NATIXIS - 2018 Registration document and annual financial report

3 RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

A second scenario, developed to show a much stronger impact on Natixis’ earnings, suggested G7 economies would heat up, lifting inflation. This would be aggravated by higher oil prices. The overheated economy would send equity markets plunging and cause credit spreads to widen. The increase in long-term rates would significantly affect the banking sector, dragging down the real estate market starting in 2019. These shocks would cause 2020 GDP to fall in various countries while global trade would decrease. These projections are based on internal modeling which are either based on the sensitivities or trends observed in financial and economic variables, or on internal historical data. The results of the stress tests were approved by the Senior Management Committee and presented to the Risk Committee of the Board of Directors. They have been analyzed as part of building Natixis’ solvency trajectory. This impact was measured in terms of net income (Group share), net revenues and Common Equity Tier 1. Regulatory stress tests Regulatory stress tests comply with the ad hoc requirements of the ECB, the EBA and any other supervisor: the last regulatory exercise was performed in 2018 using the methodology published by EBA for the ECB. Natixis contributed to the exercise for Groupe BPCE’s scope. Specific stress tests The specific stress test exercises performed by the Natixis Risk division are detailed in the dedicated sections of this document (namely with regard to the credit stress tests detailed in section 3.2.3, subsection 3.2.3.9 “Commitment monitoring framework”, as well as the market stress tests detailed in section 3.2.5, subsection 3.2.5.3 “Market risk measurement methods”). Organization 3.2.3.1 The risk control framework is overseen by the Risk division with the active involvement of all the bank’s businesses and support functions. All the internal standards, policies and procedures are consistent with BPCE’s framework and are reviewed periodically to take into account the results of internal controls, regulatory changes and the bank’s risk appetite. Credit risk management and control are performed in accordance with the segregation of duties. Accordingly, together with the other divisions, the Risk division is in charge of monitoring credit risk through various departments that: define the credit risks policies and internal credit risk a management procedures; set credit risk limits and exposure thresholds; a issue transaction authorizations after a counter-analysis of the a credit risk and the counterparty risk in line with the processes for credit approval and limit authorization; CREDIT AND COUNTERPARTY RISKS 3.2.3

define internal rating methodologies and models; a implement second-level permanent controls; a

monitor exposures and report to Natixis’ Senior Management. a Working with the businesses, the main duty of the Risk division is to provide an opinion, based on all relevant and useful information, on the risks taken by the bank. Credit decisions are made within the limit authorizations granted jointly to the business lines and to certain members of the Risk function, and are approved personally by the Chief Executive Officer or any other person he authorizes to that end. They are sized by counterparty category and internal credit rating, and by the nature and duration of the commitment. Furthermore, these authorizations can be exercised only when the transaction satisfies the different criteria set out in the risk policy of each sector and activity. In conjunction with BPCE, Natixis has defined the rating methods applicable to the asset classes held jointly. Targets and policy 3.2.3.2 Natixis’ risk policies have been defined as a component of the bank’s overall risk appetite and credit risk control and management framework. The policies are the product of consultation between the Risk division and the bank’s various business lines, and are intended to establish a framework for risk-taking while outlining risk appetite and Natixis’ strategic vision by business line or by sector. Natixis now has some 20 risk policies, which are regularly revised and cover the various Corporate & Investment Banking business lines (corporate, LBO, aircraft finance, real estate finance, project finance, commodities finance, banks, insurance, etc.) and the subsidiaries’ various activities (e.g. leasing for Natixis Lease and Factoring for Natixis Factor, etc.). The framework these risk policies set out makes a distinction between recommendations based on best practices, and strict (qualitative or quantitative) supervisory criteria, any deviation from which affects the decision-making process and the usual system of limit authorizations. The quantitative framework is generally based on: commitment ceilings by business line or sector; a commitment sub-limits by type of counterparty, type of a product, or sometimes by geographic region. This framework helps to monitor the concentration of the bank’s commitments in relation to a given sector or type of risk. The qualitative framework is, for its part, structured around the following criteria: business sectors: preferred sectors, banned sectors; a targets: customers to be targeted or excluded based on a various criteria (size, rating, country of operation, etc.);

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Natixis Registration Document 2018