BPCE - Risk Report - Pillar III 2020

5

CREDIT RISKS

CREDIT RISK MANAGEMENT

The credit approval process is based on Group risk policies, which in turn draw on internal rating systems tailored to each type of customer and transaction.

The Groupe BPCE Risk division is responsible for:

overseeing and proposing guidelines for risk management policies, in accordance with the Group’s risk appetite; • defining, deploying and verifying the performance of internal rating systems; • producing reports containing the relevant information on these measures. • the creditworthiness of the main portfolios or activities (home loans, consumer loans, loans to professional • customers, SMEs/ISEs) at Group level, on an in-depth basis;

For credit risk oversight purposes, Groupe BPCE manages and regularly reviews the following risks:

concentration risks, defining individual limits for major counterparties; • consolidated amounts and changes in loan outstandings by counterparty; • average risk-weighted assets by entity and by asset class; • counterparty risk consolidated at Group level; •

in response to the health crisis, Group institutions were given instructions to grant state-guaranteed loans and • moratoria; various management tools have been provided in this context, aimed at facilitating the management of measures authorized by the French government and the EBA (Forbearance). Group risk policies on asset classes, Group sector policies; • regulatory caps, Group internal caps, internal caps for institutions in the Banque Populaire and Caisses d’Epargne • networks and all BPCE subsidiaries; a set of Group internal limits covering the major categories of counterparties (a company made up of a parent and • its subsidiaries) on a consolidated basis, for the main asset classes excluding retail, supplemented as needed by local limits; predominantly based on the internal rating approach, these methodologies are used to define the maximum risk that Groupe BPCE is willing to take; at each Group institution, a pro-con analysis or counter-analysis procedure involving the Risk function, which holds • the right to veto decisions, calling on the higher-level Credit Committee for arbitration where necessary, or the duly authorized representative; a permanent control system. •

Credit approval decisions deployed or adapted at each Group institution are supervised within a system made up of:

As part of managing the health crisis, a sectoral classification of business sub-sectors in Green – Orange – Red (GOR) according to their estimated vulnerability was defined and reported each month, allowing on the one hand to identify the sectors most affected by the crisis, and on the other hand to identify the effects of this crisis via stress tests by downgrading the ratings of the sectors concerned, combined with the impact of the quotas to be downgraded on the exposures of the sectors concerned. This method made it possible to compare the effects obtained with the effects of the IFRS 9 method in force for Q2 2020 and Q4 2020. The GOR, which has been updated monthly since April 2020, is accompanied by recommendations on the approach to adopt in terms of granting loans to professionals and corporates in the various sectors. Furthermore, sector and portfolio reviews are carried out at Group level to obtain a consolidated view of their credit quality and, where applicable, to be able to propose changes to risk policies or the corresponding management procedures. Compliance with regulatory and internal caps and limits is regularly checked by the Group Risk and Compliance Committee and the Audit and Risk Committees of the Supervisory Board. Each institution is responsible for ensuring compliance with internal limits.

The Risk division also defines the credit risk Level 2 permanent control framework for all institutions. The Group Internal Coordination and Control Committee (3CIG) is informed of the action plan for year N+1, based on the results observed during the fiscal year. Each institution determines its priority risks via the macro-level risk mapping process, which serves as a guide for its annual permanent control plan. The Level 2 permanent control system forms an auditable base available to the periodic control teams. The results of these management initiatives are presented to the Group Risk and Compliance Committee, the Group Credit and Counterparty Risk Committee and the Group Credit Risk and Permanent Control Committee. Finally, the Risk division coordinates the credit risk process, particularly through monthly audio conferences, national credit risk days, regional platforms or through theme-based working groups. It also oversees change management with respect to standards to ensure the operational adoption of Group rules at the local level and to harmonize practices within the Group’s institutions.

80

RISK REPORT PILLAR III 2020 | GROUPE BPCE

www.groupebpce.com