BPCE_REGISTRATION_DOCUMENT_2017

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

Instruments reclassified to “Loans and receivables” having legal status as “securities” The illiquidity of such instruments, which is necessary to their classification in “Loans and receivables,” was assessed at the reclassification date. Subsequentto reclassification,some instrumentsmay become liquid again and be measured at Level 1 fair value. In other cases, their fair value is measuredusing models identical to those describedabove for instrumentsmeasuredat fair value on the balance sheet. Impairment of securities An impairment loss is recognized on an individual basis against securities, with the exception of securities classified as financial assets at fair value through profit or loss, when there is objective evidence of impairment resulting from one or more loss events having occurredsince the initial recognition of the asset. Different rules are used for the impairment of equity instruments and debt instruments. For equity instruments,a lasting decline or a significantdecrease in value are objectiveindicators of depreciation. A decline of over 50% or lasting for over 36 monthsin the value of a security by comparison with its historical cost is an objective indicator of permanentimpairment,leading to the recognitionof an impairment loss inincome. In addition, these impairment criteria are also supplemented by a line-by-linereviewof the assets that have recordeda decline of over 30% or for more than six months in their value by comparisonwith their historical cost or if events occur that are liable to represent a material or prolonged decline. An impairment charge is recorded in the income statementif the Group determinesthat the value of the asset willnot be recoveredin its entirety. For unlisted equity instruments, a qualitative analysis of their situation is carried out. Impairment losses recognized on equity instruments may not be reversed and nor may they be written back to income. Losses are recorded under “Net gains or losses on available-for-salefinancial assets”. A subsequentincrease in value is taken to “Gains and losses recognizeddirectly in other comprehensiveincome” until disposal of the securities. Impairmentlosses are recognizedon debt instrumentssuch as bonds or securitized transactions (ABS, CMBS, RMBS, cash CDOs) when there is a knowncounterparty risk. The Group uses the same impairmentindicatorsfor debt securitiesas those used for individually assessing the impairment risk on loans and receivables, irrespective of the portfolio to which the debt securities are ultimately designated. For perpetual deeply subordinatednotes, particularattentionis also paid if, under certain conditions,the issuer may be unableto pay the couponor extendthe issue beyond the scheduled redemption date. In the event of an improvement in the issuer’s financial position, impairment losses taken on debt instrumentsmust be written back to the income statement. Impairment losses and write-backs are recorded in“Cost of risk”. Impairment of financial assets 4.1.7

FINANCIAL INSTRUMENTS OF THE RETAIL BANKING BUSINESS LINES For financial instrumentsnot measured at fair value on the balance sheet, fair value calculations are provided for information purposes and must only be interpreted as estimates. In most cases, the values indicated are not liable to be realized and generally may not be realized in practice. These fair values are thus only calculatedfor informationpurposesin the notes to the financialstatements.They are not indicatorsused in the interest of overseeing retail banking activities, for which the managementmodel is mainly based on collectionof contractualcash flows. Consequently, the following simplified assumptions were used: The carryingamountof the assetsand liabilitiesis deemedto be their fair valuein certaincases. These notablyinclude: short-term financial assets and liabilities (whose initial term is ● one year or less) provided that sensitivity to interest-raterisk and credit risk is not material during the period; demandliabilities; ● variable-rate loansand borrowings; ● transactions in a regulated market (particularly regulated savings ● products), whose prices are set by the public authorities. Fair value of loans to retail customers The fair value of loans is determined based on internal valuation models that discount future payments of recoverable capital and interest over the remaining loan term. Except for special cases, only the interest rate component is remeasured, as the credit margin is established at the outset and not subsequently remeasured. Prepaymentoptionsare factoredinto the model via an adjustmentto loan repayment schedules. Fair value of loans to large corporates, local authorities and credit institutions The fair value of loans is determined based on internal valuation models that discount future payments of recoverable capital and interestover the remainingloan term. The interestrate componentis remeasured, as is the credit risk component (where it is an observable piece of data used by the customer relationship managers). Failing that, the credit risk component is established at the outset and not subsequentlyremeasured,as with loans to retail customers. Prepayment options are factored into the model via an adjustment to loan repayment schedules. Fair value of debt The fair value of fixed-rate debt owed to credit institutions and customerswith a term of over one year is deemed to be equal to the present value of future cash flows discounted at the interest rate observed at the balance sheet date. Own credit risk is not generally taken into account.

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Registration document 2017