NATIXIS - 2018 Registration document and annual financial report

FINANCIAL DATA Statutory Auditors’ report on the consolidated financial statements

Impairment of loans and receivables (stages 1, 2 and 3)

Risk identified and main judgments

Our audit approach

As part of its financing activities, Natixis Group is exposed to credit and counterparty risks. In accordance with the “impairment” component of IFRS 9, the Group recognizes impairment and provisions to cover expected loss risks (stage 1 and 2 outstandings) or known loss risks (stage 3 outstandings). Impairment for expected credit losses (stage 1 and 2) is mainly determined based on models developed by Natixis which includes various input including probability of default, loss given default, forward-looking information, etc. Outstanding loans bearing a known counterparty risk (stage 3) are the subject of impairments determined essentially on an individual basis. These impairments are determined by management which takes into account estimated recoverable future cash flows. We considered these impairments to be a key audit matter as it is an area where judgment plays a significant role in the preparation of the financial statements both in terms of the determination of the inputs and procedures for impairment calculations in respect of outstandings in stages 1 and 2 and in the assessment of the individual provisioning level of outstanding loans in stage 3. Net exposure to credit and counterparty risk totaled €187,172 million at December 31, 2018 including €96,564 million in respect of loans and receivables. Impairment for expected credit losses stood at €1,289 million at December 31, 2018. Please refer to Notes 6.1, 6.2, 6.3, 6.21, 6.23, 7.8, 8.6, 8.17 and 11.2 to the consolidated financial statements for more details.

Impairment of outstanding loans in stages 1 and 2 In line with the due diligence procedures in respect of the first-time application of IFRS 9, our work consisted primarily in: Taking note of and evaluating the internal control system a governing the definition and validation of impairment models and input used to calculate this impairment. Assessing the relevance of these inputs used for the a calculation of impairments as at December 31, 2018; Performing counter calculations on the main loan books; a Impairment of outstanding loans in stage 3 We evaluated the design and tested the effectiveness of the key controls put in place by the Natixis Group in particular those related to: The identification of impairment indicators (such as past-due a payments) and the counterparty rating process; The classification of exposures in stage 3; a The monitoring of guarantees, their analysis and their valuation; a The determination of individual impairment losses and the a associated governance and validation system. In addition, we carried out a credit review, based on a sample of files selected on the basis of materiality and risk criteria, in which we: Took note of the latest available information on the situation of a counterparties whose risk has deteriorated significantly. Performed independent analyses of the assumptions used and a the estimates of provisions approved by management based on information provided by the institution and external data; Verified that estimated impairment allowances were correctly a recognized. We also assessed the information presented in detail in the notes to the consolidated financial statements and required by IFRS 9 in respect of the “impairment” component, as at December 31, 2018.

5

397

Natixis Registration Document 2018