BPCE_REGISTRATION_DOCUMENT_2017

5 FINANCIAL REPORT

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

Impairment of loans and receivables IAS 39 defines the methods for calculating and recognizing the impairment of loans. A loan or receivable is deemed to be impaired if the following two conditions are met: there is objective evidence of impairment on an individual or ● portfolio basis: there are “triggering events” or “loss events” identifyingcounterpartyrisk occurring after the initial recognition of the loans in question. On an individual level, the criteria for decidingwhetheror not a credit risk has been incurredinclude the existence of payments past due by more than three months (six monthsmaximumfor real estate and nine months for loans to local authorities) or, independently of the existence of a missed payment, the existence of an incurred credit risk or litigious proceedings.For the majorityof Group institutions,probablecredit risk arises from default events defined in Article 178 of European regulation 575-2013 dated June 26, 2013 relating to prudential requirements applicable to credit institutions; these events are liable to lead to therecognitionof incurred losses. ● Impairment is determined as the difference between the amortized cost and the recoverable amount of the receivable, i.e. the present value of estimatedrecoverablefuture cash flows taking into account the impact of any collateral. For short-termassets (maturity of less than one year), there is no discounting of future cash flows. Impairment is determined globally, without distinguishing between interest and principal.Probablelosses arising from off-balancesheet commitmentsare taken into account through provisions recognized on the liability sideof the balance sheet. Two types of impairmentare recognized under“Cost of risk”: IMPAIRMENT ON AN INDIVIDUAL BASIS Specific impairmentis calculatedfor each receivableon the basis of the maturity schedules determined based on historic recoveries for each category of receivable. Collateral is taken into account when determining the amount of impairment, and when collateral fully covers therisk of default,the receivableis no longer impaired. IMPAIRMENT ON A PORTFOLIO BASIS Impairment on a portfolio basis covers unimpaired outstandingson an individual basis. In accordance with IAS 39, these are grouped together in portfolios with similar credit risk characteristics that undergo acollective impairment est. Banque Populaire and Caisse d’Epargne outstanding loans are includedin a group of similar loans in terms of the sensitivityof risk based on the Group’sinternalrating system. The portfoliossubject to the impairmenttest are those relating to counterpartieswith ratings that have been significantlydowngradedsince granting, and which therefore are considered sensitive. These loans undergo impairment, although credit risk cannot be individuallyallocated to the different counterpartiesmaking up these portfolios, as the loans in question collectively showobjective evidence of impairment. The amount of impairmentis determinedbased on historicaldata on the probability of default at maturity and the expected losses, adjusted, if necessary, to take into account the prevailing circumstances at thebalance sheet date. impairment onan individual basis; ● impairment ona portfoliobasis. ●

This approach may also be supplemented by a segmental or geographical analysis generally based on an expert opinion, taking account of various economic factors intrinsic to the loans and receivables in question. Portfolio-based impairment is calculated based on expected losses at maturity across the identified population.

Reclassifications of financial assets 4.1.8 Several types of reclassification are authorized:

Reclassifications authorized prior to the amendments to IAS 39 and IFRS 7 adopted by the European Union on October 15, 2008 These notably include “Available-for-sale financial assets” reclassified as “Held-to-maturity financial assets”. Any fixed-income security with a set maturity date meeting the definition of “Held-to-maturitysecurities”may be reclassifiedif the Group changes its management strategy and decides to hold the security to maturity. The Group must also have the ability to hold this instrument to maturity. Reclassifications authorized since the amendments to IAS 39 and IFRS 7 adopted by the European Union on October 15, 2008 These standards define the terms for reclassifying non-derivative financial assets at fair value (with the exception of those initially designated at fair value throughprofit or loss)to other categories: reclassification of “Financial assets held for trading” as ● “Available-for-salefinancial assets” or “Held-to-maturityfinancial assets”. Any non-derivativefinancialassets may be reclassifiedwheneverthe Group is able to demonstratethe existence of “rare circumstances” leading to this reclassification.It should be noted that the IASB has characterized the financial crisis of the second half of 2008 as a “rare circumstance”. Only instruments with fixed or determinable payments may be reclassified as “Held-to-maturity financial assets”. The institution must also have the intention and the ability to hold these instruments until maturity. Instruments included in this category may not be hedged against interest rate risk; reclassification of “Financial assets held for trading” or ● “Available-for-sale financial assets” as “Loansand receivables”. Any non-derivativefinancialasset meetingthe definitionof “Loans and receivables” and, in particular, any fixed-incomeinstruments not quoted in an active market may be reclassified if the Group changes its management strategy and decides to hold the instrumentfor a foreseeablefuture or to maturity.The Groupmust also have the ability to hold this instrument over the medium to long term. Reclassificationsare carried out at fair value at the reclassification date, with this value serving as the new amortized cost for instruments transferred to categories measured at amortized cost. A new effectiveinterestrate is then calculatedat the reclassification date in order to bring this new amortized cost into line with the redemption value, which implies that the instrument had been reclassified with adiscount. For instruments previously recorded under available-for-sale financial assets, the amortization of the new discount over the residual life of the instrumentis generallyoffset by the amortization of the unrealized loss recorded under gains and losses recognized directly in other comprehensiveincome at the reclassificationdate and taken to the income statement on an actuarial basis.

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Registration document 2017