NATIXIS -2020 Universal Registration Document

3 RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

Specific wrong-way is subject to specific own funds requirements (Article 291.5 of the European Regulation of June 26, 2013, on prudential requirementsfor credit institutionsand investment firms) and to prior approval of specific limits. General wrong-way risk is covered through limits defined for emerging countries.

Measuring exposure to counterparty risk Natixis uses an internal model to measure and manage its own counterparty risk. Based on Monte Carlo-type simulations for the main risk factors, the model measures the positions for each counterparty and for the entire lifespan of the exposure, taking into account the netting and collateralization criteria. Thus, the model determines the EPE (Expected Positive Exposure) profile and the PFE (Potential Future Exposure) profile, the latter of which is the main indicator used by Natixis for assessing counterparty risk exposure. For the purpose of determining capital requirements for counterparty risk, the European Central Bank has partially authorized Natixis S.A. to use the internal EEPE (Effective Expected Positive Exposure) model to calculate exposure. For other entities, as well as the scope of operations for which Natixis S.A. is not authorizedto use the EEPEmodel, exposure is determinedusing the mark-to-market method. Counterparty risk limit framework The limits are defined dependingon the counterpartyrisk profile and after analysis of all information relevant and useful for decision-making purposes. The limits are in line with Natixis’ credit approval process and are reviewed and approved either by means of delegatedauthority or by credit Committees. The limits are monitored daily using the dedicated consolidation systems to ensure compliance with the supervision mechanisms. Credit valuation adjustment Natixis includes credit valuation adjustments (CVA) in the valuation of derivative instruments. These adjustments comprise the expected loss as per a counterparty’s default risk and aim to account for the fact that Natixis cannot recover the entire market value of thetransactions. Natixis has calculated capital requirements for the CVA since January 1, 2014. Wrong-way risk Wrong-way risk refers to the risk that Natixis’ exposure to a counterparty is heavily correlatedwith the counterparty’sprobability of default. From a regulatory standpoint, this risk is presented as two concepts: specific wrong-way risk, i.e. the risk generated when, due to the V nature of the transactions entered into with a counterparty, there is a direct link between its credit quality and the amount of the exposure; general wrong-way risk, i.e. the risk generated when there is a V correlation between the counterparty’s credit quality and general market factors.

Rating system 3.2.3.5 Internal rating system

(Data certified by the Statutory Auditors in accordance withIFRS 7) The internal rating system is an integral part of Natixis’ credit risk assessment, monitoring and control mechanism. It covers all the methods, processes, tools and controls used to evaluate credit risk. It takes into account fundamental inputs, including probability of default (PD), which corresponds to a rating as well as loss given default (LGD), which is expressed as a percentage. Pursuant to regulatory requirements, all counterparties in the banking book and the related exposures must have an internal rating if they: carry a loan or are assigned a credit limit; V guarantee a loan; V internal rating methodologies specific to the various Basel asset V classes and consistent with Natixis’ risk profile; there is a unique rating procedure and methodology for each type of counterparty; an IT system used for managing the successive stages of the V rating process, from the initiation of the process to the approval and logging of the complete process; procedures and controls that place internal ratings at the heart of V the risk management system, from transaction origination to ex-post analysis of defaulting counterparties and the losses incurred on the relevant loans; periodic reviews of rating methodologies, the method for V calculating the LGD and the underlying risk inputs. With respect to country risk, the system is based on sovereign ratings and country ratings that limit the ratings that can be given to non-sovereign counterparties. These ratings are reviewed annually or more often if necessary. Since September 30, 2010, Natixis has used specific internal rating methods for each asset class that are approved by the Autorité de Contrôle Prudentiel et de Résolution (ACPR – French Prudential Supervisory Authority), and that use the advanced internal ratings-based method (A-IRB) to rate “corporates”, “sovereigns”, “banks”, “Specialized Financing” exposure categories. Ratings are established based on two approaches: statistical, and an approach based on expert appraisals. issue securities used as collateral for a loan. V The internal rating mechanism is based on:

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NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020