BPCE_REGISTRATION_DOCUMENT_2017

5 FINANCIAL REPORT

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

EMPLOYEE BENEFITS 4.10 There are four categoriesof employee benefits:

the lease transfersownershipof the asset to the lessee by the end ● of the lease term; the lease providesthe lessee with the option to purchasethe asset ● at a price that is expectedto be sufficientlybelow the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised; the lease term is for the major part of the economic life of the ● asset even if thereis no transfer of ownership; at the inception of the lease, the present value of the minimum ● lease payments amounts to at least substantially all of the fair value of the leased asset; and the leased assets are of such a specialized nature that only the ● lessee can use them without major modifications. IAS 17 also describes three indicators that may also individually or collectively lead to a lease being classified as a financelease: if the lessee can cancel the lease, the lessor’s losses associated ● with the cancellation are borne by the l ssee; gains or losses from the change in the fair value of the residual ● value accrue to the lessee; the lessee has the ability to continue the lease for a secondary ● period at a rent that is substantially lower than the marketrent. At the inception of the contract, the finance lease receivable is recordedon the lessor’s balancesheet in an amountequal to the net investment in the lease, which corresponds to the minimum payments receivable from the lessee discounted at the interest rate implicit in the lease plus any unguaranteedresidual value accruing to the lessor. IAS 17 requires unguaranteed residual values to be reviewed on a regular basis. If there is a reduction in the estimated guaranteed residual value, the income allocation over the lease term is revised (calculationof a new payment schedule)and a charge is recorded in order to correctthe financial incomealready recorded. Impairment charges for finance leases are determined using the same method as that described for loans and receivables. Finance income corresponding to interest is recognized in the income statement under “Interest and similar income”. It is recognizedbased on a pattern reflecting a constant periodic rate of return on the net investmentin the finance lease, using the interest rate implicit in the lease. The rate of return implicit in the lease is the discount rate that makes the following two items equal: the present value of the minimum lease payments receivable by ● the lessor plus thenon-guaranteed residual value; and the initial value of the asset ( i.e. fair value at the inceptionof ● the lease, plus any direct initial costs comprisingexpensesincurred specifically by the lessor to set up the lease). In the lessee’s financialstatements,lease financingagreementswith purchaseoptions are treated as the purchaseof an asset financedby a loan. 4.9.2 A lease which is not considered as a finance lease is automatically classed as anoperating lease. Assets provided under operating leases are shown in the balance sheet under property,plant and equipmentor intangibleassets in the case of equipment leases, and investment property in the case of property leases. Lease income from operating leases is recognizedin the income statement on a straight-line basis over the lease term, under “Income or expenses from other activities”. Operating leases

Short-term employee benefits 4.10.1 Short-term employee benefits mainly include wages, salaries, paid annual leave, incentive schemes, profit sharing, and bonuses which are expectedto be paid within 12 monthsof the end of the period in which the employee renders the service. They are recognized as an expense for the period, including amounts remaining due at the balance sheet date. Long-term employee benefits 4.10.2 Long-term employee benefits are generally linked to long-service awards accruing to current employees and payable 12 months or more after the end of the period in which the employee renders the related service. These notably comprise long service awards to employees. A provision is set aside for the value of these obligations at the balance sheet date. The obligations are valued using an actuarial method that takes account of demographic and financial assumptions such as age, length of service, the likelihood of the employee being employed by the Group at retirementand the discountrate. The valuationconsists in allocatingcosts over the working life of each employee(projected unit credit method). Actuarial gains and losses (for example those relating to changes in financial interest rate assumptions) and past service cost are immediately recognized in income and included inthe provision. Termination benefits 4.10.3 Termination benefits are granted to employees on termination of their employmentcontract before the normal retirementdate, either as a result of a decision by the Group to terminate a contract or a decision by an employee to terminate a contract in exchange for a severance package. A provision is set aside for terminationbenefits. Termination benefits that are not expected to be paid within the 12 months following the balance sheet date are discounted to present value. Post-employment benefits 4.10.4 Post-employment benefits include lump-sum retirement bonuses, pensions and otherpost-employmentbenefits. Post-employment benefits are measured in the same way as long-term employee benefits. The measurementof these obligations takes into considerationthe value of planassets. Revaluation differences on post-employment benefits, relating to changes in actuarial assumptions and experience adjustments are recognized in equity (other comprehensive income) and are not subsequently transferred to income. The annual expense recognized in respect of defined-benefitplans includes the current service cost, net interest cost (the effect of discounting the obligation), the expected return on plan assets and past service costs.

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Registration document 2017