320 2019 Universal registration document and annual financial report - BNP PARIBAS
5 risks and CaPital adequaCy Pillar 3
5
Risk management [Audited]
■ funding and liquidity:
the Group ensures that the diversification of and balance between its resources and uses of funds correspond to a conservative funding strategy, allowing it to withstand adverse liquidity scenarios. The Group makes sure that it complies with the regulatory liquidity ratios in force;
■ credit risk:
the Group only accepts exposure on customers it knows well, based on comprehensive information, and pays close attention to the structure of the financing it grants. The Group builds and maintains a diversified risk portfolio, avoiding large concentrations (especially on single names, industries and countries) and ensures that it complies with the concentration policies in force;
■ market risk:
the Group manages market risks (interest rates, equities, currencies, commodities) within the following framework:
■ for activities in the capital markets that are customer-focused, BNP Paribas intends to keep its market risk profile in line with this customer-focused business mode,
■ interest rate risk associated with its banking book with the aim of stabilising its results on an ongoing basis to within acceptable limits;
■ operational risk:
the Group aims to protect its customers, employees and shareholders from operational risk. To do so it has developed a risk management infrastructure based on identifying potential risks, strategies to mitigate risk, and actions to raise awareness of these risks. Some specific risks have resulted in the definition of dedicated principles, in particular:
■ non-compliance risk:
the Group is committed to compliance with all applicable laws and regulations. It undertakes to implement a system to manage the risk of non-compliance, including through special programs dedicated to the most important regulations for its business,
■ Information, Communication and Technology risk:
the Group endeavours to reduce the risks related to the security of its information through various awareness actions, enhanced supervision of outsourced activities, heightened protection of
terminals, incident monitoring, and a technology watch over IT vulnerabilities and attacks;
■ insurance activities:
BNP Paribas Cardif is exposed mainly to credit, underwriting and market risks. The entity closely monitors its exposures and profitability, taking into account its risks and the adequacy of its capital with regard to solvency rules. It endeavours to contain potential losses in adverse scenarios at acceptable levels.
■ risk associated with social and environmental responsibility:
the Group is particularly sensitive to its customers performance in terms of social and environmental responsibility, believing that this could have a material impact on its customers risk profile and, consequently, their solvency, in addition to being a major reputational risk. BNP Paribas takes social and environmental risks into consideration when assessing customer-related risks. The Group also tracks these risks as part of the conduct of its business, the conduct of its counterparties business and of its investments on its own behalf or on behalf of third parties.
SUPERVISION OF RISK PROFILE INDICATORS The Risk Appetite Statement sets out the indicators that measure the Group s risk profile for its risk exposure categories.
Risk level thresholds are assigned to each metric. When these thresholds are reached, they trigger an established process to inform Executive Management and the Board of directors, and if need be, to implement action plans.
These indicators are monitored quarterly in the risk dashboards presented to the CCIRC.
For example, the following ratios (described in the Key figures of section 5.1) are included in the Risk Appetite indicators:
■ the CET1 ratio;
■ the balance of the breakdown of risk-weighted assets by business line (IFS, DM and CIB);
■ the cost of risk on outstanding loans (in annualised basis points);
■ the liquidity coverage ratio (LCR).
