2020 Universal registration document and annual financial report - BNP PARIBAS 445

5risks and CaPital adequaCy Pillar 3

5

Liquidity risk

Across the Group, ALM Treasury is responsible for the operational implementation of the Group ALM Treasury Committee s liquidity management decisions. The ALM Treasury Committees in entities or groups of entities are responsible for local implementation of the strategy decided by the Group ALM Treasury Committee to manage the Bank s liquidity risk.

ALM Treasury is responsible for managing liquidity for the entire Group across all maturities. In particular, it is responsible for funding and short-term issuance (certificates of deposit, commercial paper, etc.), for senior and subordinated debt issuance (MTNs, bonds, medium/long- term deposits, covered bonds, etc.), preferred share issuance, and loan securitisation programmes for the Group. ALM Treasury is tasked with providing internal funding to the Group s divisions, operational entities

and business lines, and investing their surplus cash. It is also responsible for building up and managing liquidity reserves, which comprise assets that can be easily sold in the event of a liquidity squeeze.

RISK participates in the Group and local ALM Treasury Committees and oversees implementation by ALM Treasury of the relevant decisions made by these committees. It provides second-line control by reviewing the models and risk indicators (including liquidity stress tests), monitoring risk indicators and ensuring compliance with the limits assigned.

Finance is responsible for producing the regulatory liquidity indicators, as well as the internal monitoring indicators. Finance oversees the consistency of the internal monitoring indicators with the objectives defined by the Group ALM Treasury Committee. Finance takes also part in the Group and local ALM Committees.

LIQUIDITY RISK MANAGEMENT AND SUPERVISION

Internal liquidity risk management and internal monitoring are based on a large range of indicators at various maturities. These indicators are measured on a regular basis by currency and maturity, both at Group level and entity level.

BUSINESS LINES INTERNAL MONITORING INDICATORS [Audited] The monitoring indicators relate to the funding needs of the Group s businesses under both normal and stressed conditions. These monitoring indicators are part of the Group s budget planning exercise with set objectives that are routinely monitored (monthly).

Funding needs of the Group s businesses

The funding needs associated with the activity of the Group s businesses are managed in particular by measuring the difference between commercial funding needs (customer loans and overdrafts, trading assets, etc.) and commercial funding resources (customer deposits, sale of the Group s debt securities to customers, trading liabilities, etc.). This indicator makes it possible to measure the business lines liquidity consumption under a normal business scenario.

It is supplemented by indicators to measure the funding needs of the business lines in one month and one year depending on the assumptions defined by European regulations in force (Liquidity Coverage Ratio) or anticipated (Net Stable Funding Ratio).

In addition to this commercial funding need indicators, the Group closely monitors the liquidity reserves and the refinancing provided by ALM Treasury, as well as the Group s structural resources (i.e. net own funds).

The overall management of the business funding needs, the Group s structural resources, funding and liquidity reserves made by the ALM Treasury allows the Group to achieve a structurally robust liquidity situation able to resist severe market stresses.

Business lines consumption of liquidity is thus integrated in the Group s budget process, wherein each business line estimates its future liquidity needs, in keeping with its profitability targets and capital consumption objectives. During the iterative budget process, liquidity consumption objectives are allotted to the business lines, taking into account the funding provided by ALM Treasury and structural resources, in line with the Group s overall target. This process is regularly renewed, monitored and adjusted as appropriate throughout the year by the Group ALM Treasury Committee.

Internal liquidity pricing

All of the Group s assets and liabilities are subject to internal liquidity pricing, the principles of which are decided by the Group ALM Treasury Committee and aim to take account of trends in the cost of market liquidity and the balance between assets and liabilities within the Group s development strategy.

Change of the liquidity position

In 2020, business lines consumption of liquidity decreased as a result of the growth in deposits, which exceeded credit growth, particularly in Domestic Markets in France, Belgium and Luxembourg as well in Corporate Banking.

At end-2020, the businesses had a net excess of liquidity. Added to this surplus is the Group s net equity, leading to an overall excess of liquidity.

In this context, the funding provided by ALM Treasury is used to finance the liquidity reserve, while also correcting the term structure differences between assets and liabilities and covering TLAC (Total Loss-Absorbing Capacity) requirements, as well as future Minimum Requirement for own funds and Eligible Liabilities (MREL).

Consequently, the Group maintains a large surplus in liquidity and aims to limit the cost of these resources.