2019 Universal registration document and annual financial report - BNP PARIBAS 469

6information on the Parent ComPany finanCial statements at 31 deCemBer 2019

6

Notes to the parent company financial statements

The interest received from the repayment of the carrying amount of loans that have been written-down, as well as the reversals of discounting effects and the discount on restructured loans, are recognised under Interest income .

REGULATED SAVINGS AND LOAN CONTRACTS Home savings accounts (Comptes Épargne Logement, or CELs) and home savings plans (Plans d Épargne Logement, or PELs) are government regulated retail products sold in France. They combine an inseparable savings phase and a loan phase with the loan phase contingent upon the savings phase.

These products contain two types of obligations for BNP Paribas SA: an obligation to pay interest on the savings for an indefinite period at a rate set by the government on inception of the contract (in the case of PEL products) or at a rate reset every semester using an indexation formula set by law (in the case of CEL products); and an obligation to lend to the customer (at the customer s option) an amount contingent upon the rights acquired during the savings phase at a rate set on inception of the contract (in the case of PEL products) or at a rate contingent upon the savings phase (in the case of CEL products).

BNP Paribas SA s future obligations with respect to each generation (in the case of PEL products, a generation comprises all products with the same interest rate at inception; in the case of CEL products, all such products constitute a single generation) are measured by discounting potential future earnings from at-risk outstandings for that generation.

At-risk outstandings are estimated on the basis of a historical analysis of customer behaviour, and equate to statistically probable outstanding loans and the difference between statistically probable outstandings and minimum expected outstandings, with minimum expected outstandings being deemed equivalent to unconditional term deposits.

Earnings for future periods from the savings phase are estimated as the difference between the reinvestment rate and the fixed savings interest rate on at-risk savings outstanding for the period in question. Earnings for future periods from the loan phase are estimated as the difference between the refinancing rate and the fixed loan interest rate on at-risk outstanding loans for the period in question.

The reinvestment rate for savings and the refinancing rate for loans are derived from the swap yield curve and from the spreads expected on financial instruments of similar type and maturity. Spreads are determined on the basis of actual spreads on fixed rate home loans in the case of the loan phase and on products offered to retail clients in the case of the savings phase.

In order to reflect the uncertainty of future interest-rate trends, and the impact of such trends on customer behaviour models and on at risk outstandings, the obligations are estimated using the Monte-Carlo method.

When the sum of BNP Paribas SA s estimated future obligations with respect to the savings and loan phases of any generation of contracts indicates a potentially unfavourable situation for BNP Paribas SA, a provision is recognised, with no offset between generations, in the balance sheet under Provisions . Movements in this provision are recognised as interest income in the profit and loss account.

SECURITIES The term Securities covers interbank market securities, Treasury bills and negotiable certificates of deposit, bonds and other fixed-income securities (whether fixed- or floating-rate) and equities and other variable-income securities.

Securities are classified as: Trading account securities , Securities available for sale , Equity securities available for sale in the medium term , Debt securities held to maturity , Equity securities held for long- term investment , or Investments in subsidiaries and affiliates .

As of 1 January 2018, trading securities acquired or disposed of under agreements whose terms require delivery of the securities within a period defined by regulation or by an agreement on the relevant market are recorded in the balance sheet on the settlement date. This change has no impact on the profit and loss account and on capital at the start of the year. Other categories of securities acquired or disposed of under the same conditions are still recorded on the transaction date.

When a credit risk has occurred, fixed-income securities held in the Available for sale or Held to maturity portfolio are classified as doubtful, based on the same criteria as those applied to doubtful loans and commitments.

When securities exposed to counterparty risk are classified as doubtful and the related provision can be separately identified, the corresponding charge is included in Cost of risk .

Trading account securities

Trading account securities are securities bought or sold with the intention of selling them or repurchasing them in the near future, as well as those held as a result of market-making activities. These securities are valued individually at market value if they meet the following criteria:

■ they can be traded on an active market (i.e. a market where third parties have continuous access to market prices through a securities exchange, brokers, traders, or market-makers);

■ the market prices reflect actual, regularly-occurring transactions taking place under normal competition conditions.

Trading account securities also include securities bought or sold for specific asset-management objectives (especially in terms of sensitivity) for trading books comprised of forward financial instruments, securities, or other financial instruments taken globally.

Changes in the market value of these securities are recognised in income. Trading account securities cannot be reclassified into another category and must follow the valuation rules for this category until they are sold, fully redeemed, or recognised as a loss and consequently removed from the balance sheet.

In the case of exceptional circumstances necessitating a change in investment strategy, Trading account securities can be reclassified as Securities available for sale or Debt securities held to maturity depending on the new strategy.