328 2019 Universal registration document and annual financial report - BNP PARIBAS

5 risks and CaPital adequaCy Pillar 3

5

Credit risk

In the case of the stress of risk-weighted assets, the Loss Given Default is not stressed as it is considered as downturn LGD. In that of stress on the cost of risk, the rate of loss (also known as Point-in-time LGD) can be stressed through a link with macroeconomic and financial variables or with default rates.

Stress testing of credit risk is used in the evaluation of the Group s risk appetite, and more specifically during portfolio reviews.

CREDIT RISK DIVERSIFICATION

The Group s gross exposure to credit risk stands at EUR 1,581 billion at 31 December 2019, compared with EUR 1,531 billion at 31 December 2018. This portfolio, which is analysed below in terms of its diversification, comprises all exposures to credit risk shown in Table 24, excluding equity exposures under the simple weighting method, shown in the section Credit risk: equities under the simple weighting method.

These exposure amounts are based on the gross carrying value of the financial assets. They do not include collateral taken by the Group in its normal credit risk management operations (see section Credit risk mitigation techniques).

No single counterparty gives rise to an excessive concentration of credit risk, due to the size of the business and the high level of industrial and geographical diversification of the client base. The breakdown of credit risks by industry and by region is presented in the tables hereafter.

This risk is mainly assessed through the monitoring of the indicators shown below.

SINGLE NAME CONCENTRATION The single name concentration risk of the portfolio is subject to regular monitoring. It is assessed on the basis of the total commitments at client or business group level and is based on two types of monitoring:

Monitoring of large exposures

Regulation (EU) No. 575/2013 (article 395) of 26 June 2013 establishes a limit of 25% of the bank s capital for exposure by business group (after exemptions and taking credit risk mitigation techniques into account).

BNP Paribas is well below the concentration thresholds set by this regulation. The exposure (as defined above) of a client or a group of connected clients never exceeds 10% of the Bank s eligible capital.

Monitoring through individual single name concentration policies

The single name concentration risks are part of the Group s concentration policies. They are meant to identify and closely monitor any single business group with an excessive concentration of risk to proactively manage individual concentrations relative to the Group s Risk Appetite Statement.