BPCE_REGISTRATION_DOCUMENT_2017

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

Subordinateddebt which the issuer is obliged to repay is classifiedas debt and initiallyrecognizedat fair value less any transactioncosts. It is subsequently measured at amortized cost at each balance sheet date using the effective interest method. value through profit or loss The amendment to IAS 39 adopted by the European Union on November 15, 2005 allows entities to designate financial assets and liabilities on initial recognition at fair value through profit or loss. However,an entity’s decisionto designatea financialasset or liability at fair valuethroughprofit or loss maynot be reversed. Compliancewiththe criteriastipulatedby the standardmustbe verified prior toany recognition of an instrument using the fair value option. In practice, this option may be applied only under the specific circumstances described below: Elimination of or significant reduction in a measurement or recognition inconsistency (accounting mismatch) Applying the option enables the elimination of accounting mismatches stemming from the application of different valuation rules to instruments managed in accordance with a single strategy. This accounting treatment applies in particular to certain structured loans granted tolocal authorities. Harmonization of accounting treatment and performance management and measurement The optionappliesfor a group of assets and/orliabilitiesmanagedand measured at fair value, provided that it is based on a formally documentedrisk managementor investmentstrategy,and information about the Group is also reportedinternallyon a fair valuebasis. This circumstance mainly arises in connection with Natixis’ capital market activities. Hybrid financial instruments containing one or more embedded derivatives An embedded derivative is a component of a financial or non-financial hybrid (combined) instrument that qualifies as a derivative.It must be separatedfrom the host contractand accounted for as a derivative if the hybrid instrument is not measured at fair value through profit or loss, and if the economic characteristicsand risks associatedwith the derivativeare not closely related to those of the hostcontract. The fair value option may be applied when the embedded derivative substantiallymodifies the cash flows of the host contract and when the separaterecognitionof the embeddedderivativeis not specifically prohibited by IAS 39 ( e.g. an early redemption option at cost embedded in a debt instrument). The option allows the entire instrumentto be measuredat fair value,and thereforeavoidsthe need to extract,recognize or separatelymeasurethe embedded derivative. This accounting treatment applies in particular to some structured debt issuescontaining material embedded erivatives. accounting A derivativeis a financial instrumentor other contract with all three of the followingcharacteristics: its value changes in response to the change in a specific interest ● rate, financial instrumentprice, commodityprice, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided that, in the case of a non-financialvariable, this variable may not be specific to ne of the parties to the contract; Financial assets and liabilities designated at fair 4.1.4 Derivative financial instruments and hedge 4.1.5

it requires no initial net investment or an initial net investment ● that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and it is settled at afuture date. ● All derivativefinancialinstrumentsare recognizedon the balancesheet at the trade date and measured at fair value at inception. They are remeasuredat their fair value at each balancesheet date regardlessof whether theywere acquired for tradingor hedgingpurposes. Changes in the fair value of derivativesare recognizedin income for the period, except for derivativesqualifying as cash flow hedges for accountingpurposes or asnet investment hedges in a foreigncurrency. Derivative financial instrumentsare classified into the following two categories: Trading derivatives Trading derivatives are recognized on the balance sheet under “Financial assets at fair value through profit or loss” and “Financial liabilitiesat fair value through profit or loss”. Realizedand unrealized gains and losses on derivatives held for trading are taken to income on the “Net gains or losses on financial instruments at fair value throughprofit or loss” line. Hedging derivatives The hedging relationship qualifies for hedge accounting if, at the inceptionof the hedge, there is formal documentationof the hedging relationshipidentifyingthe hedging strategy, the type of risk hedged, the designation and characteristics of the hedged item and the hedging instrument.In addition, the effectivenessof the hedge must be demonstrated at inception and subsequently verified. Derivatives contracted as part of a hedging relationship are designated according to the purpose of the hedge. FAIR VALUE HEDGES Fair value hedges are intended to reduce exposure to changes in the fair value of an asset or liability carried on the balance sheet, or a firm commitment, in particular the interest rate risk on fixed-rate assets and liabilities. The gain or loss on the revaluation of hedging instruments is recognizedin income in the same manner as the gain or loss on the hedged item attributable to the risk being hedged. The ineffective portion of the hedge, if any, is recorded in the income statement under “Net gains or losses on financial instruments at fair value throughprofit or loss”. Accrued interest on the hedging instrumentis taken to income in the same manner asthe accrued interest onthe hedged item. Where identified assets or liabilities are hedged, the revaluation of the hedged componentis recognizedon the same line of the balance sheet as the hedged item. The ineffective portion relating to the dual-curve valuation of collateralizedderivatives is taken into account when calculating the effectiveness of ahedge. If a hedging relationshipceases (investmentdecision, failure to fulfill effectiveness criteria, or because the hedged item is sold before maturity), the hedging instrumentis transferredto the trading book. The revaluationdifferencerecordedin the balance sheet in respect of the hedged item is amortized over the residual life of the initial hedge. If the hedged item is sold before maturity or redeemed early, the cumulativeamountof the revaluationgain or loss is recognizedin income forthe period.

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Registration document 2017