NATIXIS_REGISTRATION_DOCUMENT_2017

RISKS AND CAPITAL ADEQUACY Credit and counterparty risks

CREDIT RISK MITIGATION 3.5.6 TECHNIQUES

collateral,real collateralor nettingagreement)and borrower,as well as liquidity. It must be valued at least once a year and meet all of these conditions: all the legal documents are binding to all parties and are j legallyvalid in all relevantjurisdictions, the bank has the right to realize or take ownership of the j collateralin case of default,insolvencyor bankruptcy, there is no material positive link between the quality of the j counterpartycredit and the value of the collateral, the asset must be liquid and its value sufficientlystable over j time for its realizationto be certain. In terms of monitoring,collateraland nettingagreementsare: analyzed, when a loan application is approved or reviewed, to a ascertain the suitability of the instrument or guarantee providedas well as any associatedimprovementin risk quality; checked, processed and documented based on standard a contractsor contractsapprovedby the Legal Department; subject to registration and monitoring procedures in the risk a administrationand managementsystems. Similarly, providersof sureties (via signatureguaranteesor CDS) are examined,rated and monitored,as with debtors. Natixismay take steps to reduce commitmentsin order to lower concentrationrisk by counterparty,sector and geographic area. Concentration risk is rounded out with an analysis, based on stress test methodologies (migration of ratings according to macroeconomicscenarios).Natixismay buy credit-defaultswaps and enter into synthetic securitization transactions in order to reduce all or part of the credit risk exposure attached to some assets by transferring the risk to the market. CDS-protected loans remainon Natixis’balancesheet, but bear the counterparty risk attached to the credit-default swap sellers, which are generally OECD banks. Transactionswith non-bank third parties are fully collateralizedin cash. These transactionsare subject to decision-making and monitoring procedures that apply to derivativetransactions. (Data certified by the Statutory Auditors in accordance with IFRS7) Measuring and monitoring systems Natixis’ commitments are measured and monitored on a daily basis using dedicated consolidation systems. An IT system enables comprehensive consolidation of limits and credit exposures across a scope covering all of Natixis' exposure to credit risk and most of that of its subsidiaries. The Risk division provides Senior Management and the bank’s business line heads with reports analyzing Natixis’ risks: trend analyses,dashboards,stresstest results, etc. Credit risk is supervised by making the various business lines accountable, and by various second-level control measures overseenby a dedicatedRisk divisionteam. COMMITMENT MONITORING 3.5.7 FRAMEWORK

(Data certified by the Statutory Auditors in accordance with IFRS7) Credit risk mitigation is a technique to reduce the credit risk incurred by the bank in the event of counterpartydefault which can be partial or total. Natixis uses a number of credit risk reduction techniques including netting agreements, personal guarantees, asset guaranteesor the use of credit-defaultswaps (CDS) for hedging purposes. Riskmitigationtechniquesinvolvetwo types of guarantee: non-financialor personalcollateral: a With this type of collateral,one or more guarantorscommit to pay the creditor in the event of borrower default. It includes personal guarantees, on-demand guarantees and credit derivatives. financialor real collateral,or securedloans: a With a pledge of financial collateral,the creditor is granted real security rights to one or more assets belonging to the borrower or guarantor. Forms of collateral include cash deposits, securities, commodities (such as gold), real estate assets, mortgage-backed securities, life insurance policy pledges. Collateraleligibilityis governedby the followingprocess: validation by the Legal Departmentof the documents relating a to the collateraland the enforceabilityof the collateral; validationby the Risk division. a The bank also performs the valuation of collateral in accordance with regulatory provisions and periodically reviews these valuationsshouldany adjustmentsbe required. The collateralis adjustedfor its volatilityand type. Collectionson collateral are estimated quarterly or annually on the basis of conservative valuations and haircuts, and take into account the actual enforcement of such collateral in times of economic slowdown. Depending on their nature, collateral guarantees must meet specificeligibilitycriteria: non-financial guarantee: the eligibility of personal guarantees a dependson the quality of the guarantorand must fulfill several conditions: represent a direct claim opposite to the guarantor and refer j to specificexposures, be irrevocableand unconditional, j if the counterparty defaults, the bank can take legal action j against the guarantorwithin the permitted time frame so as to settle payment arrears under the legal document governingthe transaction, the guarantee is an obligation secured by a legal document j that establishedthe guarantor’sliability, the guarantorcovers all types of paymentto be made by the j borrowerin question; financial guarantee: eligibility is determined by the relevant a legal framework, the nature of the guarantee (financial

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Natixis Registration Document 2017