BPCE - Risk Report - Pillar III 2020

CREDIT RISKS

CREDIT RISK MANAGEMENT

Credit risk management 5.1

Credit policy

The overall credit risk policy is governed in particular by the risk appetite system, structured around the definition of the level of risk and risk appetite indicators. The balance between profitability and risk tolerance is reflected in Groupe BPCE’s risk profile and is written into the Group’s risk management policies. Groupe BPCE does not conduct business unless it has the associated risks sufficiently under control. Activities with high risk-reward profiles are identified and strictly controlled.

From a structural standpoint, Groupe BPCE’s business model incurs a lower-than-average cost of risk for the French market. In general, Groupe BPCE’s credit approval process is based first and foremost on the customer’s ability to repay the loan, i.e. future cash flows, with clearly identified sources and channels and a reasonably realistic probability of occurrence.

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Rating policy

Credit risk measurement relies on internal rating systems tailored to each category of customer and transaction. The Risk division is responsible for defining and verifying the performance of these rating systems. An internal rating methodology common to all Groupe BPCE institutions (specific to each customer segment) is applied for “individual and professional retail customers”, as well as for “corporate customers”, “real estate professionals”, “project financing”, “central banks and other sovereign exposures”, “central governments”, “public-sector and similar entities” and “financial institutions segments”. The measures put in place by the public authorities to address the 2020 health crisis have generated an abundance of liquidity,

which has neutralized some of the surveillance tools when it comes to he customer base affected by this crisis. An additional system, called a summary indicator, has been defined, developed and implemented across the networks to identify the hardships customers are likely to be facing. In the short-term, Natixis is less affected by this system. In addition, in order to take into account discrepancies between the 2019 accounting documents submitted in 2020 and the immediate effects of the 2020 crisis, a specific rating override system was defined, tested and implemented for the networks. The purpose of this system is to rate customers with more than €10 million in revenues “throughout the crisis.”

Credit risk governance

The systems in place to govern credit approval and to manage and classify credit risks are all based on the following governance: Each standard, policy, system or method is the focus of workshops, organized and led by the Risk division teams, made

up of Group representatives. The purpose of these workshops is to define the rules and expectations for each topic addressed, as it relates to the Group’s risk appetite and regulatory constraints. These topics are then decided by a Group

committee made up of executive managers.

The Risk function is structured according to the principle of subsidiarity:

each Groupe BPCE institution has a Risk Management department covering all types of risks, including credit and • counterparty risks. Each institution manages its risks in accordance with Group standards and prepares a risk report every six months; each Head of Risk Management is functionally subordinate to the Group Head of Risk Management, who reports to • the Chairman of the Groupe BPCE Management Board and is a member of the Executive Management Committee; the Risk division has a department in charge of coordinating Level 1 and 2 permanent controls at the institutions. • The Credit Risk function helps ensure that each institution’s permanent control system is complete.

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RISK REPORT PILLAR III 2020 | GROUPE BPCE