2020 Universal registration document and annual financial report - BNP PARIBAS 345

5risks and CaPital adequaCy Pillar 3

5

Credit risk

TRENDS IN CREDIT RISK EXPOSURE The increase in credit risk exposures (excluding Other items and Equities) excluding the impact of foreign exchange rates totalling EUR 247 billion in 2020 is due to the increase in the level of liquidity placed with Eurosystem central banks, as well as by the Bank s day-to-day activities combined with the implementation of State-guaranteed loans. Currency effects significantly influenced the change in exposure (-EUR 44 billion) under the combined effect of US dollar (-EUR 27 billion) and Turkish lira (-EUR 4 billion) depreciation. Apart from these exchange rate effects, the main changes by exposure class are as follows:

■ the EUR 168 billion increase in exposures to central governments and central banks is linked to the significant volumes of liquidity placed in European central banks;

■ the increase in exposure to corporates of EUR 71 billion was driven mainly by Domestic Markets (+EUR 40 billion, of which 38% related to French State-guaranteed loans), notably in France (+EUR 21 billion), Italy (+EUR 10 billion) and Belgium (+EUR 5 billion), by CIB (+EUR 23 billion) mainly in Europe, and by International Financial Services (+EUR 5 billion) in France and Poland.

APPROACHES USED TO CALCULATE CAPITAL REQUIREMENTS BNP Paribas has opted for the most advanced approaches allowed under Basel 3. In accordance with the European Directive and its transposition into French law, in 2007 the supervisor authorised the Group to use internal models to calculate capital requirements starting on 1 January 2008.

For credit risk, the share of exposures under the IRBA approach is 76% at 31 December 2020, compared with 72% at 31 December 2019. This significant scope includes in particular Corporate and Institutional Banking (CIB), French Retail Banking (FRB), BNL SpA, a part of the BNP Paribas Personal Finance business (consumer loan book) and the entities BNP Paribas Fortis and BGL BNP Paribas. The main models used by the Fortis Group, which prior to its acquisition had been authorised by its banking supervisor to use the advanced approach, converged with Group methodologies (with the exception of those concerning retail customers). The IRBA scope nevertheless excludes certain entities such as those of the BancWest subgroup and subsidiaries in emerging countries.

Within the scope of equity exposures, the Group has mainly opted for the simple weighting method.

➤ FIGURE 7: CREDIT RISK EXPOSURE BY APPROACH

At 31 December 2020

23% Standardised approach

1% Simple weighting method

76% IRB approach

Total: EUR 1,800 billion

At 31 December 2019

27% Standardised approach

1% Simple weighting method

72% IRB approach

Total : EUR 1,598 billion