NATIXIS - Universal registration document and financial report 2019

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3 RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

Indicative equivalents between internal ratings based on expert appraisal and external agency ratings (corporates, banks, specialized financing institutions)

Internal rating

S&P/Fitch equivalent

Moody’s equivalent

1-year PD

AAA AA+

Aaa Aa1 Aa2 Aa3

0.03% 0.03% 0.03% 0.03% 0.03% 0.04% 0.09% 0.17% 0.31% 0.52% 0.84% 1.29% 1.90% 2.73% 3.82% 5.23% 7.01% 9.24%

AA-

A+

A1 A2 A3

A-

BBB+ BBB BBB- BB+

Baa1 Baa2 Baa3

Ba1 Ba2 Ba3

BB-

B+

B1 B2 B3

B-

CCC+ CCC CCC-

Caa1 Caa2 Caa3

11.98% 15.32% 19.36%

The rating scale varies according to the type of counterparty and includes 21 notches for major corporates, banks and specialized financing institutions. It should be noted that internal ratings are also one of the criteria used to determine the level of authority required to approve credit applications. External rating system For outstandings measured using the standardized approach, Natixis uses external rating systems of the agencies Fitch Ratings, Standard & Poor’s, Moody’s and DBRS. The external rating agencies’ alphanumeric credit rating scales and the risk weighting coefficients are reconciled in accordance with the note published by the ACPR: Method for calculating prudential ratios within the CRD IV (Capital Requirements Directive IV) . When a bank portfolio exposure does not have a directly applicable external credit rating, the Bank’s customer standards allow — on a case-by-case basis and after analysis — the application of a rating based partially on an internal or exposure rating of the issuer (or of the guarantor, if applicable). Validation of internal models 3.2.3.6 Validation of models In accordance with regulatory requirements, Natixis has established internal model validation policies and procedures for evaluating credit and counterparty risk. This independent model validation policy is part of its wider risk model management framework. As part of the Risk Governance Department which reports to the Chief Risk Officer, Model Risk Management is responsible for the governance and standards applicable to a model’s life cycle. The various stages of a model’s life cycle — design, IT development,

validation, and use — are clearly presented and the roles and responsibilities of each participant specified and detailed. Internal counterparty risk models and rating models are validated by the validation team of the Groupe BPCE Risk Department or, acting with the authorization of the Groupe BPCE Group Modeling Committee, by the Natixis Risk division’s Risk Model Validation team. The Natixis Risk Model Validation team uses a six-fold validation process: data and parameters applied by the model: analysis of data quality V and representativeness, integrity of controls, error reports, comprehensiveness of data, etc.; methodology: analysis of model’s underlying theory, analysis of V estimates, sizing methods, risk indicators, aggregation rules, model benchmarking, analysis of precision and convergence; usage and robustness test: the validation team ensures that the V internal models are used by qualified staff, that usage procedures are documented and up to date, that ex-post controls and stress tests are performed; IT development: counter-implementation, code analysis, tests; V compliance with regulations: gap analysis; V documentation: analysis of quality and comprehensiveness of V methodological documentation received. The design, modification and ongoing management of the model are performed by the model designers on behalf of the model owner. Model Risk Management, an independent entity, is called upon for all new models as well as for all modifications or improvements to existing models. On an annual basis, this team in charge of designing the rating models and, more generally, calculating credit or counterparty risk, regularly reviews the models which cover the analysis of backtesting and usage tests.

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NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019

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