2020 Universal registration document and annual financial report - BNP PARIBAS322

5 risks and CaPital adequaCy Pillar 3

5

Capital management and capital adequacy

RISK-WEIGHTED ASSETS MOVEMENTS IN 2020 The change in risk-weighted assets can be broken down into the following effects:

■ asset size effect: impact stemming from the variation in exposures (EAD) and impact related to the efficient securitisation programmes initiated by the Group;

■ asset quality effect: impact stemming from the change in risk parameters (Probability of Default, Loss Given Default for the internal ratings-based approach, and risk weighting for the standardised approach, etc.);

■ model update effect: impact stemming from changes in the use of internal models (introduction of a new model, deployment on a new exposure scope, annual recalibration or review of risk parameters, application of add-ons, etc.);

■ methodology and policy effect: impact stemming from changes in methodology and the establishment of new regulatory requirements having an impact on the calculation of risk-weighted assets;

■ acquisition and disposal effect: impact stemming from changes in the scope of consolidation;

■ currency effect: impact stemming from fluctuations in foreign exchange rates on exposures.

➤ TABLE 19: RISK-WEIGHTED ASSETS MOVEMENTS BY KEY DRIVER

RWAs In millions of euros

31 December 2019

Key driver

Total Variation

31 December 2020Asset size Asset quality

Model updates

Methodology and policy

Acquisitions and

disposals Currency Other

Credit risk 524,231 15,727 (8,192) 13,954 (363) (2,173) (16,038) 41 2,958 527,189

Counterparty credit risk 29,520 6,144 951 3,820 23 - (118) 620 11,441 40,961

Settlement risk 3 - - - - - - 1 1 4

Banking book securitisation positions 10,510 (14) 83 - 3,954 - (148) 85 3,961 14,472

Market risk 19,296 6,898 2,829 (3,509) - (4) - (299) 5,914 25,210

Operational risk 68,891 2,191 - (111) - (343) - (3) 1,735 70,626

Amounts below the thresholds for deduction (subject to 250% risk weight) 16,376 870 (15) - (821) 583 - 69 686 17,061

TOTAL 668,828 31,816 (4,344) 14,154 2,793 (1,937) (16,303) 516 26,695 695,523

The main reasons explaining the EUR 27 billion increase in risk-weighted assets in 2020 are:

■ a EUR 32 billion increase in line with business activity characterised by the increase in credit risk as part of the health crisis-related support to the economy, net of the impact of the effective securitisation transactions initiated by the Group. (+EUR 16 billion overall);

■ a EUR 14 billion increase relating to the update of models;

■ a EUR 3 billion increase related to regulatory changes;

■ a EUR 2 billion decrease related to perimeter effects;

■ a EUR 16 billion decrease due to currency effects, particularly with the depreciation of the US dollar and Turkish lira.

Comments on the main changes in 2020 for each type of risk are detailed in the various appropriate sections.