2020 Universal registration document and annual financial report - BNP PARIBAS 233

4Consolidated finanCial statements for the year ended 31 deCemBer 2020

4

Notes to the financial statements

Cost of capital is determined on the basis of a risk-free rate, an observed market risk premium weighted by a risk factor based on comparables specific to each cash-generating units. The values of these parameters are obtained from external information sources.

Allocated capital is determined for each cash-generating units based on the Common Equity Tier One regulatory requirements for the legal entity to which the cash-generating units belongs, with a minimum of 7%.

The growth rate to perpetuity used is 2% for mature economies in Europe and 3% for BancWest more specific to California. For CGUs implemented in countries with high levels of inflation, a specific add-on is taken into account (calculated according to inflation rates disclosed by external sources).

The following table shows the sensitivity of cash generating unit valuations to changes in the value of parameters used in the DCF calculation: the cost of capital, the cost/income ratio in terminal value, the cost of risk in terminal value and the growth rate to perpetuity.

In 2019, the downward revision of the financial perspectives for the Personal Finance partnership specifically tested led to depreciate the total goodwill (EUR 318 million).

Moreover, the economic environment evolution, particularly in interest rates in the United States, led, in 2019, to partially depreciate BancWest s goodwill by EUR 500 million.

➤ SENSITIVITY OF THE MAIN GOODWILL VALUATIONS TO A 10-BASIS POINT CHANGE IN THE COST OF CAPITAL, A 1% CHANGE IN THE COST/INCOME RATIO IN TERMINAL VALUE, A 5% CHANGE OF THE COST OF RISK IN TERMINAL VALUE AND A 50-BASIS POINT CHANGE IN THE GROWTH RATE TO PERPETUITY

In millions of euros BancWest Personal Finance

Cost of capital 9.5% 10.0%

Adverse change (+10 basis points) (135) (197)

Positive change (-10 basis points) 139 202

Cost/income ratio 61.4% 45.8%

Adverse change (+1%) (255) (435)

Positive change (-1%) 255 435

Cost of risk (135) (1,758)

Adverse change (+5%) (53) (556)

Positive change (-5%) 53 556

Growth rate to perpetuity 3.0% 2.1%

Adverse change (-50 basis points) (249) (431)

Positive change (+50 basis points) 290 490

Concerning the homogeneous Personal Finance set mentioned above, there would be no need to depreciate even by using, for the impairment tests, the four most unfavourable variations in the table.