NATIXIS - Universal registration document and financial report 2019

RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

Pursuant to regulatory requirements, all counterparties in the banking book and the related exposures must have an internal rating if they: carry a loan or are assigned a credit limit; V guarantee a loan; V

Wrong-way risk Wrong-way risk refers to the risk that Natixis’ exposure to a counterparty is heavily correlated with the counterparty’s probability of default. From a regulatory standpoint, this risk is presented as two concepts: specific wrong-way risk, i.e. the risk generated when, due to the V nature of the transactions entered into with a counterparty, there is a direct link between its credit quality and the amount of the exposure; general wrong-way risk, i.e. the risk generated when there is a V correlation between the counterparty’s credit quality and general market factors. Specific wrong-way is subject to specific own funds requirements (Article 291.5 of the European Regulation of June 26, 2013, on prudential requirements for credit institutions and investment firms) and to prior approval of specific limits. General wrong-way risk is covered through Wrong Way Risk stress scenarios defined for each asset class.

issue securities used as collateral for a loan. V The internal rating mechanism is based on:

internal rating methodologies specific to the various Basel asset V classes and consistent with Natixis’ risk profile; there is a unique rating procedure and methodology for each type of counterparty; an IT system used for managing the successive stages of the V rating process, from the initiation of the process to the approval and logging of the complete process; procedures and controls that place internal ratings at the heart of V the risk management system, from transaction origination to ex-post analysis of defaulting counterparties and the losses incurred on the relevant loans; periodic reviews of rating methodologies, the method for V calculating the LGD and the underlying risk inputs. With respect to country risk, the system is based on sovereign ratings and country ratings that limit the ratings that can be given to non-sovereign counterparties. These ratings are reviewed annually or more often if necessary. Since September 30, 2010, Natixis has used specific internal rating methods for each asset class that are approved by the Autorité de Contrôle Prudentiel et de Résolution (ACPR — French Prudential Supervisory Authority), and that use the advanced internal ratings-based method (A-IRB) to rate “corporates”, “sovereigns”, “banks”, “specialized financing” exposure categories. Ratings are established based on two approaches: statistical, and an approach based on expert appraisals.

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Rating system 3.2.3.5 Internal rating system

(Data certified by the Statutory Auditors in accordance with IFRS 7) The internal rating system is an integral part of Natixis’ credit risk assessment, monitoring and control mechanism. It covers all the methods, processes, tools and controls used to evaluate credit risk. It takes into account fundamental inputs, including probability of default (PD), which corresponds to a rating as well as loss given default (LGD), which is expressed as a percentage.

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NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019