NATIXIS - Universal registration document and financial report 2019

3 RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

The framework defined by these risk policies distinguishes between recommendations based on best practices, and strict (qualitative or quantitative) supervisory criteria, any deviation from which affects the decision-making process and the usual system of limit authorizations. The quantitative framework is generally based on: commitment ceilings by business line or sector; V commitment sub-limits by type of counterparty, type of product, V or sometimes by geographic region. This framework helps monitor the concentration of the bank’s commitments in relation to a given sector or type of risk. The qualitative framework is, for its part, built on the following criteria: business sectors: preferred sectors, banned sectors; V targets: customers to be targeted or excluded based on various V criteria (size, rating, country of operation, etc.); structuring: maximum durations, financial ratios, contractual V clauses, collateral arrangement, etc.; products. V Checks are carried out as required during the individual processing of loan applications to ensure the correct application of the risk policy. Overall monitoring also takes place on a quarterly basis (checking compliance with ceilings and the number of deviations) and is presented to the Global Risk Committees. General principles of approval 3.2.3.3 (Data certified by the Statutory Auditors in accordance with IFRS 7) Natixis’ credit risk measurement and management procedures are based on: a standardized risk-taking process, structured via a system of limit V authorizations and decision-making Committees; independent analyses carried out by the Risk Supervision Division V during the loan application review process; rating tools and methodologies providing standardized and V tailored assessments of counterparty risk, thereby making it possible to evaluate the probability of default within one year and the loss given default; information systems that give an overview of outstanding loans V and credit limits. (Data certified by the Statutory Auditors in accordance with IFRS 7) The principles of counterparty risk management are based on: measurement of exposure to counterparty risk; V counterparty risk limits and allocation procedures; V a value adjustment in respect of counterparty risk (credit valuation V adjustment); counterparty risk mitigation; V incorporation of specific wrong-way risk. V Counterparty risk 3.2.3.4 management

Measuring exposure to counterparty risk Natixis uses an internal model to measure and manage its own counterparty risk. Based on Monte Carlo-type simulations for the main risk factors, the model measures the positions for each counterparty and for the entire lifespan of the exposure, taking into account the netting and collateralization criteria. Thus, the model determines the EPE (Expected Positive Exposure) profile and the PFE (Potential Future Exposure) profile, the latter of which is the main indicator used by Natixis for assessing counterparty risk exposure. For the purpose of determining capital requirements for counterparty risk, the European Central Bank has partially authorized Natixis S.A. to use the internal EEPE (Effective Expected Positive Exposure) model to calculate exposure. For other entities, as well as the scope of operations for which Natixis S.A. is not authorized to use the EEPE model, exposure is determined using the mark-to-market method. Counterparty risk limit framework The limits are defined depending on the counterparty risk profile and after analysis of all information relevant and useful for decision-making purposes. The limits are in line with Natixis’ credit approval process and are reviewed and approved either by means of delegated authority or by credit committees. The limits are monitored daily using the dedicated consolidation systems to ensure compliance with the supervision mechanisms. Credit valuation adjustment Natixis includes credit valuation adjustments (CVA) in the valuation of derivative instruments. These adjustments comprise the expected loss as per a counterparty’s default risk and aim to account for the fact that Natixis cannot recover the entire market value of the transactions. Natixis has calculated capital requirements for the CVA since January 1, 2014. Mitigating counterparty risk Natixis reduces its exposure to counterparty risk using three measures: use of bilateral netting agreements under which, if a counterparty V goes into default, only the balance of the positive and negative valuations of the transactions carried out with the counterparty in question is considered as risk; riders to these agreements that govern the use of collateral swaps V that fluctuate according to the daily valuation of the portfolios of transactions carried out with the counterparties in question; use of clearing houses, which stand in for their members by V bearing most of the counterparty risk. To do this they use an initial margin and variation margin call system. To manage this risk, Natixis set up a framework to manage the risks borne by clearing houses.

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NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019