PSA_GROUP_REGISTRATION_DOCUMENT_2017

CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017 Notes to the consolidated financial Statements at December 2017

MANAGEMENT OF FINANCIAL RISKS 13.4.

Counterparty and credit risks (3) Banque PSA Finance’s exposure to credit risk corresponds to the risk of losses due to borrower default or borrower failure to fulfill their contractual obligations. The counterparties concerned are Peugeot, Citroën and DS dealers and the dealers’ retail customers. In the event of default, Banque PSA Finance generally has the right to repossess the vehicle and sell it on the used vehicle market. The risk that the vehicle’s selling price on the used vehicle market will be less than the outstanding debt is taken into account in determining the amount of the related impairment (see Note 13.1.B). Wholesale lending decisions for fleet customers and dealers are made based on a detailed risk assessment in accordance with strict rules on lending limits, either by the local Banque PSA Finance Credit Committees, or by the Group Credit Committee. The level of credit lines is dependent on the item to be financed, the client’s risk rating and lastly the general level of risk borne by the approving Credit Committee. For its companies operated jointly with a partner, Banque PSA Finance has contractual mechanisms to ensure that it is properly involved in the decision-making and risk-monitoring process. Retail loan acceptance processes are based on a local credit scoring system. To enhance its effectiveness, the scoring system is adapted according to the specific characteristics of each local market. For partnership subsidiaries, customer selection is the responsibility of the partner which uses the decision-making tools that it has developed. In both cases, the teams at Banque PSA Finance’s headquarters monitor the level of risk of requests and acceptance closely on an on-going basis, as well as the characteristics of files with past due instalments. Defaults with no impairment concern only corporate loans. Corporate loans with one or more installments that are over 90 days past due and loans to local administrations with one or more installments that are over 270 days past due are not classified as non-performing when the delays are due to payment incidents or claims, and do not reflect a 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 banking regulations. Banque PSA Finance’s exposure to financial counterparties is limited to (i) the investment of funds corresponding to the liquidity reserve and of any excess cash, and (ii) the use of derivatives (swaps and options) to hedge currency and interest rate risks. Available cash is invested in money market securities issued by leading banks, in deposit accounts with leading banks or in monetary mutual funds. Currency risk (4) Group policy consists of not entering into any operational currency positions. Liabilities are matched with assets in the same currency, entity-by-entity, using appropriate financial instruments if necessary. The hedging is achieved using cross currency swaps, currency swaps and forward foreign exchange contracts.

Financial risk management policy A. Most of the financing activities for the networks and customers of PSA Group brands are now managed by the joint ventures with Santander and with BNP Paribas, which provide the financing and apply their risk management policies to them. The risk management discussed below relates to the activities of Banque PSA Finance itself. Liquidity risk (1) The financing strategy of Banque PSA Finance is defined under the direction of the governing bodies of Banque PSA Finance. Banque PSA Finance’s capital structure and equity ratio comply with the latest regulatory requirements, reflecting the quality of the bank’s assets. Its financing is ensured by the broadest possible range of liquidity sources, matching of maturities of assets and liabilities. The implementation of this policy is monitored by the ALM Committee and the Risk Management Committee of Banque PSA Finance with in particular monitoring and forecasting of regulatory liquidity ratios and monitoring of financing plans drawn up by coherent region. Since the establishment of local partnerships with Santander, Banque PSA Finance is no longer responsible for financing these entities. Financing strategy implemented in 2017 At 31 December 2017, the only financing of Banque PSA Finance is derived from the bond issues. The bank also has cash reserves of €572 million. Renewal of bank facilities Details of bank facilities are provided in Note 13.3.C. Covenants The revolving bilateral lines of credit (for a total outstanding amount of €301 million) signed by Banque PSA Finance in the first half of 2016, have the customary acceleration clauses for such arrangements. In addition to these covenants representing market practices, the syndicated credit facilities continue to require retention of bank status, and the compliance with a “Common Equity Tier One” capital ratio of at least 11%. Interest rate risks (2) Banque PSA Finance’s policy aims to measure, ring fence in the context of stress scenarios and if necessary reduce the impact of changes in interest rates using appropriate financial instruments to match interest rates on the loans and the related refinancing. The implementation of this policy is monitored by the ALM Committee and the Risk Management Committee of Banque PSA Finance.

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GROUPE PSA - 2017 REGISTRATION DOCUMENT