PSA_GROUP_REGISTRATION_DOCUMENT_2017

GROUPE PSA Risk Factors

Risks related to Banque 1.5.3. PSA Finance

Under the partnership with Santander Consumer Finance (SCF) in Europe for the activities of financing the Peugeot, Citroën and DS brands, the internal models are regularly reviewed by the different SCF risk teams to ensure stability of the models’ performance over time. Concerning the measurement of credit risk within the Peugeot Citroën DS scope, for accounting purposes under IAS 39, an overall provision for impairment losses is recognised on Retail loans outstanding, using rates that are calculated twice a year via dedicated models which estimate discounted losses and recoverable future amounts. A model for estimating a provision for impairment losses on performing Corporate loans has also been developed. Impairment losses on doubtful loans in Corporate portfolios are recognised on a case-by-case basis (Flash Report) taking into account the valuation of any potential collateral held. An impairment loss is recognised on these portfolios when the loan is reclassified as non-performing or the estimated loss calculated during individual analysis is not zero. Under the partnership with BNP Paribas Personal Finance instituted in Europe as from 1 November 2017 for the financing activities of the Opel and Vauxhall brands, the internal risk models are being reviewed by the BNPP Personal Finance risk management teams. Risk factors Liquidity risk depends on the situation in the financial markets (Market Risk) and principally the BPF’s rating (Funding Risk). Liquidity risk is the main financial risk to which BPF is confronted. Risk measurement, management and control There are two mechanisms in place for managing liquidity risk: a general policy and established thresholds and indicators. Risk control is based on these risk indicators. The monthly meeting of the ALCO monitors the application of the general policy, risk levels, compliance with the limits set and measures that need to be taken to anticipate liquidity risk. Following the establishment of local joint arrangements with Santander Consumer Finance, financing are no longer Banque PSA Finance’s sole responsibility. Please refer to Note 13.4 (1) to the 2017 consolidated financial statements, Section 5.6 below. LIQUIDITY RISK 1.5.3.3. Counterparty risk is the risk of the potential default of a borrower or a guarantor resulting in the cessation of loan repayments or rendering impossible the calling into play of guarantees given. BPF is exposed to counterparty risk from three sources: interest rate risk hedges, investment of its liquidity reserves, the delegated management of the Securitisation Fund reserve investments. Risk measurement, management and control It invests only in leading banks ranked based on an internal model. Derivative contracts are entered into solely with Investment Grade banks. Utilisation of the limits is checked daily. A summary report of any exceeding limits is submitted to the ALCO, Risk Management Committee and Audit Committee meetings. COUNTERPARTY RISK 1.5.3.4. Risk factors

The Risk Management Department, formerly the Risks Department which was renamed by Legal Order of 3 November 2014, is responsible for identifying, measuring, controlling and monitoring BPF’s risks. Its head is a member of the Executive Committee. He also reports on its work to the Audit and Risk Committee, the Risk Management Committee and, where necessary, to the bank’s ad hoc Transactions Committees. Risk governance specifically covers risk oversight, the validation of risk measurement methods or models, and the setting of the desirable level of risk, as well as first and foremost the identification of risks and assessment of their potential criticality based on established management policies and the economic environment. These various items are submitted to, analysed and resolved-upon at the meetings of the following committees: The Risk Management Committee, the ALCO (ALM Committee), the Basel II and Model Committee and the Audit and Risk Committee. The members of the executive body and the decision-making body participate in the meetings of these committees or are informed about their discussions. Risk control in the joint operations with Santander and BNPP PF is the task of Joint-Union Global Risk Committees, with local Risk Committees formed in each JV. BPF has identified 14 risk factors to which it is exposed, including 6 major factors that are presented below. For more information on the risks specific to BPF, please refer to BPF’s 2017 Annual Report at www.banquepsafinance.com. Risk factors Six main risk factors influence BPF’s activity levels and are regularly assessed: external factors contributing to vehicle purchases; „ public authority’s incentive policy on acquiring new vehicles; „ changes in regulations and taxation that might alter the business „ or its profitability; the sales volumes and marketing activities of the Groupe PSA „ brands; BPF’s competitive positioning in terms of products and prices; „ country risk, managed as far as possible by seeking local „ financing. Risk factors Credit risk arises from the failure of a customer to meet the payment of its obligations, including situations where BPF recovers the financed asset. BPF does not incur residual value risk. Credit risk levels are mainly related to the economic climate. Risk measurement, management and control Risks are assessed on approval of the loan and monthly for all loans in the portfolio. On approval of the loan, internal rating models are used to evaluate risk: grading models (Corporate) or credit scoring systems (Retail). BUSINESS RISK 1.5.3.1. CREDIT RISK 1.5.3.2.

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GROUPE PSA - 2017 REGISTRATION DOCUMENT