NATIXIS - 2018 Registration document and annual financial report

FINANCIAL DATA Consolidated financial statements and notes

The parameters thus defined allow credit losses for all rated exposures to be valued, regardless of whether they belong to a scope approved using an internal method or they are processed using the standard method for the calculation of risk weighted assets. However, certain entities whose own fund requirements are calculated using the standardized method and whose exposures are not integrated into a ratings system have implemented a methodology for calculating provisions on performing loans based on historical loss rates calibrated specifically by the entity. The mechanism for validating IFRS 9 parameters is fully integrated in the validation mechanism for existing models within Natixis and BPCE Group. As such, model validation undergoes a review process by an independent internal model validation unit. For debt instruments recognized on the asset side of the balance sheet at amortized cost, impairments are recorded against the line on which the asset was initially shown at its net value (regardless of whether the asset is S1, S2, S3 or POCI). Impairment charges and reversals are recorded in the income statement under “Provision for credit losses”. For debt instruments recognized on the asset side of the balance sheet against recyclable other comprehensive income, impairments are carried on the liability side of the balance sheet in recyclable other comprehensive income, with a corresponding entry on the income statement under “Provision for credit losses” (irrespective of whether the asset is S1, S2, S3 or POCI). For loan and financial guarantee commitments, provisions are recorded on the liability side of the balance sheet under “Provisions” (irrespective of whether the commitment is S1, S2, S3 or POCI). Changes in provisions are recognized in the income statement under “Provision for credit losses”. Derivatives held for trading purposes are recorded in the balance sheet under “Financial assets at fair value through profit or loss” when their market value is positive, and under “Financial liabilities at fair value through profit or loss” when their market value is negative. After initial recognition, changes in fair value are recorded in the income statement under “Net gains or losses on financial instruments at fair value through profit or loss”. The interest accrued on such instruments is also included on this line. Special case of embedded derivatives for financial liabilities An embedded derivative is a component of a host contract which causes some or all of the cash flows of that contract to change in response to changes in an underlying (interest rate, share price, exchange rate or other index). When the hybrid instrument (host contract and derivative) is not measured at fair value through profit or loss, the embedded derivative is separated from the host contract if it meets the criteria for definition as a derivative and its economic characteristics and associated risks are not closely related to those of the host contract. Derivatives separated from host contracts in this way are included in assets and liabilities at fair value through profit or loss. Derivative financial instruments 6.4 and hedge accounting Derivative financial instruments are recognized at fair value on the balance sheet, regardless of whether they are held for trading or hedging purposes. Derivative financial instruments held for trading purposes

Hedging instruments In line with the option offered by IFRS 9, Natixis has chosen to continue applying IAS 39 to account for its hedging transactions. IAS 39 recognizes three types of hedging relationship: cash flow hedges, fair value hedges and hedges of net investments in foreign operations. Derivatives may only be designated as hedges if they meet the criteria set out in IAS 39 at inception and throughout the term of the hedge. These criteria include formal documentation that the hedging relationship between the derivatives and the hedged items is both prospectively and retrospectively effective. Hedging relationships are presumed to be effective when, retrospectively, changes in the value of the hedging instrument offset changes in the value of the hedged item in a range of 80%-125%. Cash flow hedging Cash flow hedging is used to hedge future cash flows from an existing or highly probable future transaction. Hedging of variable-rate borrowings and issues Natixis uses interest rate swaps borrowing at fixed rates to fix future costs of interbank borrowings and public/private issues. Hedging of variable-rate loans Natixis uses plain vanilla interest rate swaps lending at fixed rates to fix future variable-rate borrowing costs. Overall hedging of interest rate risk Cash flow hedges are mainly used to hedge Natixis’ overall interest rate risk. The documentation for these structural hedges is based on future variable cash management schedules for all variable-rate transactions. Prospective hedge effectiveness tests involve establishing (by index and currency): cumulative variable-rate borrowings and fixed-rate borrower swaps by maturity bracket, and cumulative variable-rate loans and fixed-rate lender swaps, by maturity bracket. Hedging is demonstrated if, for each maturity, the nominal amount of the items to be hedged is greater than the notional amount of the hedging derivatives. Retrospective hedge effectiveness tests are used to verify whether the hedge was effective at different reporting dates. At each such date, changes in the fair value of hedging instruments (excluding accrued interest) are compared with changes in the fair value of the hypothetical derivative instruments hedged (synthetic instruments representative of hedged assets or liabilities and management intentions). To be effective, changes in the fair value of hedging instruments must offset changes in the fair value of hedged items in a range of 80%-125%. Outside these limits, the hedge would no longer qualify. Accounting for cash flow hedges The effective portion of the gain or loss on the hedge is recognized directly in equity, while the ineffective portion is taken to income at each reporting date under “Net gains or losses on financial instruments at fair value through profit or loss”. No specific entries are made to hedged items (other than those that would be made if they were not hedged).

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Natixis Registration Document 2018