NATIXIS // 2021 Universal Registration Document

5 CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2021 Consolidated financial statements and notes

As indicated above, since the fiscal year 2020, a sector adjustment on the PD is calculated based on the assessment of the rating of the economic sectors over 6-12 month forecasts. The average sector-weighted forward-looking PD, produced from the transition matrices, is compared and adjusted to converge toward the equivalent PD in anticipation of the sector’s rating. Parameters are adjusted to economic conditions by defining three economic scenarios developed over a three-year period. For the purpose of consistency with financial management processes, the central scenario corresponds to the budget scenario of the strategic plan. Two variants – an optimistic view and a pessimistic view – are also developed around this scenario based on observations of macroeconomic parameters. The best case and worst case economic scenarios aim to represent the uncertainty surrounding the estimated economic variables in the central scenario. The variables defined in each of these scenarios mean that PD and LGD parameters can be altered and an expected credit loss can be calculated for each economic scenario. Parameters for periods longer than three years are projected on the principle of a gradual return to their long-term average. For consistency, the models used to alter the PD and LGD parameters are based on those developed in the stress test system. These economic scenarios are associated with probabilities of occurrence, ultimately making it possible to calculate an average probable loss used as the IFRS 9 impairment amount. The method for determining probabilities of occurrence is based on an analysis of the market economic consensus and a measurement of the distance between the Group’s economic scenarios and this market consensus. This means that the closer an economic scenario is to the consensus, the higher its probability of occurrence. All three scenarios are defined using the same organization structure and governance as for the budget process, with an annual review based on proposals from the Economic Research Department. For 2020, given the context of the health crisis, the review was repeated on two occasions. In 2021, the scenario adopted was determined as part of the work on the strategic plan. The scenarios’ probability of occurrence is reviewed on a quarterly basis by drawing on the observed changes in the macroeconomic parameters used in the economic scenario. As at December 31, 2021, the weightings of each scenario were as follows: 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 application of a greater weighting to the optimistic or pessimistic scenarios makes it possible to estimate the sensitivity of the amount of expected losses according to the spread of the achievement of the central scenario over future years. central scenario: 60%; V optimistic scenario: 5%; V pessimistic scenario: 35%. V

Thus, a weighting of the probability of occurrence of the pessimistic scenario at 100% would have resulted in the recognition, as at December 31, 2021, of an additional provision of €40.5 million (compared with €42.6 million as at December 31, 2020). Conversely, a weighting of the probability of occurrence of the 100% optimistic scenario would have resulted in a reversal of provisions of €110.0 million (compared with €94.3 million as at December 31, 2020). The mechanism for validating IFRS 9 parameters is fully integrated in the validation mechanism for existing models within Natixis and Groupe BPCE. As such, model validation undergoes a review process by an independent internal model validation unit. Calculating expected credit losses on Stage 3 assets Impairments for expected credit losses on Stage 3 financial assets are determined as the difference between the amortized cost and the recoverable value of the receivable, i.e. the present value of estimated recoverable future cash flows, whether these cash flows come from the counterparty’s activity or from the potential execution of guarantees. For short-term assets (maturity of less than one year), there is no discounting of future cash flows. Impairment is determined globally, without distinguishing between interest and principal. Expected credit losses arising from Stage 3 financing or guarantee commitments are taken into account through provisions recognized on the liability side of the balance sheet. Specific impairment is calculated for each receivable on the basis of the maturity schedules determined based on historical recoveries for each category of receivable. For the purposes of measuring expected credit losses, pledged assets and other credit enhancements that form an integral part of the contractual conditions of the instrument and that the entity does not recognize separately are taken into account in the estimate of expected cash flow shortfalls.

5.4

Derivative financial instruments 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

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 it 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. 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. Special case of embedded derivatives for financial liabilities

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NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2021