2020 Universal registration document and annual financial report - BNP PARIBAS326

5 risks and CaPital adequaCy Pillar 3

5

Capital management and capital adequacy

Capital planning is based on the most recent actual and estimated financial data available at the time. These data are used to project future capital requirements, in particular by factoring in the Group s goal of maintaining a first-class credit rating to protect its origination capability, its business development targets and anticipated regulatory changes.

Capital planning consists of comparing the capital ratio targets defined by the Group with future projected capital requirements, then testing their robustness in a stressed macroeconomic environment.

Notification of SREP results The results of the SREP process are notified annually to BNP Paribas s Executive Management by the ECB. The notification of SREP results for 2020 dated on 23 November 2020, states that capital requirements on a consolidated basis from last year (2020) remain in force for 2021.

The SREP decision comprises two items: a requirement known as the Pillar 2 requirement ( P2R ), and a non-public guidance called Pillar 2 guidance ( P2G ). Following the ECB s notification of the outcome of the 2020 annual SREP, the requirement that the Group must meet in 2021 under Pillar 2 remains unchanged overall at 1.25%. However, due to the application of Article 104a of Directive (EU) No 2019/878 since 2020

the Pillar 2 requirement has no longer been compulsorily comprised of CET1 capital and has been extended to include Tier 1 capital and total capital. Thus, after a CET1 capital requirement of 1.25% in 2019, this requirement is now set at:

■ 0.70% for CET1 capital;

■ 0.94% for Tier 1 capital;

■ 1.25% for total equity.

Overall capital requirements The Group s CET1 ratio, Tier 1 ratio and total capital ratio must at all times satisfy the following requirements corresponding to the limits of applicable distribution restrictions (Maximum Distributable Amount MDA):

■ the minimum CET1 ratio, Tier 1 ratio and total capital ratio, respectively, in accordance with article 92 (1) points a), b) and c) of the CRR;

■ the Pillar 2 requirement;

■ the combined buffer requirement defined in article 128 (6) of CRD 4, as transposed into the respective national laws.

➤ TABLE 21: OVERALL CAPITAL REQUIREMENTS

2020 2021

Minimum requirement (Pillar 1): CET1 4.50% 4.50%

Pillar 2 requirement(*): CET1 0.70% 0.70%

Combined buffer requirement 4.02% 4.03%

of which capital conservation buffer 2.50% 2.50%

of which G-SIBs buffer 1.50% 1.50%

of which countercyclical capital buffer(**) 0.02% 0.03%

OVERALL CET1 CAPITAL REQUIREMENT 9.22% 9.23%

Minimum requirement (Pillar 1): Tier 1 6.00% 6.00%

Pillar 2 requirement(*): Tier 1 0.94% 0.94%

Combined buffer requirement 4.02% 4.03%

OVERALL TIER 1 CAPITAL REQUIREMENT 10.96% 10.97%

Minimum requirement (Pillar 1): Total capital 8.00% 8.00%

Pillar 2 requirement(*): Total capital 1.25% 1.25%

Combined buffer requirement 4.02% 4.03%

OVERALL TOTAL CAPITAL REQUIREMENT 13.27% 13.28%

(*) Only the Pillar 2 Requirement is made public.Since 2020, the P2R has taken account of the application of Article 104a of Directive (EU) No 2019/878. (**) Countercyclical capital buffer as at 31 December 2020 and anticipated as at 31 December 2021 take into account the applicable rate reductions that

occurred in 2020.

The CET1 capital requirement is 9.22% at 31 December 2020 (excluding Pillar 2 guidance), in view of the capital conservation buffer at 2.5%, a G-SIBs buffer at 1.5%, the countercyclical buffer at 0.02% and a Pillar 2 requirement at 0.70%.

At 31 December 2020, BNP Paribas CET1 ratio stands at 12.8%, well above the minimum requirement level applicable in 2020 notified by the

European Central Bank. Compared to 31 December 2019, the CET1 ratio was up 70 basis points as at 31 December 2020, due to:

■ the placing into reserves of 2020 net income after taking into account a 50% dividend pay-out ratio (+50 bp);

■ the organic increase of risk-weighted assets at constant exchange rates (-50 bp);

■ the impact of placing the 2019 dividend into reserves (+60 bp);

■ the impact of other effects (of which prudential treatment of software) (+10 bp).