on expert opinion, while prioritizing the most at-risk customers.

Credit risk measures implemented since the start of the crisis

Main measures taken since the start of the crisis: groupwide instructions applicable to the Sales and Risk • functions of BPCE institutions, addressing the following subjects: proactive repayment deferrals for Corporate and Professional – customers in selected sectors and related subjects ( e.g. payment protection insurance), state-guaranteed loans (how SGLs work, authorization – diagram, content of credit application, map of Fiben and internal ratings), guidelines on certain asset classes (real estate development, – hospitals, semi-public companies, LBOs, etc.), forbearance management in accordance with EBA – guidelines and impacts on default, management of short-term authorization renewal; – support via regular audio sessions with Agents, Operations • division, Finance, Commitments, Disputes, Collections, Compliance and Risk functions co-organized by the Sales and Risk functions; establishment of a weekly Covid-19 crisis risk dashboard, • oversight of potentially leveraged exposures; portfolio analyses conducted with the establishment of four • sector watch committees in three months; baseline/stressed/adverse stress scenarios on the impact of • the crisis on cost of risk;

additional instructions on various issues related to the • supervision system: watchlist, revised through-the-cycle rating (rating over a complete cycle as compared to current conditions), with general enhancement of the supervision system; BPCE and Natixis implemented a geo-sector review (sector • rating) aimed at providing data for an initial stress test and at identifying additional cost of risk generated by the developing crisis. This stress test will be regularly observed and potentially amended. In addition to this sector review, a detailed review of each geographic area was initiated by portfolio in order to identify the main counterparties liable to be vulnerable to the current crisis, spanning several areas deemed at-risk. The following information should be noted for rating models: the segmentation standard for professional customers’ • revenues was changed in light of Covid-19. This change aims to smooth out the effects of the Covid crisis and to avoid unwanted segment changes; assessing the impact of measures to support the economy • (state-guaranteed loans, moratoria) on all risk parameters (PD, EAD, LGD) used to calculate the minimum capital requirements for credit risk and actions planned in terms of PD rating; analyses aimed at incorporating government support • measures in the estimation of IFRS 9 provisions for quarterly reporting purposes.

78

RISK REPORT PILLAR III 2020 | GROUPE BPCE

www.groupebpce.com