2018 Registration document and annual fi nancial report - BNP PARIBAS132

3 2018 REVIEW OF OPERATIONS

3

Profi t and loss account

of different competitive environments, and the Bank s hedging strategy and accounting treatment of hedging transactions.

Net interest income decreased by 0.6% to EUR 21,062 million for the year ended 31 December 2018. This variation is mainly attributable to the decrease in income from loans, deposits and borrowings (EUR 18,888 million for the year ended 31 December 2018, compared with EUR 19,099 million for the year ended 31 December 2017), to the increase in net expense on debt issued by the Group (EUR 2,281 million for the year ended 31 December 2018, compared with EUR 1,872 million for the year ended 31 December 2017), partially offset by the increase in net income from debt securities at amortised cost and at fair value through equity (EUR 1,659 million in 2018, compared with EUR 1,364 million in 2017) and the increase in net income from fi nance leases (EUR 1,239 million in 2018, compared with EUR 1,095 million in 2017).

Besides, expense on fi nancial instruments designated as at fair value through profit or loss increased from EUR 317 million in 2017 to EUR 442 million in 2018, net revenues of cash fl ow hedge instruments increased by EUR 76 million compared with the year ended 31 December 2017, and net revenues of interest rate portfolio hedge instruments increased by EUR 100 million.

NET COMMISSION INCOME Net commission income includes commissions on customer transactions, securities and derivatives transactions, financing and guarantee commitments, and asset management and other services. Net commission income decreased by 2.4%, from EUR 9, 430 million in 2017 to EUR 9, 207 million in 2018.

Insurance activity fees are included in the item Net income from insurance activities .

NET GAINS ON FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS This line item includes all profi t and loss items relating to fi nancial instruments managed in the trading book, to financial instruments designated as at fair value through profi t or loss by the Group under the fair value option and to non-trading debt securities that do not meet the IFRS 9 criteria required to be recognised at amortised cost or at fair value through equity (other than interest income and expense on the last two categories, which are recognised under Net interest income as presented above). It also includes gains and losses on non-trading equity instruments that the Group did not choose to measure at fair value through equity. This includes both capital gains and losses on the sale and the marking to fair value of these instruments, along with dividends from equity securities.

This line item also includes gains and losses due to the ineffectiveness of fair value hedges, cash fl ow hedges, and net foreign investment hedges.

The gains and losses resulting from cash fl ows and the remeasurement of fi nancial instruments, either cash or derivatives, must be appreciated as a whole in order to give a fair representation of the profi t or loss resulting from trading activities.

Net gains on financial instruments at fair value through profit or loss increased by 8.6%, from EUR 5,346 million for the year ended 31 December 2017 to EUR 5,808 million for the year ended 31 December 2018.

The change in the net gain on fi nancial instruments designated as at fair value through profi t or loss for the year ended 31 December 2017 was partly attributable to the change in the issuer risk of the BNP Paribas Group for a loss of EUR 61 million. In 2018, the debt remeasurement effect arising from BNP Paribas Group issuer risk is recognised within Changes in assets and liabilities recognised directly in equity that will not be reclassifi ed to profi t or loss , as requested by IFRS 9. The other components of income from items designated as at fair value through profi t or loss are partly offset by changes in the value of the derivative instruments hedging these assets.

In 2018, this item also includes income and expense on equity securities that were classifi ed under IAS 39 as available-for-sale assets and that the Group did not choose to recognise at fair value through equity under IFRS 9. This net gain amounts to EUR 571 million in 2018.

NET GAINS ON FINANCIAL INSTRUMENTS AT FAIR VALUE THOUGH EQUITY For the year 2018, net gains on financial instruments at fair value through equity correspond to gains and losses realised on debt securities recognised at fair value through equity and to dividends from equity securities that the Group chose to recognise at fair value through equity.

Changes in fair value (excluding interest due) of these assets are initially recognised under Changes in assets and liabilities recognised directly in equity . Upon sale of these assets, realised gains or losses are recognised in the profi t or loss account under Net gains on fi nancial instruments at fair value through equity for debt securities, or transferred to retained earnings for equity securities.

For the year 2017, this line item also included income elements relating to securities classifi ed under IAS 39 as available-for-sale securities that have been reclassifi ed under IFRS 9 as fi nancial assets at fair value through profi t or loss or at amortised cost.

Net gains on fi nancial instruments at fair value through equity amounted to EUR 315 million in 2018 and EUR 1,711 million in 2017.