NATIXIS - Universal registration document and financial report 2019

RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

Performing loans for which credit risk has increased materially since initial recognition are classified in Stage 2 (S2). The impairment or the provision for credit risk is determined on the basis of the instrument’s expected credit losses at maturity (lifetime ECL). Measurements of an increase in credit risk resulting in S2 classification are based on a combination of quantitative and qualitative criteria. The quantitative criterion is based on the change in rating since initial recognition. Additional qualitative criteria are used to categorize as Stage 2 any contracts included on a non-S3 watchlist, undergoing adjustments due to financial hardship (forbearance) or more than 30 days past due. Additional criteria based on the sector rating and the level of country risk are also used. The sector and country rating process is centered on a Geo-Sector Committee comprising the Finance division, the Risk Supervision Division and CIB representatives. The main objective of this Committee, established for the purpose of implementing IFRS 9, is to validate sector ratings as well as country and sovereign scores on a quarterly basis. These ratings then serve as a basis for calculating ECL. Sector ratings in particular are based on the results of the semi-annual economic environment reports. Stress tests The credit stress test system covers Natixis scopes subject to the A-IRB, F-IRB and standardized approaches. It is based on choosing scenarios that replicate plausible crisis situations and high degrees of severity, in keeping with market practices, while taking past events, market trends and the environment into account so that purely historical or theoretical scenarios are eliminated. The system is a true risk management tool, with scenarios that are regularly introduced and revised. The Risk Supervision Division regularly works on improving the methods used and adding to the scopes defined for the stress scenarios, with particular attention paid to the market stress requirements. New scenarios were reviewed in 2019 and presented to the Global Risk Committee as well as to the Senior Management Committee. These internal credit stress test scenarios are defined based on macroeconomic assumptions prepared in collaboration with the economic research and country risk teams and with Groupe BPCE. They consist of three scenarios for the 2020-2022 period: a baseline scenario and its practical adaptation via the bank’s provisioning policy, and two credit scenarios (a substantial and global slowdown in the economy and one of social tensions in France).

Exposures showing deterioration in the level of risk are identified as they arise and reported immediately to the Risk Supervision Division and the business concerned, in accordance with both the counterparty watchlist, specific provisioning and alert procedures. They are then placed on the watchlist, as decided by the Risk Supervision Division or the competent Credit Committee depending on the amount of exposure. Corporate & Investment Banking risks are monitored by the Restructuring and Special Affairs Department (DRAS), which intervenes in difficult cases where necessary. The Litigation Department handles collections of loans in litigation. Monitoring of non-performing and disputed loans and provisioning mechanism (Data certified by the Statutory Auditors in accordance with IFRS 7) Individual provisions The Natixis Watchlist and Provisions Committee meets once a quarter and covers all the bank’s businesses. It reviews all non-performing loans under watch that may give rise to provisions or adjustments to existing provisions, and decides on the amount of provisioning necessary, based on the provision amounts submitted to it individually by the business lines, the Restructuring and Special Affairs Department and the Risk Supervision Division. This Committee is organized by the Risk Supervision Division and chaired by the Chief Executive Officer and assembles the Chief Risk Officer, members of the Senior Management Committee in charge of the business lines and finance, the Accounting and Ratios division and the heads of the relevant support functions. It draws on a structure of preparatory Committees that are jointly steered by the Risk Supervision Division and each of the bank’s business lines. Provisions for expected credit losses In addition to individual provisions, Natixis records provisions for expected credit losses (ECL) at initial recognition. These financial assets are divided into three categories depending on the increase in credit risk observed since their initial recognition. An impairment charge is recorded on outstanding amounts in each category.

3

123

www.natixis.com

NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019

Made with FlippingBook Annual report