2020 Universal registration document and annual financial report - BNP PARIBAS 191

4Consolidated finanCial statements for the year ended 31 deCemBer 2020

4

Notes to the financial statements

Note 2 NOTES TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2020

2.a NET INTEREST INCOME The BNP Paribas Group includes in Interest income and Interest expense all income and expense calculated using the effective interest method (interest, fees and transaction costs) from financial instruments measured at amortised cost and financial instruments measured at fair value through equity.

These items also include the interest income and expense of non-trading financial instruments the characteristics of which do not allow for recognition at amortised cost or at fair value through equity, as well as of financial instruments that the Group has designated as at fair value through profit or loss. The change in fair value on financial instruments at fair value

through profit or loss (excluding accrued interest) is recognised under Net gain on financial instruments at fair value through profit or loss .

Interest income and expense on derivatives accounted for as fair value hedges are included with the revenues generated by the hedged item. Similarly, interest income and expense arising from derivatives used to hedge transactions designated as at fair value through profit or loss is allocated to the same accounts as the interest income and expense relating to the underlying transactions.

In the case of a negative interest rates related to loans and receivables or deposits from customers and credit institutions, they are accounted for in interest expense or interest income respectively.

In millions of euros

Year to 31 Dec. 2020

Year to 31 Dec. 2019

Income Expense Net Income Expense Net

Financial instruments at amortised cost 27,081 (8,490) 18,591 30,715 (12,278) 18,437

Deposits, loans and borrowings 24,283 (5,950) 18,333 27,790 (9,083) 18,707

Repurchase agreements 135 (90) 45 186 (88) 98

Finance leases 1,536 (93) 1,443 1,398 (86) 1,312

Debt securities 1,127 1,127 1,341 1,341

Issued debt securities and subordinated debt (2,357) (2,357) (3,021) (3,021)

Financial instruments at fair value through equity 1,436 - 1,436 1,076 - 1,076

Debt securities 1,436 1,436 1,076 1,076

Financial instruments at fair value through profit or loss (Trading securities excluded) 76 (302) (226) 63 (347) (284)

Cash flow hedge instruments 2,280 (1,234) 1,046 2,746 (1,159) 1,587

Interest rate portfolio hedge instruments 2,716 (2,195) 521 2,727 (2,349) 378

Lease liabilities - (56) (56) - (67) (67)

TOTAL INTEREST INCOME/(EXPENSE) 33,589 (12,277) 21,312 37,327 (16,200) 21,127

Interest income on individually impaired loans amounted to EUR 380 million for the year ended 31 December 2020, compared to EUR 432 million for the year ended 31 December 2019.

The Group subscribed to the new TLTRO III (targeted longer-term refinancing operations) programme, as modified by the Governing Council of the European Central Bank in March 2020 (see note 4.g). The Group expects to achieve the lending performance thresholds that would enable it to benefit from a favourable interest rate (average rate of the deposit facility -50 basis points for the first year, and average rate of the

deposit facility for the following two years). This floating interest rate is considered as a market rate as it is applicable to all financial institutions meeting the lending criteria defined by the European Central Bank. The effective interest rate of these financial liabilities is determined for each reference period and corresponds to the period s nominal interest rate. If the criteria for an increase in lending is not met by the Group, the loss in discounted future cash flows would then be immediately recognised in profit or loss.