NATIXIS_PILLAR_III_2017_EN

7 SECURITIZATION Accounting methods

Accounting methods 7.1

(Refer to Consolidated financial statements and notes – Note 5 “Accounting principles and valuation methods”). The securitization positions classified as “Loans and receivables” are measured at amortized cost using the effective interest rate method as described in Note 5.1 to the accounting principles which can be found in Note 5.1 “Consolidated financial statements and notes” to Chapter 5 “Financial data” of the consolidated financial statements. They are tested for impairment at each reporting date and, where necessary, an impairment charge is recorded in the income statement under “Provision for credit losses”. Securitization positions classified under “Available-for-sale assets” are measured at their market value and any changes, excluding income recognized using the effective interest method, are recorded in a specific line in equity. Upon disposal of these securities, unrealized gains or losses previously recognized in equity are transferred to the income statement. This is also the case for impairment. Positions classified under “Fair value through profit or loss” (fair value option or held for trading), are therefore measured at market value.

The market value is measured according to principles described in Note 5.6 of Accounting principles which can be found in Note 5.1 “Consolidated financial statements and notes” to Chapter 5 “Financial data”. Gains or losses on the disposal of securitization positions are recognized in line with the rules applicable to the category in which the positions sold were initially classified. Synthetic securitization transactions in the form of Credit Default Swaps follow accounting rules specific to trading derivatives. Securitized assets are derecognized when Natixis transfers the contractual rights to receive the financial asset’s cash flows and nearly all the risks and benefits of ownership. When a financial asset is derecognized in full, a gain or loss on disposal is recognized in the income statement reflecting the difference between the carrying amount of the asset and the consideration received, corrected if applicable for any unrealized profit or loss that would have previously been recognized directly in equity.

Management of risks related 7.2 to securitization transactions

GENERAL POLICY 7.2.1

A counter-analysis is then carried out by the Risk division and, if necessary, a quantitative analysis of the portfolio’s default risks. Transactions are examined and decisions are made based on all the loan application’s parameters, including the expected profit margin on the loan, the capital burn and compliance with the current risk policy. Like vanilla finance transactions, securitization structures and transactions are reviewed at least once a year, while transactions on the watchlist are re-examined at least once a quarter. Natixis manages the risks associated with securitization positions through two mechanisms: the first involves the daily identification of all rating a downgrades affecting BPCE’s securitization positions as well as the associated potential risks and, if necessary, deciding on an appropriate course of action; the second is underpinned by a quantitative (ratings, a valuations) and qualitative analysis of securitization positions for the purpose of segmenting the portfolio on the basis of risk levels. The results of these analyses are written up and discussed in a quarterly presentation at the meeting of the Watch List and Provisions Committee. Furthermore, the liquidity risk is managed as part of the global monitoring of the Group’s activities, particularly with the help of ALM indicators subject to limits, such as liquidity gaps and hedging ratios.

Natixis has securitized assets on its acquired balance sheet: as an investor, through transactions for its clients, through a derivative transactions and, to a marginal degree, through its market-making activity on certain ABS (particularly Asset-Backed Commercial Paper); as a sponsor, i.e. on transactions for its clients to create and a manage ABS programs; as an originator, i.e. as part of its refinancing activities when a Natixis securitizes certain portfolios of loans granted to customers. The pursuit of this activity is part of Natixis’ general “Originate-to-Distribute” strategy. Natixis mainly invests in assets with high levels of collateral, spreads and seniority. Natixis also applies a sector and geographic diversification strategy to underlying assets. Natixis’ credit decision-making process is followed for all securitization transactions. Three criteria are considered, namely the amount, maturity and (external) rating. For every structured arrangement subject to approval, a substantiated request and a description of the arrangement, collateral, seller/originator and the planned tranching must be submitted, along with an analysis of the associated guarantees.

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NATIXIS Risk report Pillar III 2017

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