NATIXIS_REGISTRATION_DOCUMENT_2017

3 RISKS AND CAPITAL ADEQUACY Credit and counterparty risks

As regards to limit breaches, the dedicated monthly committee analyzes changes in limit breaches using specific indicators (number, notional, duration, business lines concerned, etc.), and examines major breaches and monitors their correction. Any deterioration in the level of risk is identified as it arises and is immediately reported to the Risk division and the relevant business, in accordance with both the counterparty watch list, specific provisioning and alert procedures. It is then put on the watch list, as decided by the Risk division or the competent Credit Committee depending on the amount of exposure. Corporate & Investment Banking risks are monitored by the Restructuring and Special Affairs Department (DRAS), which intervenes in difficult cases where necessary. The Litigation Department handles collections of loans in litigation. Monitoring of non-performing and disputed loans and provisioning mechanism (Data certified by the Statutory Auditors in accordance with IFRS 7) Individual provisions The Natixis Watch List and Provisions Committee meets once a quarter and covers all the Bank’s business lines. It reviews all non-performing loans under watch that may give rise to provisions or adjustments to existing provisions, and decides on the amount of provisioning necessary. This Committee is organized by the Risk division and chaired by the Chief Executive Officer and assembles the Chief Risk Officer, members of the Senior Management Committee in charge of the business lines, the Accounting and Ratios division and the heads of the relevant support functions. It draws on a structure of preparatory committees that are jointly steered by the Risk division and each of the bank’s business lines. Collective provisions In addition to individual provisions, Natixis also sets aside provisions to cover country risk and sector risk. These collective provisions are based on groups of homogeneous assets and formed according to three criteria: ratings for loans to private individuals and professionals; a sector risk; a geographic risk for other counterparties (corporate, a sovereign, etc.). For the latter, the search for objective evidence of impairment is undertaken through analysis and close monitoring of business sectors and countries. Such evidence typically arises from a

combination of micro or macroeconomic factors specific to the industry or country concerned. When necessary, an expert opinion is sought to refine the results of this review. Sector provisions are determined at a quarterly meeting of the Sector Provision Committee, whose role is to decide, as appropriate, whether to recognize provisions for new sectors or reverse provisions for sectors for which provisions have previously been recognized, based on the market trends in each sector and on the market reviews. Stress tests The credit stress test system covers Natixis scopes subject to the A-IRB, F-IRB and standardized approaches. In keeping with market practices, it selects scenarios that replicate plausible crisis situations and high degrees of severity, while taking past events, market trends and the environment into account so that purely historical or theoretical scenarios are eliminated. The system is a true risk management tool, with scenarios that are regularly introduced and revised. New subsidiary scopes and models have therefore been added to the stress scenarios since the stress test program was first introduced. The Risk division regularly works on improving the methods used and adding to the scopes defined for the stress scenarios, with particular attention paid to the market stress requirements. New scenarios were reviewed in 2017 and presented to the Global Risk Committee and the Senior Management Committee. These internal credit stress test scenarios are defined based on: macroeconomic assumptions prepared in collaboration with a the economic research and country risks teams and with Groupe BPCE, and comprising three scenarios for the 2018-2020 period: a reference scenario (i.e., a central scenario of economic recovery in a context of rising oil prices) and two credit scenarios (a crisis in the Italian and French economies and a scenario of prolonged low interest rates); specific business line scenarios to factor in risks that would not a have been covered by the macroeconomic scenarios. Standard scenarios are therefore defined (an average of three per business line) based on business line types (Banks, Corporates, Insurance, Aerospace, etc.). This stress testing is regularly calculated for the Natixis consolidation scope to evaluate the risk generated in the event of an adverse trend in the economic and financial data. The results are regularly presented to the Global Risk Committee, which also validates the selected scenarios. The stress-testing approach factors in counterparty ratings and default rates (stressed PD scales, migration matrices, specific downgrades per sovereign counterparty, and so on) and includes stresses on the unsecured LGD (Corporates, Banks and Sovereigns, etc.) and the secured LGD (asset or collateral values by business line). The scenarios, as well as the models and methods selected to assess their impact, are documented, and this documentation is reviewed on each update.

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Natixis Registration Document 2017