BPCE_REGISTRATION_DOCUMENT_2017

FINANCIAL REPORT IFRS Consolidated Financial Statements of BPCE SA group as at December 31, 2017

Note 4

Accounting principles and valuation methods

4.1

FINANCIAL ASSETS AND LIABILITIES

held-to-maturity financial assets; ● loans and receivables; ● available-for-sale financial assets. ● Financial assets at fair value through profit or loss This asset categoryincludes: financial assets held for trading, i.e. securities acquired or issued ● principally forthe purposeof selling them inthe near term;and financial assets that the Group has chosen to recognize at fair ● value through profit or loss at inceptionusing the fair value option available under IAS39. The qualifyingcriteriaused when applyingthis option are describedin Note 4.1.4 “Financial assets and liabilities designated at fair value throughprofit or loss”. These assets are measured at fair value at the date of initial recognition and at each balance sheet date. Changes in fair value over the period, interest, dividends, gains or losses on disposals on these instrumentsare recognizedin “Net gains or losses on financial instruments at fair value throughprofit or loss”. Held-to-maturity financial assets Held-to-maturity(HTM) financial assets are securities with fixed or determinable payments and fixed maturity that the Group has the intention and ability to hold until maturity. IAS 39 does not permit the sale or transfer of these securities before maturity except in certain specific circumstances.In the event that the securities are sold before maturity, all held-to-maturity assets must be reclassifiedat group level and the held-to-maturitycategory cannot be used during the current year or the following two years. a change in tax regulationscanceling or significantlyreducing the ● tax exemptionon interest earned oninvestmentsheld-to-maturity; a major business combinationor significant withdrawalof activity ● (sale of a sector, for example) requiring the sale or transfer of held-to-maturity investments in order to maintain the entity’s existing situation in terms of interest rate risk or its credit risk policy; a change in legal or regulatory provisions significantly modifying ● either the definition of an eligible investment or the maximum amount of certain types of investment, requiring that the entity dispose of aheld-to-maturityasset; a significant increase in capital requirementsforcing the entity to ● restructure by selling held-to-maturity assets; a significant increase in the risk weighting of held-to-maturity ● assets interms of prudential capital regulations. In the exceptional cases described above, the income from the disposal is recorded under “Net gains or losses on available-for-sale financial assets”. The hedging of these securities against interest rate risk is not permitted. However, hedges against exchange rate risk or the inflation component of certain held-to-maturityfinancial assets are allowed. Exceptions to the rule apply in the followingcases: a materialdeterioration inthe issuer’s credit quality; ●

Loans and receivables 4.1.1 Amounts due from credit institutions and customers and certain investmentsnot quoted in an active market are generally recorded in “Loans and receivables” (see Note 4.1.2). Loans and receivables are initially recorded at fair value plus any costs directly related to their issuance, less any proceeds directly attributableto issuance.On subsequentbalance sheet dates, they are measured at amortizedcost using the effective interest method. The effectiveinterest rate is the rate that exactly discountsestimated future cash flows (payments or receipts) to the value of the loan at inception. This rate includes any discounts recorded in respect of loans granted at below-market rates, as well as any external transactionincome or costs directly related to the issue of the loans, which are treated as an adjustmentto the effectiveyield on the loan. No internal cost is included in the calculation of amortized cost. When loans are extended under conditions that are less favorable than market conditions, a discount corresponding to the difference between the nominal value of the loan and the sum of future cash flows discounted at the market interest rate is deducted from the nominalvalue of the loan. The market interest rate is the rate applied by the vast majority of local financial institutionsat a given time for instruments and counterparties with similar characteristics. A discount is applied to loans restructuredfollowing a loss event as definedby IAS 39, to reflect the differencebetweenthe present value of the contractual cash flows at inception and the present value of expected principal and interest repayments after restructuring. The discount rate used is the original effectiveinterest rate. This discount is expensed to “Cost of risk” in the income statement and offset against the corresponding outstanding on the balance sheet. It is written back to net interest income in the income statementover the life of the loan using an actuarial method. The restructured loan is reclassified as performing based on expert opinion when no uncertainty remains as to the borrower’s capacity to honor the commitment. External costs consist primarilyof commissionpaid to third parties in connectionwith the arrangementof loans. They essentially comprise commissionpaid to business partners. Income directly attributableto the issuance of new loans principally comprises set-up fees charged to customers, rebilled costs and commitment fees (if it is more probable than improbable that the loan will be drawn down). Commitment fees received that will not result in any drawdownsare apportionedon a straight-linebasis over the life of the commitment. Expenses and income arising on loans with a term of less than one year at inception are deferred on a pro rata basis with no recalculationof the effective interest rate. For floating or adjustable rate loans, the effective interest rate is adjusted at each rate refixing date. 4.1.2 Securities recorded as assets are classified into four categories as defined by IAS39: financial assets at fair value throughprofit or loss; ● Securities

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Registration document 2017