NATIXIS_REGISTRATION_DOCUMENT_2017

FINANCIAL DATA Consolidated financial statements and notes

Loans on the watch list, for which a Basel default has been identified, are written down collectively unless they are already subjectto specificwrite-downs. Where a group of financial assets is found to be impaired, the impairment loss is calculated based on the expected losses arising on each exposure within the Group, in accordancewith Basel provisions. Since risk measurementunder the terms of Basel 2 is generally based on the probability of default within one year, the calculation of expected losses is adjusted to reflect the probability of default over the remaining term of the majority of the loans affected. Where necessary, Natixis calls on the opinion of experts to adjust the results of this calculationto the Natixis group’s actual risks. The impairment loss is recorded against the line on which the asset was initially shown for its net amount.Impairmentcharges and reversals are recorded in the income statement under “Provisionfor credit losses”. Derivative financial instruments 5.4 and hedge accounting In line with IAS 39, derivative financial instruments are recognized at fair value on the balance sheet, regardless of whetherthey are held for tradingor hedgingpurposes. Derivativesheld for trading purposesare recordedin the balance sheet under “Financialassets at fair value throughprofit or loss” when their market value is positive, and under “Financial liabilities at fair value through profit or loss” when their market value is negative. After initial recognition,changes in fair value are recorded in the income statement under “Net gains or losses on financial instruments at fair value through profit or loss”. The interest accruedon such instrumentsis also includedon this line. Specific case of embedded derivatives An embeddedderivativeis a componentof a host contractwhich causessome or all of the cash flows of that contractto changein response to changes in an underlying(interest rate, share price, exchangerate or other index). When the hybrid instrument(host contract and derivative) is not measured at fair value through profit or loss, the embedded derivative is separated from the host contract if it meets the criteria for definition as a derivative and its economic characteristics and associated risks are not closely related to those of the host contract. Derivatives separated from host contracts in this way are included in assets and liabilities at fair value through profit or loss. Derivative financial instruments used for hedging purposes IAS 39 recognizes three types of relationship between derivatives and hedged items to qualify as hedge accounting: Derivative financial instruments held for trading purposes

cash flow hedges, fair value hedges and hedges of a net investmentin a foreignoperation. Derivativesmay only be designatedas hedges if they meet the criteria set out in IAS 39 at inceptionand throughoutthe term of the hedge. These criteria include formal documentationthat the hedging relationship between the derivatives and the hedged items is both prospectively and retrospectively effective. Hedging relationships are presumed to be effective when, retrospectively,changes in the value of the hedging instrument offset changes in the value of the hedged item in a range of 80%-125%. Cash flow hedging Cash flow hedging is used to hedge future cash flows from an existingor highly probablefuture transaction. Hedging of variable-rate borrowings and issues Natixis uses interest rate swaps borrowing at fixed rates to fix futurecosts of interbankborrowingsand public/privateissues. Hedging of variable-rate loans Natixis uses plain vanilla interest rate swaps lending at fixed rates to fix futurevariable-rateborrowingcosts. Overall hedging of interest rate risk Cash flow hedges are mainly used to hedge Natixis’ overall interestrate risk. The documentation for these structural hedges is based on future variable cash managementschedules for all variable-rate transactions. Prospective hedge effectiveness tests involve establishing (by index and currency): cumulative variable-rate borrowings and fixed-rate borrower swaps by maturity bracket, and cumulative variable-rate loans and fixed-rate lender swaps, by maturity bracket. Hedging is demonstrated if, for each maturity, the nominal amount of the items to be hedged is greater than the notional amountof the hedgingderivatives. Retrospective hedge effectiveness tests are used to verify whether the hedge was effectiveat different reportingdates. At each such date, changes in the fair value of hedging instruments (excluding accrued interest) are compared with changes in the fair value of the hypothetical derivative instruments hedged (synthetic instruments representative of hedged assets or liabilities and managementintentions).To be effective, changes in the fair value of hedging instrumentsmust offset changes in the fair value of hedged items in a range of 80%-125%.Outside these limits, the hedgewouldno longerqualify. Accounting for cash flow hedges The effective portion of the gain or loss on the hedge is recognized directly in equity, while the ineffective portion is taken to income at each reporting date under “Net gains or losses on financial instruments at fair value through profit or loss”. No specific entries are made to hedged items (other than those that wouldbe made if they were not hedged). If a hedging relationship is discontinued, for example when hedge effectiveness is outside the 80%-125% range, the derivative must be reclassified in financial instruments at fair value throughprofit or loss, while the cumulativeamountrelating to the effective portion of the hedge that has been carried directly in equity under “Unrealizedor deferred gains or losses” is recycled to income when the hedged item itself affects income.

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Natixis Registration Document 2017