NATIXIS - 2018 Registration document and annual financial report

RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

Main internal models used by Natixis 3.2.3.7 Main internal models: PD, LGD, CCF and volatility discounts (EU CRE)

Modeled input

Portfolio

Number of models

Description/Methodology

PD

Sovereigns

1

Expert analysis-based rating models using macroeconomic criteria and the assessment of legal and political risks. Expert analysis-based rating models using quantitative criteria (accounting balance sheet) and qualitative criteria (questionnaire). Model by type of counterparty and by geographic area. Expert analysis-based rating models by business sector for corporates and statistical models for SMEs (scores) Expert analysis-based rating models by type of financed asset Rating model based on historical behavior since 2002. The model includes segmentation and a score. Quantitative model based on internal and external defaults. The assessment of LGD during periods of decline is included insofar as all defaults are included for the LGD model. Qualitative model based on internal and external defaults by type of counterparty. LGD assessed in this model include defaults occurring in periods of decline. Statistical models (decision trees or assessment of recoverable assets) by type of financed asset. The safety buffers included in the LGD models serve to cover periods of decline (primarily via bootstrap techniques). Models used to assess assets on resale. Assumptions of asset disposals are based on adverse scenarios Statistical models (decision trees) by type of financed asset. The safety buffers included in the LGD models serve to cover periods of decline (primarily via bootstrap techniques). Rating model based on historical behavior since 2002. The model includes segmentation and a score. Model calibrated on internal defaults and segmentation by type of product and type of counterparty Statistical models by business sector

Banks

3

3

Corporates (incl. SMEs) Specialized Financing Retail SMEs

12

6

10

Consumer Finance 1

LGD

Sovereigns

1

Banks

1

Corporates (incl. SMEs)

4

Specialized Financing

4

Lease Financing 3

Consumer Finance 1

CCF

Corporate Financing (incl. SMEs), Financial Institutions and Sovereigns Consumer Finance 1 1

Rating model based on historical behavior since 2002. The model includes segmentation and a score. Stochastic models based on historical market prices with assumptions based on internal data and expertise.

Volatility correction Financial and other collateral 5

Credit risk mitigation techniques 3.2.3.8 (Data certified by the Statutory Auditors in accordance with IFRS 7) Credit risk mitigation is a technique to reduce the credit risk incurred by the bank in the event of counterparty default which can be partial or total. Natixis uses a number of credit risk reduction techniques including netting agreements, personal guarantees, asset guarantees or the use of credit-default swaps (CDS) for hedging purposes. Risk mitigation techniques involve two types of guarantee:

non-financial or personal collateral: a With this type of collateral, one or more guarantors commit to pay the creditor in the event of borrower default. It includes personal guarantees, on-demand guarantees and credit derivatives. financial or real collateral, or secured loans: a With a pledge of financial collateral, the creditor is granted real security rights to one or more assets belonging to the borrower or guarantor. Forms of collateral include cash deposits, securities, commodities (such as gold), real estate assets, mortgage-backed securities, life insurance policy pledges.

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Natixis Registration Document 2018