NATIXIS - Universal registration document and financial report 2019

3 RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

all the legal documents are binding to all parties and are legally V valid in all relevant jurisdictions, the bank has the right to realize or take ownership of the V collateral in case of default, insolvency or bankruptcy, there is no material positive link between the quality of the V counterparty credit and the value of the collateral, the asset must be liquid and its value sufficiently stable over V time for its realization to be certain. In terms of monitoring, collateral and netting agreements are: analyzed, when a loan application is approved or reviewed, to V ascertain the suitability of the instrument or guarantee provided as well as any associated improvement in risk quality; checked, processed and documented based on standard contracts V or contracts approved by the Legal Department; subject to registration and monitoring procedures in the risk V administration and management systems. Similarly, providers of sureties (via signature guarantees, CDS or private credit insurance) are examined, rated and monitored, as with debtors. Natixis may take steps to reduce commitments in order to lower concentration risk by counterparty, sector and geographic area. Concentration risk is rounded out with an analysis, based on stress test methodologies (migration of ratings according to macroeconomic scenarios). Natixis may buy credit-default swaps and enter into synthetic securitization transactions in order to reduce all or part of the credit risk exposure attached to some assets by transferring the risk to the market. CDS-protected loans remain on Natixis’ balance sheet but bear the counterparty risk attached to the credit-default swap sellers, which are generally OECD banks. Transactions with non-bank third parties are fully collateralized in cash. These transactions are subject to decision-making and monitoring procedures that apply to derivative transactions. Commitment monitoring 3.2.3.9 framework (Data certified by the Statutory Auditors in accordance with IFRS 7) Measuring and monitoring systems Natixis’ commitments are measured and monitored on a daily basis using dedicated consolidation systems. An IT system enables comprehensive consolidation of limits and credit exposures across a scope covering all of Natixis’ exposure to credit risk and most of that of its subsidiaries. The Risk Supervision Division provides Senior Management and the Bank’s business heads with reports analyzing Natixis’ risks: trend analyses, indicators, stress test results, etc. Credit risk is supervised by making the various businesses accountable, and by various second-level control measures overseen by a dedicated Risk Supervision Division team. As regards limit breaches, the dedicated monthly Committee Meeting analyzes changes in limit breaches using specific indicators (number, notional, duration, businesses concerned, etc.), and examines major breaches and monitors their correction.

Credit risk mitigation 3.2.3.8 techniques

(Data certified by the Statutory Auditors in accordance with IFRS 7) Credit risk mitigation is a technique for mitigating the credit risk incurred by the bank in the event of partial or total counterparty default. Natixis uses a number of credit risk mitigation techniques, including netting agreements, personal guarantees, asset guarantees or the use of credit-default swaps (CDS) for hedging purposes. Risk mitigation techniques involve two types of guarantee: non-financial or personal collateral: V one or more guarantors commit to pay the creditor in the event of borrower default. It includes personal guarantees, on-demand guarantees and credit derivatives. financial or real collateral, or secured loans: V the creditor is granted real security rights to one or more assets belonging to the borrower or guarantor. Forms of collateral include cash deposits, securities, commodities (such as gold), real estate assets, mortgage-backed securities, life insurance policy pledges. Collateral eligibility is governed by the following process: vetting by the Legal Department of the documents relating to the V collateral and the enforceability of the collateral; validation by the Risk Supervision Division. V In accordance with regulatory provisions, the bank performs the valuation of guarantees, periodically reviews these valuations and carries out any necessary adjustments. The collateral is adjusted for its volatility and type. Collections on collateral are estimated quarterly or annually on the basis of conservative valuations and haircuts and take into account the actual enforcement of such collateral in times of economic slowdown. Depending on their nature, collateral guarantees must meet specific eligibility criteria: non-financial guarantee: the eligibility of personal guarantees V depends on the quality of the guarantor and must fulfill several conditions: represent a direct claim opposite to the guarantor and refer to V specific exposures, be irrevocable and unconditional, V if the counterparty defaults, the bank can take legal action V against the guarantor within the permitted time frame to settle payment arrears under the legal document governing the transaction, the guarantee is an obligation secured by a legal document that V established the guarantor’s liability, the guarantor covers all types of payment to be made by the V borrower in question; financial guarantee: eligibility is determined by the relevant legal V framework, the nature of the guarantee (financial collateral, real collateral or netting agreement), borrower and liquidity. It must be valued at least once a year and meet all of these conditions:

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NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019