3792019 Universal registration document and annual financial report - BNP PARIBAS

5risks and CaPital adequaCy Pillar 3

5

Securitisation in the banking book

Assets awaiting securitisation are classified as:

■ financial instruments at amortised cost or at fair value through equity and in the prudential banking book in the case of exposures resulting from the bank s balance sheet, for which the Bank will be originator in the future securitisation within the meaning of Basel 3;

■ financial instruments at fair value through profit or loss and in the prudential banking book in the case of exposures purchased and put into warehousing, for which the bank will be sponsor in the future securitisation within the meaning of regulation.

SECURITISATION RISK MANAGEMENT

The risk management framework for securitisation is part of the risk management described in section 5.3.

The business lines represents the first line of defence with responsibility for understanding all the risks incurred in order to ensure correct evaluation. RISK acts independently, as a second line of defence.

Positions taken are monitored to measure changes in individual and portfolio risks.

The monitoring of securitised assets covers credit, counterparty, market and liquidity risks on the underlying assets.

CREDIT RISK ON SECURITISED ASSETS Securitisation assets outside the trading book are subject to specific approval by the Credit Committees. For new transactions, a credit proposal is prepared by the business, and a comprehensive risk analysis is carried out by the RISK analysts before presentation to the Credit Committee. All approvals are subject to an annual review. Exposures are monitored to ensure that they do not exceed the limits set by the Credit Committees.

The risk exposure of securitisation tranches is intrinsically linked to that of the underlying assets, whether for securitisation or re-securitisation. Through the customary governance of Credit Committees, the Group monitors changes in the quality of underlying assets for the entire duration of the programme concerned.

COUNTERPARTY RISK ON SECURITISATION RELATED TO INTEREST RATES OR FX DERIVATIVES Securitisation-related derivative instruments are also subject to the approval of the Credit Committees. BNP Paribas integrates counterparty risk into the securitisation structure. The principles are the same as those described above in respect of credit risk.

MARKET RISK WITHIN THE BANKING BOOK On fixed rate ABS positions, a macro hedge consisted of fixed/variable rate swaps is put in place to cover interest rate risk. The hedge is recorded in accordance with the rules of hedge accounting.

LIQUIDITY/FUNDING RISK Securitisation positions are financed internally by the ALM Treasury or via conduits sponsored by BNP Paribas.