NATIXIS -2020 Universal Registration Document

FINANCIAL DATA Parent company financial statements and notes

The reversal of the effect of discounting on impairments of non-performing loans associated with the passage of time is recognized under “Interest and similar income” on the income statement. Specific case of loans restructured due to the debtor’s financial situation Restructured loans correspond to loans with modified terms under whichNatixisgrants a concessionto borrowersfacingor likely to face financial difficulties.They are a combinationof a concessiongranted by Natixis and financial difficulties experienced by tbhoerrower. The modified terms of restructured loans must put the borrower in a more favorable situation (e.g. suspension of interest or principal payment, extension of term, etc.) and are confirmed by the use of amendments that modify the terms of an existing contract or by the full or partial refinancing of an existing loan. Financial difficulties are determined by observing a number of criteria such as amounts past due for more than 30 days or an at-risk rating. The restructuringof a loan does not necessarily result in the counterparty being classified in the Basel default category, as the financial difficulty is addressed before the counterparty is Where there is a risk of partial or total non-recovery of loans or of borrowers breaching their covenants, impairment charges (for non-performing loans) or provisions (for off-balance sheet commitments)correspondingto the amount of the probable loss are recognized on the income statement under “Provision for credit losses”. These impairments and provisions are assessed quarterly on a case-by-case basis taking into account an analysis of the risk and available collateral. Interest corresponding to the remuneration of impaired loans and receivables or to the reversal of the effect of discounting is recognized as interest income. Impairment losses are calculated as the difference between the gross carrying amount of the receivable and the amounts thought to be recoverable (including flows from the realization of guarantees), discounted at the original effective interest rate for fixed-rate receivablesor at the last effective interest rate determinedaccording to the contractual terms for variable-rate receivables. Impairments on non-performing loans covering risks carried on the asset side of the balance sheet are deduced from the assets in question. Probable losses stemming from off-balancesheet commitmentsare recognized as provisions on the liability side of the balancseheet. Provisions for non-specific credit risk Financial assets that have not been assigned their own specific credit risk are included in groups of assets with similar risk characteristics.The composition of these portfoliosof similar assets is based on two criteria: geographical risk and sector risk. Portfolios are reviewed quarterly and, where appropriate, loans in sectorsor countrieswhereeconomiccircumstancessuggestproblems may arise are included in the base for performing loapnrosvisions. Each group of assets is assessed for objective evidence of impairment based on observable data indicating a likely decrease in the estimated recoverable cash flows for that group of assets. A collective write-down in the balance sheet liabilities is taken against downgraded into the Basel default category. Specific impairments and provisions

any group of assets showing objective evidence of impairment. Assets belonging to that group, which are subsequently specifically identified as impaired (specific risk), are removed from the collective write-down calculation base. Provisions for geographic risk are primarily based on each country’s internal rating, incorporating different parameters and indicators (political situation, performance of the economy and economic outlook, banking system situation, etc.). Calculation of the impairment loss is based on a correlation table between the internal rating and provisioning rate, with a revision to the rate allocated to a provisioning scale possible. Provisions for sector risk are based on combinations of indexes specific to each sector (sector growth, cash held by businessesin the sector, cost of commodities, etc.). The method for calculating the impairment loss is the “expected loss” method calculateadt maturity. The Covid-19 health crisis is a global crisis affecting all the geographical areas in which Natixis operates, while its impact is much more differentiatedaccording to the economic sectors. In this context, and taking into account a methodology based solely on country risk on the one hand and sector risk on the other, it appeared that the sector criterion represented the most relevant approach to collective risk. Accordingly, a change in the methods used to calculate collective provisions was made in 2020 to retain the sector-based criterion as the first objective indicator of risk deterioration. Maintaining the previous methods for estimating collective risk would have led to an increase of €68.0 million on all collective provisions. However, including the change described above, collective provisions increased by €16.5 million over the year, with sectoral provisions showing a marked increase of €76.3 million in 2020. These include the provisioning of new sectors most affected by the consequences of the Covid-19 crisis (aviation, press, automotive construction, hotel and catering, communication/media and transport). Loans on the watch list, for which a Basel default has been identified, are impaired collectively by sector unless they are already subject to specific write-downs. Provisions for sector and country risk are shown under liabilities in the balance sheet. 2.2 Securities are, in accordance with Book II – Title 3 “Accounting treatment of securities transactions”of regulationNo. 2014-07of the ANC, classified according to: their type: government securities (treasury bills and similar V securities), bonds and other fixed-income securities (negotiable debt securities and interbank market instruments), shares and other variable income securities; the economic purpose for which they are held, into one of the V following categories: held for trading, held for sale, held for investment, other long-term securities, investments in associates and investments in subsidiaries and affiliates. The buying and selling of securitiesare recorded in the balance sheet at the settlement-delivery date. In the event of a securities lending transaction, the securities loaned cease to appear on the balance sheet and a receivable representing the carrying amount of the securities loaned is recognized ans asset. Securities portfolio

5

419

www.natixis.com

NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020