2712019 Universal registration document and annual financial report - BNP PARIBAS

5risks and CaPital adequaCy Pillar 3

5

Annual risk survey

➤ TABLE 8: IMMEDIATELY AVAILABLE LIQUIDITY RESERVE

In billions of euros 31 December 2019 31 December 2018

IMMEDIATELY AVAILABLE LIQUIDITY RESERVE (COUNTERBALANCING CAPACITY)(*) 309 308

(*) Liquid market assets or eligible to central banks taking into account prudential standards, notably U.S. standards, minus intra-day payment systems needs.

TOP AND EMERGING RISKS

The identification and monitoring of top and emerging risks are central to BNP Paribas approach to risk management.

These risks are identified, analysed and managed based on different work and analyses carried out by the RISK Function, the divisions and the businesses, and through several committees which give rise to actions and decisions:

■ a close follow-up of macroeconomic and financial conditions with the objective of organising them into a hierarchy with regard to the consequences for BNP Paribas portfolio, and designing adverse scenarios. This close monitoring is delivered quarterly to the General Management as well as to the Internal Control, Risk Management and Compliance Committee (CCIRC) through a dashboard presented by RISK;

■ a close monitoring of the risk profile in accordance with the directives and thresholds approved by the Board of directors;

■ cross-functional policies on concentration or corporate social responsibility among others;

■ market and liquidity risk decisions made by Group ALM Committee (or Group ALCo, see section Governance of section 5.3 Risk management) and the Capital Markets Risk Committee (CMRC);

■ key decisions made by Committees with respect to specific transactions at the highest level;

■ proposals for new activities or new products;

■ portfolio and businesses reviews by Risk & Development Policy Committees, on topics selected by the Group s Executive Management through the Risk Forum for the upcoming year;

■ proactive and forward-looking discussions on emerging risks and their impacts on the Bank s risk profile in the Risk Anticipation Committee;

■ an analysis and a monitoring of changes to the regulatory framework and their consequences on the Bank s capital and liquidity management as well as on its activities.

TOP RISKS A top risk is defined as having:

■ the potential to have a material impact, across a business area or geographical area, on the financial results, reputation or sustainability of the Group;

■ the potential of occurring in the near future.

The top risks to which the Group is exposed are described below.

Macroeconomic environment

Macroeconomic and market conditions affect the Bank s results. The nature of the Bank s business makes it particularly sensitive to macroeconomic and market conditions in Europe.

In 2019, the global economy slowed, with business growth falling from over 3.5% in 2018 to just over 3%, according to the IMF.

Growth has slowed in the United States and the euro zone. In the absence of any major change in oil prices, inflation remained moderate (almost 1.0% in the euro zone and just over 1.5% in the United States). These trends led the main central banks (U.S. Federal Reserve and the European Central Bank) to adopt a more accommodative stance (key interest rate cuts, balance sheet growth, etc.). Against this backdrop, long-term interest rates reached very low levels, with negative yields on ten-year sovereign bonds in Germany, France and Japan. These monetary policies helped to mitigate the deterioration in the economy compared with previous years.

China is involved in a process of rebalancing growth toward domestic demand, with an ongoing structural slowdown. Growth continued to slow across all emerging countries and fell below 4%, a level not witnessed since the early 2000s, (apart from during the 2008-2009 economic crisis). Growth is anticipated to return to above this threshold in 2020 due to positive funding effects with a more accommodating U.S. monetary policy and monetary easing expected in a number of emerging countries. This new context affects the banking sector s profitability and potentially reduces the effects of a new easing of monetary policy.