2752019 Universal registration document and annual financial report - BNP PARIBAS

5risks and CaPital adequaCy Pillar 3

5

Annual risk survey

Hong Kong

The economic slowdown witnessed in Hong Kong since 2017 was exacerbated in 2019. Growth in GDP dropped below 1%, compared with 3% in 2018, due to the combined effect of the trade dispute between the United States and China which hindered its external trade, the economic slowdown in China which started before trade tensions heightened, and local protest movements which had a major impact on domestic demand and tourism-related business in the second half of 2019.

The Group has several branches and subsidiairies in Hong Kong (see section 8.6 I. Locations by country in chapter 8 General Information). Its business, which it carries out mainly with corporations through its BNP Paribas SA branch in Hong Kong, is of limited size compared to the Group and does not include a Retail Banking network in that country. At 31 December 2019, BNP Paribas generated less than 1.6 of its revenues there (see section 8.6 II. Profit and loss account items and headcount by country in chapter 8 General Information).

Turkey

Local bond and foreign exchange markets were relatively stable in 2019, against a backdrop of gradual economic recovery. The geopolitical context and the heightened credit risk for companies were factors that impacted on this fragile recovery. The monetary easing introduced in summer 2019 should offset the effects of the drop in external demand, however, private sector debt is still amongst the highest of all emerging countries.

BNP Paribas presence in Turkey is primarily through its TEB subsidiary (ranking No. 10 in retail banking in Turkey with a market share of approximately 3%). At 31 December 2019, the Group generated 2.6% of its pre-tax operating income in this country (see section 8.6 II. Profit and loss account items and headcount by country in chapter 8 General information). The entity TEB had a solvency ratio (Capital Adequacy Ratio - CAR) of 16.95% as at 31 December 2019, in excess of the regulatory requirements.

In 2019, TEB Group s balance sheet liquidity remained comfortable with a Liquidity Coverage Ratio (LCR) of 229% at 31 December 2019, versus 294% at 31 December 2018. With outstanding loans of TRY 67.5 billion and deposits of TRY 72.2 billion, TEB Group s financing structure is balanced.

With respect to exposure to counterparties whose main business is in Turkey, commercial commitments as at 31 December 2019 represent 1.5% of the Group s total gross commitments, on- and off-balance sheet (see Table 27: Credit risk exposure by geographic region). Exposure to Turkish sovereign risk is contained at 1.6% of the banking book s sovereign exposure and is essentially borne by TEB Group.

Others

Geopolitical tensions abated in Asia, on the Korean peninsula but remain high in certain areas, particularly in the Middle East, with the potential involvement of Western powers to varying degrees. Latin America has also been experiencing political tensions.

Although the possible consequences of such risks are hard to assess, the regional economies in question, and the global economy, could be impacted through different channels (confidence, trade ties and commodity prices).

The risks associated with changes in the macroeconomic and market environment are described in the following section Risk factors(1).

The analyses relating to the sectors (particularly shipping and leveraged finance) are set out in the Industry diversification paragraph in section 5.4.

The risk principles are presented in the Risk Appetite Statement approved by the Board of directors (see Risk Appetite in section 5.3).

(1) In particular the risk factor 5.3 Given the global scope of its activities, the Bank may be vulnerable to certain political, macroeconomic or financial risks in the countries and regions where it operates .