BPCE_REGISTRATION_DOCUMENT_2017

FINANCIAL REPORT Statutory auditors’ report on the consolidated financial statements

Credit risk – impairment and provisions on individual and portfolio basis

Risk identified and main judgements

Our response

Groupe BPCE is exposed to credit and counterpartyrisks. These risks arise whenevera client or counterpartyis unable to meet its payment obligations, especiallyon the loanactivity. Groupe BPCE records impairmentlosses and provisionsto cover credit and counterpartyrisks inherent to its activities.These are determined on individual and portfolio basis. Impairmentlosses take the form of individual impairment losses recognized against the related on-and off-balanceeither sheet commitmentsor collectiveimpairmentlosses recognized against loan portfolios presenting similar risks which are not individuallyimpaired.Individualimpairmentlosses are determined by Management which takes into account estimated recoverable future cash flows (taking into account the impact of any collateral) on each loan concerned. Collective provisions are determined using statistical models based on several factors (as much prudential as specific to GroupeBPCE). We deemed the identificationand assessment of credit risk to be a key audit matter consideringthat the provisionscalculatedconstitute a significant judgement to establish the financial statements and appeal to the Managementjudgement.Consideringthat Groupe BPCE faces a context of low cost of risk on its main market, we assessed that the meeting of riskcoverage byprovisionsand the related cost of risk to be aspecific focus this year. At December 31, 2017, exposureto credit and counterpartyrisks amounted to more than 90% of the total Groupe BPCE balance sheet (66% for loansand receivables). Total impairment losses and provisions on loan and receivable and similar receivables stood at € 13 billion compared to gross outstandingloans of € 1,183 billion for an amountof impairment losses of € 26 billion. Cost of risk FY 2017 amounts to € 1.38 billion (decrease of 3% over theperiod). See notes 4.1.7, 5.6.1, 5.6.2, 6.7 to the consolidated financial statement for more details on accounting principles and exposures.

In accordancewith our auditprocess,we assessedglobally the control proceduresimplementedto identify risk exposure, monitor credit and counterpartyrisks, assess the risks of non-recoveryand calculate the related impairment and provisions on an individual and portfolio basis. For provisions on an individual basis, our work consists in reviewing the quality of the monitoringsystem used for counterpartiesthat are at-risk, doubtful or litigious; the review of loans and receivablesand the process used to value guarantees.Otherwise, based on a sample of exposures selected regarding criteria of materiality and risks, we performed contradictoryanalysis of theamount of provisions. As for collective provisions, assisted by our credit risk experts, we assessed the changes in methods related to the model of collective provisions as well as the retrospective tests on a historical basis performed by Management to estimate the main parameters of provision. In 2017, in the contextof low cost of risk mentionedbefore, our work consisted in assessing the level of provisions at December 31, 2017 and the lowlevel of the cost of risk recorded.

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Registration document 2017