BPCE - 2018 Registration document

5 FINANCIAL REPORT

IFRS Consolidated Financial Statements of Groupe BPCE as at December 31, 2018

FINANCE AND OPERATING LEASES 12.2

Accounting principles Leases are analyzed to determine whether in substance and economic reality they are finance leases or operating leases. Finance leases A finance lease is a lease that transfers to the lessee substantially most of the risks and rewards incidental to ownership of an asset. It is treated as a loan granted by the lessor to the lessee in order to finance the purchase of an asset. IAS 17 gives five examples of situations that lead to a lease being classified as a finance lease: the lease transfers ownership of the asset to the lessee by the ● end of the lease term; the lease provides the lessee with the option to purchase the ● asset at a price that is expected to be sufficiently below 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 there is 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 finance lease: if the lessee can cancel the lease, and if the lessor’s losses ● associated with the cancellation are borne by the lessee; gains or losses from the change in the fair value of the residual ● value accrue to the lessee; and the lessee has the ability to continue the lease for a secondary ● period at a rent that is substantially lower than the market rent.

At the inception of the contract, the finance lease receivable is recorded on the lessor’s balance sheet in an amount equal 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 unguaranteed residual 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 unguaranteed residual value, the income allocation over the lease term is revised (calculation of a new payment schedule) and a charge is recorded in order to correct the financial income already recorded. Impairment on finance leases is determined in accordance with IFRS 9 using the same method as that described for financial assets at amortized cost (Note 5.5) and is recognized under “Cost of credit risk.” Finance lease income corresponding to interest is recognized in the income statement under “Interest and similar income”. It is recognized based on a pattern reflecting a constant periodic rate of return on the net investment in 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 the non-guaranteed residual value; and the initial value of the asset ( i.e . fair value at the inception ● of the lease, plus any direct initial costs comprising expenses incurred specifically by the lessor to set up the lease). In the lessee’s financial statements, lease financing agreements with purchase options are treated as the purchase of an asset financed by a loan. Operating leases A lease which is not considered to be a finance lease is automatically classified as an operating lease. Assets provided under operating leases are shown in the balance sheet under property, plant and equipment or intangible assets in the case of equipment leases, and investment property in the case of property leases. Lease income from operating leases is recognized on a straight-line basis over the lease term, under “Income and expenses from other activities.”

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Registration document 2018