NATIXIS -2020 Universal Registration Document

RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

approves and manages the pricing models (prices) and risk V measurement models used by front office management tools; defines and validates models and methodologies relating to the V institution’s internal model, which is primarily used to calculate regulatory capital requirements; introduces and manages changes in standards and procedures V common to all entities (subsidiaries and branches) carrying market risks. Methodology for assessing 3.2.5.3 market risk (Data certified by the Statutory Auditors in accordance with IFRS 7) Natixis’ market risk management is based on a risk metrics model that measures the risks incurred by each entity of the bank. Different techniques are used to measure market risk: These measuresenable to identify the risks incurred by the positions in the portfolio according to different shock waves: on a local basis, the sensitivity sets make it possible to identify V potential losses resulting from small movements in the underlying risk factors; with unstressed daily shocks, the VaR is used to estimate a V potential loss on the positionsof the current portfolio to which the most significant shocks of the past rolling year are applied; with stressed daily shocks, the stressed VaR makes it possible to V estimate a potential loss on the positions of the current portfolio on which the most significant shocks of recent past rolling years are applied; with shocks of greater magnitude through three day-shocks over V ten consecutive days, stress tests (specific and global) make it possible to estimate exceptional immediate potential losses. This set of risk measures is governedby a global monitoringsystem and responds to Natixis ‘risk appetite, which is itself based on a system of specific limits. Value at Risk (VaR) Natixis’ internal VaR model was approved by the Autorité de Contrôle Prudentiel et de Résolution (ACPR – French Prudential Supervisory Authority) in January 2009. Natixis uses VaR to calculate capital requirements for market risks within approved scopes, and to manage and supervise market risks. The model is based on a calculation by computer simulation, based on Monte Carlo-type methodology, taking into account a portfolio’s possible non-linear characteristics with respect to different riskfactors. VaR is calculated and monitored daily for all the Natixis trading portfolios. Market data used in the valuation of portfolios (share prices, indices, interest rates, exchange rates, commodityprices and the related volatility) are updated on a daily basis when available, and the statistical data used (standard deviation and correlations) are updated weekly. All the trading portfoliosare subject to adequate risk monitoringand supervision systems, in accordance with the market risk policies in force. A VaR limit is set at an overall level and for each business.

These measurements give a snapshot of VaR and help identify potential losses in each business, based on a predetermined confidence level (99%) and time period (1 day). To this end, a statistical model has been constructed to track the behavior of market parameters affecting portfolio value. The calculation method is based on an econometric model whose standard deviations are calculated as being the maximum (risk factor by risk factor) standarddeviationscalculatedover rolling 12-month and 3-month periods. This method makes VaR more responsive if the markets suddenly become more volatile. For the calculation of VaR, the portfolio’s holding horizon is set at one day for risk monitoring and 10 days for the calculation of capital. The 10-day holding period involves extrapolating from the one-day VaR by multiplying it by the square root of 10. For the most complex products, VaR is measured by limited development via sensitivity. VaR levels are managed by limits set at different levels of Natixis (desks, business lines) and thereby helping to reduce the bank’s risk appetite from an operating perspective. Portfoliovaluationmethods vary accordingto product and are either based on a total revaluationor on sensitivity to first or second order market inputs to factor in both linear and non-linear effects (in particular for derivative financial instruments). Yields used by Natixis to simulate potential changes in risk factors are absolute yields for most risk factors. The exceptions to this rule are exchange rates, share prices and indices, preciousmetals prices and indices, commodity indices and commodity futures. Moreover, the reliability of the VaR is measured regularly through comparisonwith the changes in the daily trading results, a process also known as backtesting. This exercise allows an ex-post comparisonof the potential losses, as projected ex-ante by the VaR, with the actual losses. Stressed Value at Risk (SVaR) Due to changing regulatory standards (Basel 2.5), Natixis implemented a daily stressed VaR model (SVaR), which is calculated based on a fixed econometric model over a continuous 12-monthperiod that defines the charge that the bank’s current VaR model would generate under a representative crisis scenario relevant to its portfolio. The calculation method is based on an historical simulation for a one-day horizon and a confidence level of 99%. However, unlike VaR, which uses 260 daily fluctuation scenarios on a sliding one-year period, stressed VaR uses a one-year historical window corresponding to a period of significant financial tension. In the same way as the VaR, the stressed VaR is calculated by limited development through sensitivity by risk factor for the most complex products. The stressed period currently used by Natixis covers the period between April 1, 2008 and March 31, 2009, as it is the most conservative for calculating stressed VaR. As is the case for VaR, the 10-day holding period used by Natixis involves extrapolatingfrom the one-day stressed VaR by multiplying it by the square root of 10.

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NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020