NATIXIS // 2021 Universal Registration Document

RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

Since September 30, 2010, Natixis has used specific internal rating methods for each asset class that are approved by the French Prudential Supervisory Authority, and that use the advanced internal ratings-based method (A-IRB) to rate “corporates”, “sovereigns”, “banks”, “Specialized Financing” exposure categories. The rating is based on two approaches: statistical approaches and those based on expert opinion methodologies developed by the department in charge of credit risk measurementmodels within the Enterprise Risk Management division in collaborationwith the Credit Risk Department (in particular, as the owner of the expert models). The department in charge of credit models of the Enterprise Risk Management division is in charge of all methodologies for measuring and assessing credit risks, both operational and non-financial (climate risk, etc.).

The department’s work focuses on the following activities: quantitativemodeling of individual risk parameters (PD, LGD, CCF, V etc.); expert credit risk rating methodologies; V projection methodologies (stress tests and IFRS 9); V the modeling of operational and non-financial risks (climatreisk); V measures of economic capital (credit default, concentration, etc.) V and non-financial risks.

3

Indicative equivalents between internal ratings based on expert appraisal and external agency ratings (corporates, banks, Specialized Financing institutions)

S&P/Fitch equivalent

Moody’s equivalent

1-year PD

Internal rating

AAA AA+

AAA AA+

Aaa Aa1 Aa2 Aa3

0.03% 0.03% 0.03% 0.03% 0.03% 0.03% 0.08% 0.16% 0.30% 0.52% 0.85% 1.33% 2.00% 2.91% 4.12% 5.71% 7.74%

AA

AA

AA-

AA-

A+

A+

A1 A2 A3

A

A

A-

A-

BBB+ BBB BBB- BB+

BBB+ BBB BBB- BB+

Baa1 Baa2 Baa3

Ba1 Ba2 Ba3

BB

BB

BB-

BB-

B+

B+

B1 B2 B3

B

B

B-

B-

CCC+ CCC CCC-

CCC+ CCC CCC-

Caa1 Caa2 Caa3

10.31% 13.54% 17.50% 22.32%

CC

CC

Ca

C

C

C

The rating scale varies according to the type of counterparty and includes 21 notches for major corporates, banks and Specialized Financing institutions. It should be noted that internal ratings are also one of the criteria used to determine the level of authority required to approve credit applications.

Validation of internal models 3.2.4.7 Validation of models In accordance with regulatory requirements, Natixis has established internal model validation policies and procedures for evaluating credit and counterparty risk. This independent model validation policy is part of its wider risk model management framework. As part of the Model Risk & Risk Governance Department which reports to the Chief Risk Officer, Model Risk Management (MRM) is responsible for the governance and standards applicable to a model’s life cycle. The various stages of a model’s life cycle – design, IT development, validation, and use – are clearly presented and the roles and responsibilities of each participant specified andetailed.

Internal rating system For assets under the standard method, Natixis uses external ratings from Fitch Ratings, Standard & Poor’s, Moody’s, DBRS (Dominion Bond Rating Service) and the Banque de France (BDF). The external rating agencies’ alphanumeric credit rating scales and the risk weighting coefficients are reconciled in accordancewith the note published by the ACPR: Method for calculatingprudential ratios within CRD IV (Capital Requirements Directive IV). When a bank portfolio exposure does not have a directly applicable external credit rating, the Bank’s customer standards allow – on a case-by-case basis and after analysis – the application of a rating based partially on an internal or exposure rating of the issuer (or of the guarantor, if applicable).

125

www.natixis.com

NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2021