2020 Universal registration document and annual financial report - BNP PARIBAS170

4 Consolidated finanCial statements for the year ended 31 deCemBer 2020

4

Notes to the financial statements

4.6 Notes to the financial statements prepared in accordance with IFRS as adopted by the European Union

Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES APPLIED BY THE GROUP

1.a ACCOUNTING STANDARDS

1.a.1 Applicable accounting standards

The coronavirus outbreak characterised by the World Health Organisation as a pandemic on 11 March 2020 as well as measures introduced by governments and regulators to tackle the outbreak have affected the global supply chain as well as demand for goods and services and therefore had a significant impact on the global growth. At the same time, fiscal and monetary policies have been eased to sustain the economy.

The consolidated financial statements of BNP Paribas have been prepared on a going concern basis. The impacts of the pandemic, mitigated by all countercyclical measures such as government and financial support to customers, mainly relate to expected credit losses and asset valuation. These impacts were estimated against a background of uncertainty about the magnitude of the impact of the outbreak on local and global economies.

The consolidated financial statements of the BNP Paribas Group have been prepared in accordance with international accounting standards (International Financial Reporting Standards IFRS), as adopted for use in the European Union(1). Accordingly, certain provisions of IAS 39 on hedge accounting have been excluded, and certain recent texts have not yet undergone the approval process.

Information on the nature and extent of risks relating to financial instruments as required by IFRS 7 Financial Instruments: Disclosures and to insurance contracts as required by IFRS 4 Insurance Contracts , along with information on regulatory capital required by IAS 1 Presentation of Financial Statements are presented in chapter 5 of the Universal Registration Document. This information, which is an integral part of the notes to the consolidated financial statements of the BNP Paribas Group as at 31 December 2020, is covered by the opinion of the Statutory Auditors on the financial statements and is identified in the management report by the word Audited . Section 4 of chapter 5, paragraph Exposures, provisions and cost of risk provides, in particular, IFRS 7 information on credit risk exposures and related impairments detailed according to their performing or non-performing status, by geographic area and by industry, as well as details of loans and advances subject to moratoria or to public guarantee schemes in response to the health crisis.

■ Since 1 January 2019, the Group applies IFRS 16 Leases , adopted by the European Union on 31 October 2017.

The IFRS Interpretation Committee has been requested with a question concerning the determination of a lease term of two types of contracts cancellable or renewable:

■ contracts with no particular contractual term, cancellable at any time with notice period by either the lessee and the lessor without penalty;

■ contracts concluded for an initial short period (normally 12 months), renewable indefinitely by tacit renewal for the same period, unless the lessor and the lessee gives notice to the contrary;

At the end of its meeting of 26 November 2019, IFRIC confirmed that the enforceability of the two types of contracts may extend beyond the notice period if either party has an economic incentive not negligible to not terminate the lease. IFRIC also confirmed that if an entity expects to use non-removable leasehold improvements after the date on which the contract can be terminated, the existence of such improvements indicates that the entity may incur a significant economic penalty in the event of termination and in this case the contract becomes enforceable beyond the date of termination.

The Group implemented this decision with no significant impact.

■ In relation to the IBOR and Eonia rates reform, at the end of 2018 the Group launched a global programme, involving all business lines and functions. This programme aims at managing and implementing the transition from the old benchmark interest rates to the new ones in major jurisdictions and currencies (euro, pound sterling, United States dollar, Swiss franc and Japanese yen), while reducing the risks associated with this transition and meeting the deadlines set by the competent authorities. The Group contributed to market-wide workshops with central banks and supervisors.

The announcements by public authorities in the United Kingdom, the United States and the Libors administrator (ICE BA) at the end of November 2020 changed the transition period that was initially scheduled to be completed by the end of 2021. For the GBP Libor, a synthetic Libor may be published beyond the end of 2021 for use in certain contracts known as tough legacy contracts. In the United States, the decision was taken to continue publishing the USD Libor until mid-2023, as a legislative solution is being sought for some asset classes, including floating-rate bonds.

(1) The full set of standards adopted for use in the European Union can be found on the website of the European Commission at: https://ec.europa.eu/info/business-economy-euro/ company-reporting-and-auditing/company-reporting_en