PSA - 2019 Universal Registration Document

CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2019 Notes to the Consolidated Financial Statements at 31 December 2019

Counterparty and credit risks (3) Banque PSA Finance’sexposureto credit risk correspondsto the risk of losses due to borrowerdefault or borrowerfailure to fulfill their contractual obligations. The counterparties concerned are Peugeot,CitroënandDSdealers andthedealers’retailcustomers. In the eventof default,BanquePSAFinancegenerallyhas the right to repossessthe vehicleand sell it on the usedvehiclemarket.The risk thatthe vehicle’ssellingpriceon the usedvehiclemarketwill be less than the outstandingdebt is taken into accountin determiningthe amountof the related impairment (seeNote 13.1.B). Wholesale lending decisions for fleet customers and dealers are madebasedon a detailedrisk assessmentin accordancewith strict rules on lending limits, either by the local Banque PSA Finance credit committees,or by the Group credit committee.The level of creditlines is dependenton the itemto be financed,the client’srisk rating and lastly the general level of risk borne by the approving CreditCommittee.For its companiesoperatedjointlywitha partner, BanquePSA Financehas contractualmechanismsto ensurethat it is properly involved in the decision-makingand risk-monitoring process. Retailloanacceptanceprocessesare basedon a localcreditscoring system.To enhanceits effectiveness, the scoringsystemis adapted accordingto the specific characteristicsof each local market. For partnershipsubsidiaries,customerselectionis the responsibilityof the partner which uses the decision-makingtools that it has developed. In both cases, the teams at Banque PSA Finance’s headquartersmonitorthe level of risk of requestsand acceptance closely on an on-goingbasis, as well as the characteristicsof files withpast dueinstalments. Defaults withno impairmentconcernonlycorporate loans.

Corporate loans with one or more installments that are over 90 days past due and loans to local administrationswith one or moreinstallmentsthat are over270 dayspast due are not classified as non-performingwhenthe delaysare due to paymentincidentsor claims, anddo notreflecta default risk. Concerning concentration of credit risks, Banque PSA Finance continually monitors its largest exposures to ensure that they remain at reasonable levels and do not exceed the limits set in bankingregulations. BanquePSAFinance’sexposureto financialcounterparties is limited to (i) the investmentof fundscorresponding to the liquidityreserve and of any excess cash, and (ii) the use of derivatives(swapsand options) tohedge currency andinterestrate risks. Available cash is invested in money market securities issued by leading banks, in deposit accounts with leading banks or in monetarymutual funds. Currency risk (4) Grouppolicyconsistsof not enteringinto any operationalcurrency positions.Liabilitiesare matchedwith assets in the same currency, entity-by-entity, using appropriate financial instruments if necessary. The hedging is achieved using cross currency swaps, currencyswapsand forwardforeignexchange contracts. The Groupdoesnot hedge its net investment in foreignoperations. In view of the Group’shedgingpolicy of the operationalcurrency positions,a change in exchangerates at the level of the finance companieswould not have any material impact on consolidated profitor equity.

Hedginginstruments: Financecompanies B. The different types of hedgesand their accounting treatment are described in Note 12.6.B. Impact of hedging instruments on income and equity IMPACTOF FAIRVALUEHEDGES

2019

2018

2017

(in million euros)

Gains and losses on remeasurement of financial liabilities recognised in profit or loss Gains and losses on remeasurement of hedges of financial liabilities recognised in profit or loss

(1)

4

6

(1)

7

(12) (6)

NET IMPACT ON INCOME

(2)

11

The hedginghasno effecton equity(other components of comprehensive income).

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PSA - GROUPE PSA - 2019 UNIVERSAL REGISTRATION DOCUMENT