2020 Universal registration document and annual financial report - BNP PARIBAS 533

6information on the Parent ComPany finanCial statements at 31 deCemBer 2020

6

Statutory Auditors report on the financial statements

Identification and assessment of credit risk (See Notes 1, 2.f, 3.b and 3.k to the financial statements)

Description of risk How our audit addressed this risk

As part of its banking intermediation activities, BNP Paribas is exposed to credit risk.

It recognises impairment losses to cover known credit risks which are inherent to its operations.

Impairment losses either take the form of individual impairment losses recognised against the related on- and off-balance sheet commitments or of collective impairment losses recognised against loan portfolios presenting similar risks which are not individually impaired. Collective provisions are determined using statistical models which require judgement at each stage of the calculation, particularly with respect to building similar portfolios and determining the inputs for the applicable risks and the obligating event of the provisions.

Under certain circumstances, additional collective provisions for international commitments are recognised in order to take into account any risks identified by BNP Paribas which are not covered by the individual or collective provisions described above.

The Covid-19 pandemic has caused a health and economic crisis that affects the repayment ability of borrowers, companies and individuals, with contrasting situations across geographical regions and industries.

At 31 December 2020, the total outstandings on the balance sheet exposed to credit risk amounted to EUR 557,679 million, while total impairment losses stood at EUR 5,924 million.

We deemed the assessment of credit risk and the measurement of impairment losses to be a key audit matter insofar as management is required to exercise judgement and make estimates in this respect as regards credit granted to companies, particularly in the context of the uncertainty linked to the pandemic and its effects on companies actual default levels in the years to come.

We assessed the relevance of BNP Paribas control system and tested the manual and computerised controls for identifying and measuring impairment.

We also examined the most significant outstandings and/or portfolios at the reporting date as well as on the credit granted to companies operating in more sensitive economic sectors or geographic regions.

During our work, we focused on:

■ the rating of corporate counterparties: we reviewed the risk presented by significant counterparties whose periodic rating review had not been carried out by BNP Paribas at 31 December 2020 as well as the risk level of a sample of outstandings deemed to be performing by management; During our work, we paid particular attention to the geographical regions and sectors impacted by the Covid-19 crisis as well as counterparties benefiting from support measures;

■ measuring provisions recorded individually: we verified that a periodic review of the counterparties under surveillance had been carried out by BNP Paribas and, based on a sample, assessed the assumptions and data used by management to estimate impairment;

■ measuring collective provisions: assisted by our credit risk experts, we assessed the methods used by BNP Paribas across the various business lines, as well as the effectiveness of the data quality controls.

In addition, we examined the disclosures in the notes to the financial statements with respect to credit risk.