276 2019 Universal registration document and annual financial report - BNP PARIBAS
5 risks and CaPital adequaCy Pillar 3
5
Annual risk survey
RISK FACTORS
The main categories of risk inherent in the BNP Paribas Group s business are presented below. They may be measured through risk-weighted assets or other quantitative or qualitative indicia, to the extent risk-weighted assets are not relevant (for example, for liquidity and funding risk).
In billions of euros
RWA
31 December 2019 31 December 2018
Credit risk 524 504
Counterparty credit risk 30 27
Securitisation risk in the banking book 11 7
Operational risk 69 73
Market risk 19 20
Amounts below the thresholds for deduction (subject to 250% risk weight) 16 17
TOTAL 669 647
More generally, the risks to which the BNP Paribas Group is exposed may arise from a number of factors related, among others, to changes in its macroeconomic or regulatory environment or factors related to the implementation of its strategy and its business.
The risks specific to the BNP Paribas Group s business are presented below under seven main categories, pursuant to article 16 of Regulation (EU) 2017/1129, known as Prospectus 3 , dated 14 June 2017, of which the provisions relating to risk factors entered into force as of 21 July 2019: credit risk, counterparty risk and securitisation risk in the banking book; operational risk; market risk; liquidity and funding risk; risks related to the macroeconomic and market environment; regulatory risks; and risks related to the BNP Paribas Group s growth in its current environment.
The Group s risk management policies have been taken into account in assessing the materiality of these risks; in particular, risk-weighted assets factor in risk mitigation elements to the extent eligible in accordance with applicable banking regulations.
1. CREDIT RISK, COUNTERPARTY RISK AND SECURITISATION RISK IN THE BANKING BOOK
BNP Paribas Group s credit risk is defined as the probability of a borrower or counterparty defaulting on its obligations to the BNP Paribas Group. Probability of default along with the recovery rate of the loan or debt in the event of default are essential elements in assessing credit quality. In accordance with the European Banking Authority recommendations, this category of risk also includes risks on equity investments, as well as those related to insurance activities. As of 31 December 2019, the BNP Paribas Group s credit risk exposure broke down as follows: corporates (44%), retail customers (29%), central governments and central banks (19%), credit institutions (5%), other items (2%) and equities (1%). As at 31 December 2019, 30% of the BNP Paribas Group s credit exposure was comprised of exposures in France, 13% in Belgium and Luxembourg, 10% in Italy, 21% in other European countries, 14% in North America, 6%
in Asia and 6% in the rest of the world. The BNP Paribas Group s risk- weighted assets subject to this type of risk amounted to EUR 524 billion at 31 December 2019, or 78% of the total risk-weighted assets of the BNP Paribas Group.
See Tables 24: Credit risk exposure by asset class and approach and 27: Credit risk exposure by geographic region in chapter 5.4 Credit Risk.
BNP Paribas Group s counterparty risk arises from its credit risk in the specific context of market transactions, investments, and/or settlements. BNP Paribas Group s exposure to counterparty risk, excluding CVA (Credit Valuation Adjustment) risk as at 31 December 2019, is comprised of: 41% to the corporate sector, 23% to governments and central banks, 12% to credit institutions and investment firms, and 24% to clearing houses. By product, BNP Paribas Group s exposure, excluding CVA risk, as at 31 December 2019 was comprised of: 54% in OTC derivatives, 30% in repurchase transactions and securities lending/borrowing, 14% in listed derivatives and 2% in contributions to the clearing houses default funds. The amount of this risk varies over time, depending on fluctuations in market parameters affecting the potential future value of the covered transactions. In addition, CVA risk measures the risk of losses related to CVA volatility resulting from fluctuations in credit spreads associated with the counterparties to which the BNP Paribas Group is subject to risk. The risk-weighted assets subject to counterparty credit risk amounted to EUR 30 billion at 31 December 2019, representing 4% of the BNP Paribas Group s total risk-weighted assets.
See Tables 63: Counterparty credit risk exposure at default by asset class (excl. CVA risk charge), 64: Counterparty credit risk exposure at default by product (excl. CVA risk charge) and 70: CVA risk exposure at default and risk-weighted assets (EU CCR2) in section 5.6 Counterparty credit risk.
Securitisation risk in the banking book: securitisation is a transaction or arrangement by which the credit risk associated with a liability or set of liabilities is subdivided into tranches. Any commitment made by the BNP Paribas Group under a securitisation structure (including derivatives and liquidity lines) is considered to be a securitisation. The bulk of the BNP Paribas Group s commitments are in the prudential
