3252019 Universal registration document and annual financial report - BNP PARIBAS
5risks and CaPital adequaCy Pillar 3
5
Credit risk
CREDIT RISK MANAGEMENT POLICY
CREDIT POLICIES [Audited] The Bank s lending activities are governed by the Global Credit Policy. It applies to all Group activities that generate credit or counterparty risk. The Global Credit Policy provides general principles (including the risk assessment and decision-making process, adherence to the highest standards of compliance and ethics) applicable to all credit risk, as well as specific principles applicable to country risk, economic sector risks, clients selection and the transaction structures. It is supplemented by specific policies tailored to each type of business or counterparty.
These policies are regularly updated in line with developments in the credit environment in which the Group operates.
Corporate Social and Environmental Responsibility (CSR)
Since 2012, clauses on Corporate Social and Environmental Responsibility (CSR) are included in specific new credit policies or when existing policies are updated.
Furthermore, sectoral policies and financing exclusions for certain sectors presenting significant Environmental, Social and Governance (ESG) challenges (described in the Commitment 3 section of chapter 7 : Systematic integration and management of Environmental, Social and Governance risks (ESG)) have also been implemented.
The Group is also taking a number of steps to improve the incorporation of ESG risks, especially climate change-related risks, in its credit risk system. Within the context of the application of the Duty of Vigilance law, in addition to sectoral policies and financing exclusions, the Group also decided to strengthen the ESG assessment of its clients to make it more systematic and to better understand the ESG risk profile of all its corporate clients.
INDIVIDUAL DECISION- MAKING PROCEDURES [Audited] A system of discretionary lending limits has been established, under which all lending decisions must be approved by managers or representatives of the sales teams, with the approval of a formally designated member of RISK. Approvals are systematically evidenced in writing, either by means of a signed approval form or in the minutes of formal Credit Committee meetings. Discretionary lending limits correspond to aggregate commitments by business group and vary according to internal credit ratings and the specific nature of the business concerned. All transactions proposed are subject to a detailed review of the borrower s current and future position. The review, conducted as soon as the transaction is arranged and updated at least on an annual basis, is designed to ensure the Group has comprehensive information about the borrower and can monitor any potential changes in its situation. Certain types of lending commitments, such as loans to financial institutions, sovereign loans and loans to customers operating in certain industries that are exposed to cyclical risks or to a rapid pace of change, are subject to specific authorisation procedures and require the sign-off of an industry expert or
designated specialist. In Retail Banking, simplified procedures are applied, based on statistical decision-making aids.
Loan applications must comply with the Bank s Global Credit Policy and any relevant specific policies. Material exceptions undergo a special approval process. Before making any commitments, BNP Paribas carries out an in-depth review of any known development plans of the borrower, and ensures that it has thorough knowledge of all the structural aspects of the borrower s operations and that adequate monitoring will be possible.
The Comité de Crédit de Direction Générale (CCDG) is the highest level Group committee for all decisions related to credit and counterparty risk. It is chaired by a member of Executive Management or, by delegation, a Deputy Chief Operating Officer or the Chief Risk Officer (see Governance in section 5.3 Risk Management). It has ultimate decision-making authority for all loan applications for amounts in excess of individual discretionary lending limits or applications that would not comply with the Global Credit Policy.
MONITORING AND PORTFOLIO MANAGEMENT PROCEDURES [Audited]
Monitoring exposures
A comprehensive risk monitoring system is organised around control units, which are responsible for ensuring that lending commitments comply with the loan approval decision, that credit risk reporting data are reliable and that risks accepted by the Bank are effectively monitored. Daily exception reports are produced and various early warning tools are used to identify early the deterioration of credit risks. The various monitoring levels are carried out under the supervision of RISK. Non-performing loans or those placed under credit watch (see Exposures, provisions and cost of risk) are overseen more closely via dedicated quarterly Committee meetings (see the Governance part of section 5.3 Risk management). The most sensitive loans are reviewed at an Executive Management level. To supplement this mechanism, the General Management Doubtful Committee meets on a monthly basis to determine individual provisions for doubtful loans based on expected financial flows.
The responsibilities of the control teams include the monitoring of exposures against approved limits, covenants, and guarantees. This allows the identification of any signs of deterioration against the risk profile approved by the Credit Committee. Control teams flag up (to the RISK teams and business units) any cases that fail to comply with Credit Committee decisions and oversee their resolution. In some cases, a specific alert is sent to the senior management of RISK and of the relevant business unit. These are mainly where exceptions remain unresolved and/ or where there are serious indications of deterioration in the risk profile compared with that approved by the Credit Committee.
