2020 Universal registration document and annual financial report - BNP PARIBAS432

5 risks and CaPital adequaCy Pillar 3

5

Market risk

Evolution of the VaR (1-day, 99%)

The VaR set out below are calculated from an internal model, which uses parameters that comply with regulations in place. They correspond to measurements taken into account within the framework of monitoring market limits. They are based on a one-day time horizon and a 99% confidence interval.

In 2020, total average VaR for BNP Paribas was EUR 45 million (with a minimum of EUR 22 million and a maximum of EUR 72 million), after taking into account the -EUR 49 million netting effect between the different types of risks. These amounts break down as follows:

➤ TABLE 83: VALUE AT RISK (1-DAY, 99%) [Audited]

In millions of euros

Year to 31 Dec. 2020 Year to 31 Dec. 2019

Minimum(**) Average Maximum(**) Last

measure Average Last

measure

Interest rate risk 16 30 46 28 19 24

Credit risk 11 23 40 21 11 12

Foreign exchange risk 4 12 20 13 7 6

Equity price risk 10 23 52 30 10 9

Commodity price risk 2 6 13 13 4 3

Netting effect(*) (49) (58) (27) (30)

TOTAL VALUE AT RISK 22 45 72 47 24 24

(*) Note that the minimum and maximum figures shown above for the various risk types are computed on a standalone basis (i.e. independently from each other as well as the total VaR). While the minimum or maximum for each risk type may not necessarily be observed on the same date, minimum/maximum Netting Effects are not considered relevant.

(**) For minima and maxima, total VaR cannot be read as the sum of VaR by risk type.

In 2020, VaR (1 day, 99%) was heavily impacted by the health crisis. It remained stable at a higher level after the first quarter due to the introduction of the crisis period in the calibration of the model, which includes in particular a higher market volatility.

Backtesting the VaR

RISK continuously tests the accuracy of its internal model through a variety of techniques, including in particular a regular comparison over a long-term horizon between actual daily losses on capital market transactions and one-day VaR.

This backtesting consists of making a comparison between the daily global trading book VaR and the actual result except fees and commissions. In

accordance with the regulation, BNP Paribas supplements this actual backtesting method with a comparison between the daily VaR and the hypothetical result generated by the trading book, which is also known as hypothetical backtesting . The hypothetical result includes all components of the actual result, calculated on the previous day s positions, only incorporating changes in market parameters. A backtesting event is declared when a real or hypothetical loss exceeds the daily VaR amount. The confidence interval selected for calculating daily VaR is 99%, which in theory means the observation of two to three events per year.

The number of events is calculated at least quarterly and is equal to the highest of the number of excesses for the hypothetical and actual variations in the portfolio value.