NATIXIS - 2018 Registration document and annual financial report

3 RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

macroeconomic scenarios). Natixis may buy credit-default swaps and enter into synthetic securitization transactions in order to reduce all or part of the credit risk exposure attached to some assets by transferring the risk to the market. CDS-protected loans remain on Natixis’ balance sheet but bear the counterparty risk attached to the credit-default swap sellers, which are generally OECD banks. Transactions with non-bank third parties are fully collateralized in cash. These transactions are subject to decision-making and monitoring procedures that apply to derivative transactions. Commitment monitoring framework 3.2.3.9 (Data certified by the Statutory Auditors in accordance with IFRS 7) Measuring and monitoring systems Natixis’ commitments are measured and monitored on a daily basis using dedicated consolidation systems. An IT system enables comprehensive consolidation of limits and credit exposures across a scope covering all of Natixis’ exposure to credit risk and most of that of its subsidiaries. The Risk Division provides Senior Management and the Bank’s business heads with reports analyzing Natixis’ risks: trend analyses, indicators, stress test results, etc. Credit risk is supervised by making the various businesses accountable, and by various second-level control measures overseen by a dedicated Risk division team. As regards limit breaches, the dedicated monthly Committee Meeting analyzes changes in limit breaches using specific indicators (number, notional, duration, businesses concerned, etc.), and examines major breaches and monitors their correction. Exposures showing deterioration in the level of risk are identified as they arise and reported immediately to the Risk division and the business concerned, in accordance with both the counterparty watchlist, specific provisioning and alert procedures. They are then placed on the watchlist, as decided by the Risk division or the competent Credit Committee depending on the amount of exposure. Corporate & Investment Banking risks are monitored by the Restructuring and Special Affairs Department (DRAS), which intervenes in difficult cases where necessary. The Litigation Department handles collections of loans in litigation. Monitoring of non-performing and disputed loans and provisioning mechanism (Data certified by the Statutory Auditors in accordance with IFRS 7) Individual provisions The Natixis Watchlist and Provisions Committee meets once a quarter and covers all the bank’s businesses. It reviews all non-performing loans under watch that may give rise to provisions or adjustments to existing provisions, and decides on the amount of provisioning necessary.

Collateral eligibility is governed by the following process: validation by the Legal Department of the documents relating a to the collateral and the enforceability of the collateral; validation by the Risk division. a In accordance with regulatory provisions, the bank performs the valuation of guarantees, periodically reviews these valuations and carries out any necessary adjustments. The collateral is adjusted for its volatility and type. Collections on collateral are estimated quarterly or annually on the basis of conservative valuations and haircuts and take into account the actual enforcement of such collateral in times of economic slowdown. Depending on their nature, collateral guarantees must meet specific eligibility criteria: Non-financial guarantee: the eligibility of personal guarantees a depends on the quality of the guarantor and must fulfill several conditions: represent a direct claim opposite to the guarantor and refer j to specific exposures, be irrevocable and unconditional, j if the counterparty defaults, the bank can take legal action j against the guarantor within the permitted time frame to settle payment arrears under the legal document governing the transaction, the guarantee is an obligation secured by a legal document j that established the guarantor’s liability, the guarantor covers all types of payment to be made by the j borrower in question. Financial guarantee: eligibility is determined by the relevant a legal framework, the nature of the guarantee (financial collateral, real collateral or netting agreement) and borrower, as well as liquidity. It must be valued at least once a year and meet all of these conditions: all the legal documents are binding to all parties and are j legally valid in all relevant jurisdictions, the bank has the right to realize or take ownership of the j collateral in case of default, insolvency or bankruptcy, there is no material positive link between the quality of the j counterparty credit and the value of the collateral, the asset must be liquid and its value sufficiently stable over j time for its realization to be certain. In terms of monitoring, collateral and netting agreements are: analyzed, when a loan application is approved or reviewed, to a ascertain the suitability of the instrument or guarantee provided as well as any associated improvement in risk quality; checked, processed and documented based on standard a contracts or contracts approved by the Legal Department; subject to registration and monitoring procedures in the risk a administration and management systems. Similarly, providers of sureties (via signature guarantees or CDS) are examined, rated and monitored, as with debtors. Natixis may take steps to reduce commitments in order to lower concentration risk by counterparty, sector and geographic area. Concentration risk is rounded out with an analysis, based on stress test methodologies (migration of ratings according to

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Natixis Registration Document 2018