NATIXIS - Universal registration document and financial report 2019

RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

The baseline scenario’s trajectory is derived from market consensus, forwards and futures. The first adverse scenario proposed for the 2019 comprehensive internal stress tests featured a return to import duties, sluggish emerging markets and poor macroeconomic prospects in Europe leading to a sharp downturn in US growth. This has a negative impact on the balance sheets of the most heavily indebted companies, leading to credit events and contagion among risky assets due to the high proportion of leveraged loans. The second adverse scenario combines social tension with a decline in the power of the executive, which then takes steps to shore up purchasing power. The deficit grows, frightening off investors whose ensuing capital flight results in a slowdown. A reverse stress test scenario featured plummeting US equity indices and a flattening yield curve due to an abrupt decline in growth and inflation. Share volatility indices shoot up, leading to a steep drop in long-term rates. The growth profile for 2020 reflects tighter financial conditions: disappointing earnings and a rise in volatility due to uncertainty over where the economic cycle is going. These projections are based on internal models, which are either based on the sensitivities or trends observed in financial and economic variables, or on internal historical data. The results of the stress tests were approved by the Senior Management Committee and presented to the Risk Committee of the Board of Directors. They have been analyzed as part of the process of calculating Natixis’ solvency trajectory. This impact was measured in terms of net income group share, net revenues and Common Equity Tier 1. These tests help evaluate the areas where Natixis shows vulnerability or weakness and contribute to the establishment of adaptive or remedial measures. Regulatory stress tests Regulatory stress tests comply with the ad hoc requirements of the ECB, the EBA and any other supervisory body: the last regulatory exercise was performed in 2018 using the methodology published by EBA for the ECB. Natixis contributed to the exercise conducted for Groupe BPCE’s scope. Specific stress tests The specific stress test exercises run by the Natixis Risk Supervision Division are detailed in the dedicated sections of this document (and in particular the credit stress tests detailed in section 3.2.3, subsection 3.2.3.9 “Commitment monitoring framework”, as well as the market stress tests detailed in section 3.2.5, subsection 3.2.5.3 “Market risk measurement methods”).

Credit and counterparty 3.2.3 risks Organization 3.2.3.1 The risk control framework is overseen by the Risk Supervision Division with the active involvement of all the bank’s businesses and support functions. All the internal standards, policies and procedures are consistent with BPCE’s framework and are reviewed periodically to take into account the results of internal controls, regulatory changes and the bank’s risk appetite. Credit risk management and control are performed in accordance with the segregation of duties. Accordingly, together with the other divisions, the Risk Supervision Division is in charge of monitoring credit risk through various departments that: define the credit risks policies and internal credit risk V management procedures; set credit risk limits and exposure thresholds; V issue transaction authorizations after a counter-analysis of the V credit risk and the counterparty risk in line with the processes for credit approval and limit authorization; monitor exposures and report to Natixis’ Senior Management. V Working with the businesses, the main duty of the Risk Supervision Division is to provide an opinion, based on all relevant and useful information, on the risks taken by the bank. Credit decisions are made within the limit authorizations granted jointly to the business lines and to certain members of the risk function, and are approved personally by the Chief Executive Officer or any other person he authorizes to that end. They are sized by counterparty category and internal credit rating, and by the nature and duration of the commitment. Furthermore, these authorizations can be exercised only when the transaction satisfies the criteria set out in the risk policy of each sector and activity. In conjunction with BPCE, Natixis has defined the rating methods applicable to the asset classes held jointly. Targets and policy 3.2.3.2 Natixis’ risk policies have been defined as a component of the bank’s overall risk appetite and credit risk control and management framework. The policies are the product of consultation between the Risk Supervision Division and the bank’s various business lines, and are intended to establish a framework for risk-taking while applying risk appetite and Natixis’ strategic vision by business line or by sector. Natixis now has some 20 risk policies, which are regularly revised and cover the various Corporate & Investment Banking businesses (corporates, LBO, aircraft finance, real estate finance, project finance, commodities finance, banks, insurance, etc.) and those of the subsidiaries. define internal rating methodologies and models; V implement second-level permanent controls; V

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NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019