300 2019 Universal registration document and annual financial report - BNP PARIBAS

5 risks and CaPital adequaCy Pillar 3

5

Capital management and capital adequacy

➤ TABLE 13: TRANSITION FROM CONSOLIDATED EQUITY TO COMMON EQUITY TIER 1 (CET1) CAPITAL

In millions of euros 31 December 2019

31 December 2018

Phased-in Transitional

arrangements(*)

Consolidated equity 111,721 105,619 -

Undated Super Subordinated Notes ineligible in CET1 (8,689) (8,240) -

Proposed distribution of dividends (3,871) (3,768) -

Ineligible minority interests (2,527) (2,362) -

Changes in the fair value of hedging instruments recognised directly in equity (1,072) (825) -

Additional value adjustments linked to prudent valuation requirements (1,396) (892) -

Goodwill and other intangible assets (11,380) (12,162) -

Net deferred tax assets arising from tax loss carry-forwards (430) (527) 98

Negative amounts resulting from the calculation of expected losses (551) (242) -

Other prudential adjustments (599) (372) -

COMMON EQUITY TIER 1 (CET1) CAPITAL 81,204 76,230 98

(*) Amounts subject to pre-regulation treatment or prescribed residual amount of Regulation (EU) No. 575/2013.

Additional Tier 1 capital

Additional Tier 1 capital is mainly composed of subordinated debt instruments with the following characteristics:

■ they are perpetual and include no redemption incentive;

■ they are not held by the bank, its subsidiaries or any company in which the Group holds 20% or more of the capital;

■ they have a capacity to absorb losses;

■ they may include a buy back option, five years after the issue date at the earliest, exercisable at the issuer s discretion(1);

■ remuneration arises from distributable elements that may be cancelled, with no requirements for the bank.

This category is also composed of non-eligible minority reserves in common equity within their limit of eligibility.

Authorisations to redeem Additional Tier 1 own capital instruments are deducted from this category.

Tier 2 capital

Tier 2 capital is comprised of subordinated debt with no buy back incentive, as well as non-eligible minority reserves in Tier 1 capital within their limit of eligibility. A prudential discount is applied to the subordinated debt with less than five years of residual maturity.

Prudential deductions from Tier 2 capital primarily concern:

■ Tier 2 capital components in significant financial entities;

■ Tier 2 own capital instruments buy back authorisations.

Transitional arrangements

Under Regulation (EU) No. 575/2013 (CRR), the calculation methods introduced by Basel 3 can be implemented gradually until 2022. Since 2019, items still subject to these transitional arrangements are subordinated debt issued prior to 31 December 2011, eligible under prior regulations but not eligible under Basel 3, to which a declining eligibility threshold applies. The impact of these arrangements is set out in lines 80 to 85 of Appendix 2: Regulatory capital Detail.

Regulation (EU) No. 2019/876 (CRR 2), which came into force on 27 June 2019, introduces additional eligibility criteria for Tier 1 and 2 regulatory capital which supplement those provided for by Regulation (EU) No. 575/2013. Instruments that were previously eligible under CRR, although not fulfilling these additional requirements may, however, be recognised for a transitional period that may extend up to 2025. Details of the instruments affected by these transitional arrangements, as well as their period of eligibility, are available on the Group s Investor Relations website (see next page).

In addition, the Group does not apply the transitional arrangements provided to mitigate the impact of the introduction of IFRS 9 on capital, as defined under Regulation (EU) No. 2017/2395.

(1) Subject to authorisation by the supervisor.