NATIXIS - 2018 Registration document and annual financial report

RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk factors

Risk factors 3.1 The main types of risk to which Natixis is exposed are presented below. They may be captured through risk-weighted assets or other indicators when risk-weighted assets are not appropriate. The risks to which Natixis is exposed across all its business lines may arise from several risk factors detailed below.

commitments given (excluding those recognized at fair value through profit or loss), as well as to lease receivables (for detailed information please refer to Note 6 “Accounting principles and valuation methods” to the consolidated financial statements for the fiscal year ended December 31, 2018 included in Chapter 5.1 “Financial Statements” of this registration document). Under this framework, performing loans (Stage 1) for which credit risk has not increased materially since initial recognition are provisioned in the amount of 12-month expected losses. Underperforming loans (Stage 2), i.e. for which credit risk has increased materially since initial recognition but not to the point that they must be classified as non-performing loans, are provisioned based on lifetime expected losses. Non-performing loans (Stage 3) are loans for which there is objective evidence of impairment loss. Natixis determines the provisions for non-performing loans based on an individual expected cash flow recovery analysis, whether these cash flows come from the counterparty's activity or from the potential execution of guarantees. Non-performing loans that are not impaired following the individual analysis are provisioned at a standard rate determined based on historical unexpected losses on unprovisioned loans. At December 31, 2018, Natixis’ non-performing loan ratio was 4.2% and its non-performing loan coverage ratio was 39.6%. The increase in credit risk between S1 and S2 loans is measured based on the following criteria: the change in the counterparties’ rating (for the large corporates, banks and sovereigns loan books) since initial recognition, the change in the probability of default within one year (for the individual customer, professional customer, SME, public sector and social housing loan books) since initial recognition, their placement on the watchlist, their forborne status, the ratings of the sector or country of the counterparty, and the existence of one or more contracts that are more than 30 days past due. Thus, a deterioration in market conditions or in the economic or political environment affecting certain countries or business sectors of Natixis’ counterparties could lead to a substantial increase in losses and provisions for losses and a deterioration in the provision for credit losses for Natixis. The occurrence of one or more of these events could have a material adverse effect on Natixis’ business, results and financial position. If the liquidity of assets such as loans decreases or disappears entirely, it could make them more difficult for Natixis to distribute or structure and adversely affect its results and financial position In accordance with the “Originate to Distribute” model as defined in its strategic plan (see pages 4-5 of this registration document), Natixis originates or acquires certain assets with a view to their subsequent resale or distribution through channels such as syndication or securitization. A reduction in liquidity of the markets for such assets (especially the syndication or securitization markets), or the inability of Natixis to sell or reduce its positions in such assets,

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CREDIT RISKS

Natixis is exposed to credit and concentration risks Natixis is exposed to the credit risk arising from its counterparties (banks, financial institutions, industrial and commercial enterprises) in connection with the financing, structuring, trading and settlement activities carried out by its Corporate & Investment Banking (CIB) and Specialized Financial Services (SFS) businesses. Credit risk is one of the major risks identified by Natixis and represented 76% of total RWA at December 31, 2018 (see Section 3.2.3.10 of this registration document). Should one or more of its counterparties fail to honor their contractual obligations, and in the context of a rise in corporate failures, Natixis could suffer some degree of financial loss depending on the concentration of its exposure to these defaulting counterparties. Natixis could therefore be exposed to heightened credit risk if the ratings of counterparties belonging to a single group or single business sector were to deteriorate significantly or if such counterparties were to default, or if a country's economic situation were to worsen. Natixis’s ability to carry out its financing, structuring, trading and settlement transactions also depends, among others, on the stability and financial soundness of other financial institutions and market participants. Financial institutions are in fact closely interconnected mainly because of their trading, clearing, counterparty and financing operations. A default by one participant in the financial industry market could have repercussions on other financial institutions, cause a chain of defaults by other participants in this market and thus generate financial losses for Natixis. A substantial increase in Natixis' impairments or provisions for expected credit losses could adversely affect its results and financial position In connection with its activities, Natixis establishes asset impairment charges, whenever necessary, to reflect actual or potential losses in respect of its loan and receivables portfolio in its profit and loss account under “Provision for credit losses.” At December 31, 2018, Natixis’ provision for credit losses totaled -€215 million. Since January 1, 2018, Natixis has applied IFRS 9 “Financial Instruments,” which requires that provisions be recorded on initial recognition of a financial instrument. This new provisioning model applies to outstandings recognized at amortized cost or at fair value through other comprehensive income recyclable to income and to loan and guarantee

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Natixis Registration Document 2018

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