304 2019 Universal registration document and annual financial report - BNP PARIBAS

5 risks and CaPital adequaCy Pillar 3

5

Capital management and capital adequacy

The Group s total risk-weighted assets amounted to EUR 668.8 billion at 31 December 2019 compared with EUR 647.0 billion at 31 December 2018. At 31 December 2019, risk-weighted assets calculated using the internal model represented 55% of the Group s risk-weighted assets.

The breakdown of risk-weighted assets by risk type is presented in the various appropriate sections.

Amounts below the thresholds for prudential capital deduction are assets weighted at 250% pursuant to article 48 of Regulation (EU) No. 575/2013. These include:

■ credit or financial institutions consolidated under the equity method, except for insurance entities consolidated under the equity method in the prudential scope, which are weighted using the simple weighting method;

■ significant financial interests in credit or financial institutions in which the Group holds a stake of more than 10%;

■ deferred tax assets that rely on future profitability and arise from temporary differences.

Settlement risk is defined in article 378 of Regulation (EU) No. 575/2013 as the risk of loss of value related to a delay in the settlement of securities transactions. As at 31 December 2019, the risk-weighted assets with respect to this risk are insignificant for the Group at EUR 3 million.

RISK-WEIGHTED ASSETS MOVEMENTS IN 2019 The change in risk-weighted assets can be broken down into the following effects:

■ asset size effect: impact stemming from the variation in exposures (EAD) and impact related to the efficient securitisation programmes initiated by the Group;

■ asset quality effect: impact stemming from the change in risk parameters (Probability of Default, Loss Given Default for the internal ratings based approach, and risk weighting for the standardised approach, etc.);

■ model update effect: impact stemming from changes in the use of internal models (introduction of a new model, deployment on a new exposure scope, annual recalibration or review of risk parameters, application of add-ons, etc.);

■ methodology and policy effect: impact stemming from changes in methodology and the establishment of new regulatory requirements having an impact on the calculation of risk-weighted assets;

■ acquisition and disposal effect: impact stemming from changes in the scope of consolidation;

■ currency effect: impact stemming from fluctuations in foreign exchange rates on exposures.

➤ TABLE 18: RISK-WEIGHTED ASSETS MOVEMENTS BY KEY DRIVER

RWAs In millions of euros

31 December

2018

Key driver

Total Variation

31 December

2019Asset size Asset

quality Model

updates Methodology

and policy Acquisitions

and disposals Currency Other

Credit risk 503,851 27,869 (15,738) 4,397 3,361 (2,571) 3,127 (65) 20,380 524,231

Counterparty credit risk 26,634 3,666 (1,894) 1,524 - 53 (1) (461) 2,886 29,520

Settlement risk 12 - - - - - - (9) (9) 3

Banking book securitisation positions 7,040 3,571 (103) - - 15 164 (177) 3,470 10,510

Market risk 19,948 3,162 (1,531) (2,398) - (411) - 527 (652) 19,296

Operational risk 72,947 1,308 (1,423) (190) - (3,750) (1) 0 (4,056) 68,891

Amounts below the thresholds for deduction (subject to 250% risk weight) 16,569 742 - - 170 (1,228) 0 123 (193) 16,376

TOTAL 647,001 40,318 (20,689) 3,333 3,531 (7,893) 3,288 (63) 21,826 668,828

Below are the main reasons behind the EUR 22 billion increase in risk- weighted assets in 2019:

■ a EUR 40 billion increase related to the business activity characterised by the increase in credit risk net of the effect of efficient securitisations initiated by the Group (+EUR 28 billion overall);

■ a EUR 21 billion improvement in asset quality primarily from credit risk with, in particular, an improvement in risk parameters;

■ an increase of EUR 3 billion relating to the update of models;

■ an increase of EUR 4 billion related to the adoption of the new accounting standard IFRS 16 from 1 January 2019;