NATIXIS_PILLAR_III_2017_EN

2 GOVERNANCE AND RISK MANAGEMENT ORGANIZATION Risk typology

Risk typology 2.5

Natixis is exposed to a set of risks inherent to its business activities, but which may change as a result of regulatory requirements in particular. Credit risk Credit risk is the risk of financial loss due to a debtor’s inability to honor its contractual obligations. Assessing the probability of a debtor’s inability to repay and, in this event, the projected recovery is a key component of measuring credit quality. The debtor may be a bank, an industrial or a commercial company, a sovereign State and its various entities, an investment fund, or a natural person. Credit risk increases in periods of economic uncertainty, insofar as such conditions may lead to a higher rate of default. Credit risk affects lending operations as well as other operations exposing Natixis to the risk of counterparty default, notably its trading operations in financial instruments on capital markets and its settlement-delivery operations. Counterparty risk Counterparty risk on market transactions is a component of credit risk and represents a potential loss in the event of counterparty default. Counterparty risk evolves as market parameters fluctuate. Natixis is exposed to this risk because of the transactions it executes with its customers (for example, over-the-counter derivatives [swaps, options, etc.], securities lending and borrowing, and repurchase agreements). Securitization risk Securitizations are transactions involving credit risk inherent to a set of exposures is housed in a special-purpose entities (usually a securitization fund or “conduit”), which is then divided into tranches, usually for the purpose of selling them to investors. The special-purpose entity (SPE) issues units that may in some cases be subscribed for directly by investors, or by a multi-seller conduit which refinances the purchases of its shares by issuing short-maturity notes (treasury notes or commercial paper). Rating agencies assess the creditworthiness of the units available-for-sale for investors. In general, securitizations have the following characteristics: they result in a material transfer of risk where the transaction is a originated by Natixis; payments made in the course of the transaction depend on the a performances of the underlying exposures; the subordination of tranches, defined by the transaction, a determines the distribution of losses over the term of the risk transfer.

Market risk Market risk is the risk of loss in value caused by any adverse fluctuations in market parameters. These parameters include, in particular, bond prices, interest rates, securities and commodities prices, derivatives prices and prices of all other assets, particularly foreign exchange rates. Asset liquidity is also an important component of market risk. In the event of insufficient or non-existent liquidity (for example, because of a reduced number of transactions, or a major imbalance in the supply and demand of certain assets), a financial instrument or any other tradable asset may be unable to be traded at its estimated value. The lack of liquidity may lead to reduced access to capital markets, unforeseen cash or capital requirements, or legal restrictions. Operational risk Operational risk is the risk of loss due to inadequate or failed internal processes, human resources, information systems, or external events with financial, regulatory, legal or reputational impacts. The Groupe BPCE Insurance Department is tasked with analyzing insurable operational risks and taking out appropriate insurance coverage. Natixis and its subsidiaries benefit from insurance policies pooled with Groupe BPCE against potentially significant consequences resulting from fraud, embezzlement and theft, operating losses or the incurring of Natixis’ civil liability or that of its subsidiaries or the employees for which it is responsible. Overall interest rate risk Natixis’ overall interest rate risk is defined as the risk of losses on the banking portfolio stemming from mismatches between interest rates on assets and on liabilities. As is the case for most corporate and investment banks, Natixis has very few assets and liabilities generating structural interest rate positions. Natixis’ overall interest rate risk concerns contractual transactions. The most significant positions concern exposures to the short end of yield curves and are predominantly linked to the lag between IBOR fixing dates. This is therefore classed as a secondary risk at the bank level.

16

NATIXIS Risk report Pillar III 2017