BPCE_REGISTRATION_DOCUMENT_2017

FINANCIAL REPORT BPCE parent company financial statements

Restructured loans Within the meaning of ANC regulation No. 2014-07, restructured loans are doubtful loans and receivableswhose initial characteristics (term, interest rate) are modifiedto allow the counterpartiesto repay the amountsdue. A discount is taken on restructured loans to reflect the difference between the present value of the contractualcash flows at inception and the present value of expected principal and interest repayments after restructuring.The discount rate used for fixed-rate loans is the initial effective interest rate and the discount rate used for variable-rateloans is the most recent effective interest rate prior to the restructuringdate. The effective rate is the contractualrate. This discountis expensedto “Cost of risk” in incomeand offset againstthe correspondingoutstandingin the balance sheet. It is written back to net interest income in the income statementover the life of the loan using an actuarial method. A restructuredloan may be reclassifiedas performingwhen the new repaymentdates are observed.When a loan that has been reclassified becomes overdue, regardless of the restructuring terms agreed, the loan is downgradedto doubtful. Doubtful loans and receivables Doubtful loans and receivables consist of all outstanding amounts (whether or not they are due, guaranteed or other), where at least one commitment made by the debtor has involved a known credit risk, classifiedas such on an individualbasis. A risk is consideredto be “known”when it is probablethat the Groupwill not collect all or part of the sums owed under the terms of the commitmentsmade by the counterparty, notwithstanding any guarantees or collateral. Doubtful loans are identified in compliancewith ANC regulationNo. 2014-07, particularly in the case of loans past due for over three months, over six months for real estate loans, and over nine months for loans to local authorities. Doubtful loans are consideredto be irrecoverablewhen full or partial collection is deemed to be highly unlikely and a write-off is considered. Loans and receivables whose terms have lapsed, terminated lease financing agreements, and perpetual loans which have been rescinded,are consideredas irrecoverable.The existenceof guarantees covering nearly all risks, along with the conditions for classification as doubtful loans and receivables, must be taken into considerationin order to qualify a doubtful loan as irrecoverableand to assess the associated impairment provision. A debt that has been classified as doubtful for more than one year is assumed to be irrecoverable,unless a write-off is not foreseen. Reclassificationof a debt from doubtful to irrecoverabledoes not automaticallyentail the reclassification of the counterparty’s other doubtful loans and commitments to irrecoverable. For doubtful loans and receivables, accrued interest or interest due but not received is recognized in banking income and impaired accordingly.For irrecoverableloans and receivables, accrued interest due but not received is not recognized. Doubtfulloans and receivablesare reclassifiedas performingonce the debtor resumes regular payments in accordance with the original repayment schedule, provided that the counterparty is no longer considered to be at risk of default. Repurchase agreements Collateralized repurchase agreements are recognized in accordance with ANC regulation No. 2014-07, complementedby InstructionNo. 94-06 amended issued by the French Banking Commission.

The collateralizedassets continue to appear in the balance sheet of the vendor, which records the amount collected under liabilities, representing its debt vis-à-vis the purchaser. The purchaser records the amount paid under assets, representing the amount due to the vendor. At each balance sheet date, the collateralizedassets, as well as the debt vis-à-vis the purchaseror the amount due to the vendor, are valued according to the rules appropriate to each of these Loans for which recovery is uncertain result in the recognitionof an impairment loss on the asset to cover the risk of loss. Impairment losses are calculatedon a case-by-casebasis, taking into accountthe present value of guaranteesreceived.They are determinedon at least a quarterly basis and are calculated in reference to available guaranteesand a risk analysis.Impairmentlosses cover at a minimum the interestnot receivedon doubtful loans. Impairment for probable losses includes all impairment charges, calculated as the difference between the principal outstanding and the projected cash flows discounted at the initial effective interest rate. Projected cash flows are determined based on the type of receivables on the basis of historical losses and/or expert appraisals and are positioned over time using debt schedules based on historic recovery records. Impairmentcharges and reversals booked for risk of non-recoveryare recorded under “Cost of risk” except for impairmentsfor interest on doubtful loans and receivables, which are recorded as impaired interest under“Interestand similarincome”. The reversalof the impairmentrelated to the passageof time alone is recorded under “Costof risk”. Doubtful loans and receivables are written off as losses and the corresponding impairment allowancesare reversed. 2.3.3 The term “securities”covers interbankmarket securities,treasury bills and negotiable debt securities, bonds and other fixed-income instruments,and equitiesand other variable-income instruments. For accountingpurposes,securitiestransactionsare governedby ANC regulation No. 2014-07, which sets out the general accounting and measurementrules applicable to securities and the rules concerning specific transfers suchas securities lendingtransactions. Securities are classified according to the following categories: investmentsin associatesand affiliates,other long-terminvestments, debt securitiesheld to maturity,equity securitiesavailable for sale in the mediumterm, securitiesavailable forsale, andtrading securities. With respect to trading securities, securities available for sale, debt securities held to maturity, and equity securities available for sale in the medium term, provisions for counterpartieswith known default risks whose impact can be separatelyidentifiedare recognizedin the form of impairment charges. Changes in impairment are recorded under cost of risk. Trading securities These are securities acquired or sold with the intention to resell or repurchase them after a short holding period. In order to be eligible for this category,the securitiesmust be tradable on an active market as of the date of their initial recognitionand their market prices must be accessible, representingactual transactionsregularly occurring in the market under normal trading conditions. They may be either fixed- or variable-income instruments. transactions. Impairment Securities

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Registration document 2017