282 2019 Universal registration document and annual financial report - BNP PARIBAS

5 risks and CaPital adequaCy Pillar 3

5

Annual risk survey

and confirmed its short-term rating as A-1, with a stable outlook. On 6 June 2019, Fitch revised its long-term deposits and senior preferred debt rating for the BNP Paribas SA from A+ to AA-, and raised its short- term rating from F1 to F1+, with a stable outlook. On 9 December 2019, Moody confirmed its long-term deposits and senior preferred debt rating as Aa3, and confirmed its short-term rating as P-1, with a stable outlook. On 12 July 2019, DBRS confirmed the BNP Paribas SA s senior preferred debt rating as AA(low), as well as its short-term rating as R-1(middle) with a stable outlook. A downgrade in the BNP Paribas Group companies credit rating could affect the liquidity and competitive position of the Group. It could also increase the BNP Paribas Group s borrowing costs, limit access to the capital markets or trigger additional obligations under its covered bonds or under certain bilateral provisions in some trading, derivative or collateralized financing contacts.

In addition, the BNP Paribas Group s cost of obtaining long-term unsecured funding from market investors is also directly related to its credit spreads, which in turn depend to a certain extent on its credit ratings. Increases in credit spreads can significantly increase the BNP Paribas Group s cost of funding. Changes in credit spreads are continuous, market-driven, and subject at times to unpredictable and highly volatile movements. Credit spreads are also influenced by market perceptions of the BNP Paribas Group s creditworthiness. Furthermore, credit spreads may be influenced by movements in the cost to purchasers of credit default swaps referenced to the BNP Paribas Group s debt obligations, which are influenced both by the credit quality of those obligations, and by a number of market factors that are beyond the control of the BNP Paribas Group.

5. RISKS RELATED TO THE MACROECONOMIC AND MARKET ENVIRONMENT

5.1 Adverse economic and financial conditions have in the past had and may in the future have an impact on the BNP Paribas Group and the markets in which it operates

The BNP Paribas Group s business is sensitive to changes in the financial markets and more generally to economic conditions in France (31% of the Group s revenues at 31 December 2019), other countries in Europe (44% of the Group s revenues at 31 December 2019) and the rest of the world (25% of the Group s revenues at 31 December 2019). A deterioration in economic conditions in the markets where the BNP Paribas Group operates could have some or all of the following impacts:

■ adverse economic conditions could affect the business and operations of the BNP Paribas Group s customers, reducing credit demand and trading volume and resulting in an increased rate of default on loans and other receivables;

■ a decline in market prices of bonds, equities and commodities could impact many of the businesses of the BNP Paribas Group, including in particular trading, Investment Banking and asset management revenues;

■ macroeconomic policies adopted in response to actual or anticipated economic conditions could have unintended effects, and are likely to impact market parameters such as interest rates and foreign exchange

rates, which in turn could affect the BNP Paribas Group s businesses that are most exposed to market risk;

■ perceived favourable economic conditions generally or in specific business sectors could result in asset price bubbles, which could in turn exacerbate the impact of corrections when conditions become less favourable;

■ a significant economic disruption (such as the global financial crisis of 2008 or the European sovereign debt crisis of 2011) could have a severe impact on all of the BNP Paribas Group s activities, particularly if the disruption is characterized by an absence of market liquidity that makes it difficult to sell certain categories of assets at their estimated market value or at all;

■ a significant deterioration of market and economic conditions resulting from, among other things, from adverse political and geopolitical events such as natural disasters, geopolitical tensions (in particular protectionist measures), emergence of health risks such as pandemics, acts of terrorism, societal unrest, cyber-attacks, military conflicts or threats thereof and related risks could affect the operating environment for the BNP Paribas Group episodically or for extended periods.

In 2020, European economies and financial markets will be particularly sensitive to a number of factors, including, for example, tensions around international trade (protectionist measures, such as customs duties, the trade war between the United States and China and tensions between the United States and Europe), geopolitical tensions (particularly in the Middle East and, more generally, between the United States and Iran), political risks directly affecting Europe (including the implementation of Brexit and the rise of populism), a persisting climate of sluggish economic growth, the volatility in commodity prices (itself affected by the above- mentioned factors) and, as discussed below, the evolution of monetary policy or the impact of health risks related to a pandemic such as the coronavirus.

More generally, increased volatility of financial markets could adversely affect the BNP Paribas Group s trading and investment positions in the debt, currency, commodity and equity markets, as well as its positions in other investments. For reference, Global Markets accounted for 12% of the BNP Paribas Group s revenues in 2019. Severe market disruptions and extreme market volatility have occurred in recent years and may occur again in the future, which could result in significant losses for the BNP Paribas Group. Such losses may extend to a broad range of trading and hedging products, including swaps, forward and future contracts, options and structured products. The volatility of financial markets makes it difficult to predict trends and implement effective trading strategies.

It is difficult to predict when economic or market downturns or other market disruptions will occur, and which markets will be most significantly impacted. If economic or market conditions in France or elsewhere in Europe, or Global Markets more generally, were to deteriorate or become more volatile, the BNP Paribas Group s operations could be disrupted, and its business, results of operations and financial condition could be adversely affected.