2020 Universal registration document and annual financial report - BNP PARIBAS400

5 risks and CaPital adequaCy Pillar 3

5

Credit risk

PUBLIC GUARANTEE SCHEMES At 31 December 2020, the Group has granted more than 120,000 loans guaranteed by States through its Retail Banking networks of domestic markets and international networks.

➤ TABLE 53: LOANS AND ADVANCES SUBJECT TO PUBLIC GUARANTEE SCHEMES [Audited]

In millions of euros

31 December 2020

Gross carrying amount

Public guarantees

received

Gross carrying amount - inflows to non

performing exposures

of which exposures with

forbearance measures

Newly originated loans and advances subject to public guarantee schemes 24,550 17 21,688 72

of which households 834 1

of which collateralised by residential immovable property 6 -

of which non-financial corporations 22,666 15 20,081 54

of which SME 12,591 24

of which collateralised by commercial immovable property 243 -

At 30 December 2020, the total amount of loans guaranteed by States, granted by the Group, mainly in France, in Italy and the United States, amounted to EUR 24.6 billion, for a corresponding guarantee amount of

EUR 21.7 billion, i.e. 88.3% of outstandings. The residual maturity of these guarantees is mostly inferior to less than six months. At 31 December 2020, State-guaranteed loans were spread across all sectors.

CREDIT RISK MITIGATION TECHNIQUES [Audited]

Credit risk mitigants (CRM) are taken into account in accordance with the regulation. In particular, their effect is assessed under conditions characteristic of an economic downturn. The CRM fall into two main categories:

■ funded credit protection (collateral) pledged to the Bank is used to secure timely performance of a borrower s financial obligations;

■ unfunded credit protection (personal guarantee) is the commitment by a third party to replace the primary obligor in the event of default. Thus, public guarantee mechanisms are considered as personal guarantees. By extension, credit insurance and credit derivatives (purchased protection) fall into this category.

For the scope under the IRB approach, personal guarantees and collaterals are taken into account, provided they are eligible, by decreasing the Loss Given Default (LGD) parameter corresponding to an increase in the Global Recovery Rate (GRR) that applies to the transactions of the banking book. The value taken into consideration takes account, where relevant, of currency and maturity mismatches and, for funded credit protection, of a haircut applied to the market value of the pledged asset based on a default scenario during an economic downturn. The amount of unfunded credit protection to which a haircut is applied depends on the enforceable nature of the commitment and the risk of simultaneous default by the borrower and guarantor.

For the scope under the standardised approach, unfunded credit protection is taken into account provided it is eligible, by applying the more favourable risk weight of the guarantor to a portion of the secured exposure adjusted for currency and maturity mismatches. Funded credit protection is taken into account as a decrease in the exposure, after adjustment for any currency and maturity mismatches and a discount to take account of volatility in market value for financial security collaterals.

The assessment of the credit risk mitigating effect follows a methodology that is approved for each activity and is used throughout the Group. These techniques are monitored in accordance with the monitoring and portfolio management procedures described in the Credit risk management policy section.

As at 31 December 2020, 74% of exposure to property loans is concentrated in the Group s two main Domestic Markets (France, Belgium). In view of the specific features of these markets (amortising long-term financing, primarily at fixed rates), the LTV (Loan-to-value) ratio is not a main monitoring indicator at Group level.

CREDIT RISK MITIGATION TECHNIQUES