2020 Universal registration document and annual financial report - BNP PARIBAS 343

5risks and CaPital adequaCy Pillar 3

5

Risk management [Audited]

Construction of scenarios

Adverse (and advantageous, where applicable) scenarios are revised quarterly by RISK for a review of the Bank s risk appetite metrics and credit provision calculations within the framework of IFRS 9 (see part 2.h of consolidated and financial statements).

They are approved (together with the baseline scenario) by the Group Executive Management in June and September as part of the Group s budget process. For the other two quarterly exercises in March and December, scenarios are approved jointly by the Group Chief Risk Officer and the Group Chief Financial Officer.

The scenarios are then used to calculate expected losses (or profit and loss impact in the case of market risks) over the year for all Group portfolios:

■ for portfolios exposed to credit or counterparty risk and for the equity portfolio of the banking book: this calculation measures the impact of the scenario on the cost of risk and risk-weighted assets due to the

deterioration of the portfolio quality resulting from the macroeconomic scenario, or adverse moves in equity prices. Credit risk stress tests are performed on the Bank s entire portfolio for all regions and all prudential portfolios, namely Retail, Corporates and Institutions;

■ for market portfolios: the changes in value and their profit and loss impact are calculated by simulating a one-time shock, which is consistent with the overall scenario.

The above calculations and related methodologies for stress tests on credit and market risks are coordinated centrally at Group level by STFS team. They also involve various teams of experts at Group and territory s levels in their implementation and design.

Lastly, in an adverse budget scenario, risks appertaining to the Group and its business activities and not forming part of the adverse macroeconomic scenario are added. They are identified and quantified either by the Group s businesses or centrally for those likely to impact the Group as a whole.