NATIXIS_PILLAR_III_2017_EN

5 CREDIT RISK

Credit risk: internal ratings-based approach

Credit risk: internal ratings-based 5.7 approach

RISK MEASUREMENTS AND 5.7.1 INTERNAL RATINGS

an IT system used for managing the successive stages of the a 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 a of 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 a calculating the LGD and the underlying risk parameters. 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 internal rating methods specific to the different asset classes 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 “corporate”, “sovereign”, “bank”, “specialized financing” and some categories of consumer finance exposures. Ratings are established based on two approaches, namely statistical approaches and expert appraisals.

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 parameters, including probability of default (PD), which corresponds to a rating, and 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; a guarantee a loan; a

issue securities used as collateral for a loan. a The internal rating mechanism is based on:

internal rating methodologies specific to the various Basel a asset classes and consistent with Natixis’ risk profile; there is a unique rating procedure and methodology for each asset class;

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NATIXIS Risk report Pillar III 2017