NATIXIS - 2018 Registration document and annual financial report

3 RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

Risk typology 3.2.2.5 (Data certified by the Statutory Auditors in accordance with IFRS 7) Natixis is exposed to a set of risks inherent to its activities, which may change, particularly as a result of regulatory requirements. Credit risk Credit risk is the risk of financial loss due to a debtor’s inability to honor its contractual obligations. Assessing the probability of a debtor’s inability to repay and, in such cases, how much we can expect to recover is a key component of measuring credit quality. The debtor may be a bank, an industrial or commercial company, a sovereign State and its various entities, an investment fund, or a natural person. Credit risk increases in periods of economic uncertainty, insofar as such conditions may lead to a higher rate of default. Credit risk affects lending operations as well as other operations exposing Natixis to the risk of counterparty default, notably its trading operations in financial instruments on Capital Markets and its settlement-delivery operations. Counterparty risk Counterparty risk is the risk of exposure to a counterparty defaulting on market transactions. Counterparty risk evolves as market parameters fluctuate. Natixis is exposed to this risk because of the transactions it executes with its customers (for example, over-the-counter derivatives [swaps, options, etc.], securities lending and borrowing, and repurchase agreements). Securitization risk Securitizations are transactions involving credit risk inherent in a set of exposures housed in special-purpose entities (usually a securitization fund or “conduit”), which is then divided into tranches, usually for the purpose of selling them to investors. The special-purpose entity (SPE) issues units that may in some cases be subscribed for directly by investors, or by a multi-seller conduit which refinances the purchases of its shares by issuing short-maturity notes (treasury notes or commercial paper). Rating agencies assess the creditworthiness of available-for-sale units for investors. In general, securitizations have the following characteristics: they result in a material transfer of risk where the transaction a is originated by Natixis; payments made in the course of the transaction depend on a the performance of the underlying exposures; the subordination of tranches, defined by the transaction, a determines the distribution of losses over the term of the risk transfer.

bond prices, interest rates, securities and commodities prices, derivatives prices and foreign exchange rates. Asset liquidity is an important component of market risk. In the event of insufficient or non-existent liquidity (for example, because of a reduced number of transactions, or a major imbalance in the supply and demand of certain assets), a financial instrument or any other tradable asset may not be able to be traded at its estimated value. The lack of liquidity may lead to reduced access to capital markets, unforeseen cash or capital requirements, or legal restrictions. Operational risk Operational risk is the risk of loss due to inadequate or failed internal processes, human resources, information systems, or external events with financial, regulatory, legal or reputational impacts. The Groupe BPCE Insurance Department is tasked with analyzing insurable operational risks and taking out appropriate insurance coverage. Natixis and its subsidiaries benefit from insurance policies pooled with Groupe BPCE against potentially significant consequences resulting from fraud, embezzlement and theft, operating losses or the incurring of Natixis’ civil liability or that of its subsidiaries or the employees for which it is responsible. Model risk This is the risk of direct economic loss or economic loss as a consequence of an image problem or legal dispute or reputational harm, due to errors made when defining, implementing or using valuation models, regulatory capital models or other models. Overall interest rate risk Natixis’ overall interest rate risk is defined as the risk of loss on the banking portfolio due to mismatches between interest rates on assets and on liabilities. As is the case for most corporate and investment banks, Natixis has very few assets and liabilities generating structural interest rate positions. Natixis’ overall interest rate risk concerns contractual transactions. The most significant positions concern exposures to the short end of yield curves and are predominantly linked to the lag between IBOR fixing dates. This is therefore classed as a secondary risk at the bank level. Liquidity risk Liquidity risk is the risk that Natixis will be unable to honor its commitments to its creditors due to the positive difference of maturities between assets and liabilities. This risk could arise, for example, in the event of massive withdrawals of customer deposits, a crisis of confidence, or an overall market liquidity crisis. As a corporate and investment bank, this risk for Natixis results primarily from mismatched positions between transactions with contractual maturities, as Natixis has fewer stable and permanent customer resources than retail banks and partly funds its operations on the markets.

Market risk

Market risk is the risk of loss in value caused by any adverse fluctuations in market parameters. These parameters include

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Natixis Registration Document 2018