NATIXIS - 2018 Registration document and annual financial report

RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

Spread risk is the risk of an increase in the cost of funding in the event of a liquidity crisis, given fixed-margin long-term assets, or when forced to reinvest long-term funds at higher rates relative to available assets. Structural foreign exchange risk Structural foreign exchange risk is defined as the risk of transferable equity loss generated by an unfavorable fluctuation in exchange rates against the currency used in the consolidated accounts due to a mismatch between the currency of net investments (refinanced by purchases of the same currency) and the currency of equity. Natixis’ structural foreign exchange risk for the most part concerns structural positions in the US dollar due to the consolidation of foreign branches and subsidiaries funded in this currency. Compliance risk Compliance risk is defined in French regulation as the risk of a legal, administrative or disciplinary penalty, accompanied by significant financial losses or reputational damage, that arises from a failure to comply with the provisions specific to banking and financial activities, whether these are stipulated by national or directly applicable European laws or regulations, or by instructions from executive managers, issued in accordance with the policies of the supervisory body. This risk is a sub-category of operational risk, by definition. Cyber risk Cyber risk is caused by a malicious and/or fraudulent act, perpetrated digitally in an effort to manipulate data (personal, banking/insurance, technical or strategic data), processes and users, with the aim of causing material losses to companies, their employees, partners and clients. The transformation of banking information systems, the new technologies it heralds and the increased outsourcing of related services offer cybercriminals new opportunities to carry out increasingly sophisticated and automated attacks. Natixis’ ability to conduct its business is determined by the availability of its information system, the guaranteed integrity and confidentiality of data and the traceability of every transaction. Reputational risk Reputational risk is the risk of damage to the confidence shown in the Company by its customers, counterparties, suppliers, employees, shareholders, supervisors, or any other third parties whose trust, in whatever respect, is a prerequisite for the normal conduct of business. Reputational risk is essentially a risk contingent on the other risks incurred by the bank. Legal risk Legal risk is defined under French regulation as the risk of any legal dispute with a third party, arising from an inaccuracy, omission or deficiency that may be attributable to the Company’s operations.

Other risks Insurance business-related risk : insurance risk is the risk to profits of any difference between expected and incurred claims. Depending on the Insurance product in question, the risk varies according to macroeconomic changes, changes in customer behavior, changes in public healthcare policy, pandemics, accidents and natural disasters (such as earthquakes, industrial accidents or acts of terrorism or war). Strategic risk is the risk inherent to the strategy chosen or resulting from Natixis' inability to implement its strategy. Climate risk is the increased vulnerability of businesses to variations in climate indices (temperature, rainfall, wind, snow, etc.). Environmental and social risks arise from the operations of the clients and companies in which Natixis invests. Stress tests 3.2.2.6 Natixis has developed a comprehensive stress test mechanism to dynamically monitor and manage risks. The set is an integral part of the risk management framework and contributes to Natixis’ capital and regulatory requirements planning process. Natixis’ stress test mechanism is structured as follows: comprehensive internal and external exercises; a Global internal stress tests The purpose of global internal stress tests is to assess the impact of a baseline scenario and of stressed scenarios on a bank's income statement, risk-weighted assets and equity. The scenarios proposed by the Economic Research team are discussed and approved at a Groupe BPCE Management Board Committee Meeting. They are translated into levels or shocks to economic and financial variables, such as GDP, inflation, employment and unemployment, interest and exchange rates, and commodity prices, over a three-year period. These variables are factored into projection models used by Natixis to apply stress to the various aggregates of the income statement, risk-weighted assets and equity. One stress scenario for 2018 featured plummeting US equity indices and a flattening yield curve due to an abrupt decline in growth and inflation. Equity volatility indices were supposed to climb significantly, along with risk aversion. This would cause long-term rates to nosedive in all sectors, causing central banks to stop tightening their monetary policies. Flatter yield curves would have impacted financial companies but did not generate much tension on the money market due to excess liquidity. periodic regulatory exercises; a specific exercises by scope. a

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Natixis Registration Document 2018