NATIXIS_REGISTRATION_DOCUMENT_2017

5 FINANCIAL DATA

Consolidated financial statements and notes

Since 2016, Natixis has opted for early application of the provisions related to the recognition of gains and losses on financial liabilities designated under the fair value option, as provided for by IFRS 9 “Financial instruments”,adopted by the European Commission on November 22, 2016. According to these new provisions, the amount of changes in fair value of financial liabilities designated under the fair value option, attributable to changes in credit risk on these liabilities, is recognized as other comprehensive income, where such recognitiondoes not create or increase an accountingmismatch in profit or loss. Consequently, at January 1, 2016, Natixis recognized, under “Revaluationof own credit risk on financial liabilities designated at fair value through profit or loss” in opening shareholders’ equity for fiscal year 2016, the fair value of the issuer spread, i.e. €49 million(gross amount). Under “Revaluation of own credit risk on financial liabilities designatedat fair value throughprofit or loss”, Natixisrecognized €144.5 million in gains and losses in non-recyclable other comprehensiveincome for fiscal year 2016 (gross amount) and €180 millionfor fiscal year 2017 (gross amount). The provisionsof IAS 39 on the derecognitionof financial assets and liabilitieswill be carriedforwardunchangedto IFRS 9. Impairment IFRS 9 requires a single impairment model that is forward-lookingand based not on incurred credit losses but on expectedcredit losses calculatedacross all portfoliosrecognized at amortized cost or at fair value through other comprehensive income (recyclable), as well as on finance lease receivables under IAS 17 and on contract assets under IFRS 15. This single impairmentmodel will also apply to the provisioningof financing commitmentsthat fall outside the current standard’s scope (for their evaluation) and the provisioning of financial guarantee commitments,except for those measured at fair value through profit or loss. The new impairmentframeworkunder IFRS 9 generally requires one-year expected losses to be recorded upon initial recognition (stage 1), and subsequently, if the credit risk has deteriorated significantlysince initial recognition,expected losses at maturity should be recognized (stage 2). Thirdly, if credit quality deteriorates to the point that recoverability is threatened, a provision must be set aside for expected loss at maturity (stage 3),which is the same as the requirementunder IAS 39 for individual impairment of loans in default (see Note 5.3) ; Impairmentshall be recognizedin accordancewith the following three categories: Stage 1 a there is no significant deteriorationin credit risk since initial j recognition, impairment for credit risk is recorded in the amount of j 12-monthexpectedcredit losses, interest income is recognizedthroughprofit or loss using the j effective interest rate method applied to the gross carrying amountof the asset before impairment;

Stage 2 a in the event of a significantincrease in credit risk since initial j recognition,the financialasset is transferredfrom category1 to this category, impairmentfor credit risk is determinedon the basis of the j instrument’sexpectedcredit lossesat maturity, interest income is recognizedthroughprofit or loss using the j effective interest rate method applied to the gross carrying amountof the asset before impairment; Stage 3 a if there is objectiveevidenceof impairmentarising from one j or more eventsoccurringafter initial recognition, impairment for credit risk continues to be calculated based j on the instrument’sexpectedcredit lossesat maturity, interest income is recognizedthroughprofit or loss based on j the effective interest method applied to the net carrying amountof the asset after impairment. Moreover, the standard makes the distinction between purchased or originated credit impaired (POCI) assets, which correspondto financial assets purchasedor created and already impairedfor credit risk at their initial recognition. On initial recognition,an effective interest rate must be adjusted based on credit quality: estimated recoverable cash flows take expectedcredit losses into account.Subsequentimpairmentwill be calculated by re-estimatingrecoverablecash flows based on the re-estimated effective interest rate. A gain may be recognized through profit or loss if the revised cash flow estimateexceedsrecoverablecash flows. Hedging transactions IFRS 9 introducesan amendedhedge accountingmodel which is better alignedwith risk managementactivities. Implementation of IFRS 9 Considering the major changes introduced by IFRS 9, Natixis is carryingout implementationwork as part of the organizationof a project involving all affected business lines and support functions. Launchedin H1 2015,IT analysis, design and developmentwork continuedduring fiscal year 2016 and the first half of 2017. The secondhalf of 2017was primarilydedicatedto revenue,finalizing work on model calibration, completing documentation and adapting processes resulting from the implementation of this new standardwithinthe frameworkof changemanagement. Work carried out on Classificationand Measurementshows that the majorityof financialassets that were recognizedat amortized cost under IAS 39until December 31,2017will continueto meet the conditions to be recognizedat amortized cost under IFRS 9, and similarly, that the majority of financial assets classified as available-for-saleassetsor as assetsat fair value throughprofit or loss under IAS 39 will continue to be measured at fair value through other comprehensive income or profit or loss under IFRS 9.

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Natixis Registration Document 2017