2019 Universal registration document and annual financial report - BNP PARIBAS 505

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

6

Statutory Auditors report on the financial statements

Identification and assessment of credit risk associated with customer operations (See Notes 1, 2.f, 3.b and 3.k to the financial statements)

Description of risk How our audit addressed this risk

As part of its banking intermediation activities, BNP Paribas is exposed to credit risk.

It recognises impairment losses to cover known credit risks which are inherent to its operations.

Impairment losses either take the form of individual impairment losses recognised against the related on- and off-balance sheet commitments or of collective impairment losses recognised against loan portfolios presenting similar risks which are not individually impaired. Collective provisions are determined using statistical models which require judgement at each stage of the calculation, particularly with respect to building similar portfolios and determining the inputs for the applicable risks and the obligating event of the provisions.

Under certain circumstances, additional collective sectoral or geographic provisions are recognised in order to take into account any risks identified by BNP Paribas which are not covered by the above- mentioned individual or collective provisions.

At 31 December 2019, operations with customers exposed to credit risk represented a total of EUR 501,899 million, while total impairment losses stood at EUR 5,965 million.

We deemed the identification and assessment of credit risk to be a key audit matter because management is required to exercise judgement and make estimates to assess credit risk, in particular as regards credit granted to companies given the potentially material amounts of the outstandings of loans to corporate counterparties.

We assessed the relevance of BNP Paribas control system and tested the manual and computerised controls for identifying and measuring impairment.

We also examined the most significant outstandings and/or portfolios at the reporting date as well as on the credit granted to companies operating in more sensitive economic sectors or geographic regions.

During our work, we focused on: ■ the rating of corporate counterparties: we examined the risk presented by significant counterparties and the correct application of the indicators used by the various business lines to measure credit risk, as well as the risk level of a sample of outstandings deemed to be performing by management;

■ measuring provisions recorded individually: we verified that a periodic review of the counterparties under surveillance had been carried out by BNP Paribas and, based on a sample, assessed the assumptions and data used by management to estimate impairment;

■ measuring collective provisions: assisted by our credit risk experts, we assessed the methods used by BNP Paribas across the various business lines, as well as the effectiveness of the data quality controls.

In addition, we examined the disclosures in the notes to the financial statements with respect to credit risk.