2018 REGISTRATION DOCUMENT AND ANNUAL FINANCIAL REPORT

2018 Registration document and annual fi nancial report - BNP PARIBAS188

4 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

Notes to the fi nancial statements

Note 3 NOTES TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2018

3.a NET INTEREST INCOME The BNP Paribas Group includes in interest and similar income and interest and similar expenses all income and expense from fi nancial instruments measured at amortised cost (interest, fees and transaction costs) and from fi nancial instruments measured at fair value through equity. These amounts are calculated using the effective interest method.

These items also include the interest income and expense of non- trading fi nancial instruments the characteristics of which do not allow for recognition at amortised cost or at fair value through equity, as well as of fi nancial instruments that the Group has designated as at fair value

through profi t or loss. The change in fair value on fi nancial instruments at fair value through profi t or loss (excluding accrued interest) is recognised under Net gain on fi nancial instruments at fair value through profi t or loss .

Interest income and expense on derivatives accounted for as fair value hedges are included with the revenues generated by the hedged item. Similarly, interest income and expense arising from derivatives used to hedge transactions designated as at fair value through profi t or loss is allocated to the same accounts as the interest income and expense relating to the underlying transactions.

In millions of euros

Year to 31 Dec. 2018 IFRS 9 & IFRS 15

Year to 31 Dec. 2017 IAS 39

Income Expense Net Income Expense Net

Financial instruments at amortised cost 29,115 (10,482) 18,633 26,923 (8,498) 18,425

Deposits, loans and borrowings 26,957 (8,069) 18,888 25,601 (6,502) 19,099

Repurchase agreements 152 (59) 93 132 (62) 70

Finance leases 1,312 (73) 1,239 1,157 (62) 1,095

Debt securities 694 694 33 33

Issued debt securities and subordinated debt (2,281) (2,281) (1,872) (1,872)

Financial instruments at fair value through equity 965 - 965 1,331 - 1,331

Debt securities 965 965 1,331 1,331

Financial instruments at fair value through profi t or loss (Trading securities excluded) 42 (442) (400) 64 (317) (253)

Cash fl ow hedge instruments 2,941 (1,369) 1,572 3,500 (2,004) 1,496

Interest rate portfolio hedge instruments 2,660 (2,368) 292 1,748 (1,556) 192

TOTAL INTEREST INCOME/(EXPENSE) 35,723 (14,661) 21,062 33,566 (12,375) 21,191

Interest on fi nancial instruments at amortised cost includes, for the year ended 31 December 2017, interest income and expenses on held-to- maturity fi nancial assets, customer and interbank items and debt issued by the Group (excluding issues that the Group has designated as at fair value through profi t or loss).

Interest on fi nancial instruments at fair value through equity corresponds, for the year ended 31 December 2017, to interest on debt securities available for sale, of which about half of the portfolio (EUR 57 billion) was reclassifi ed at amortised cost as of 1 January 2018. This reclassifi cation mainly explains the variation of interest on debt securities within interest on fi nancial instruments at amortised cost between the two periods.

Interest on fi nancial instruments at fair value through profi t or loss corresponds, for the year ended 31 December 2017, to interest income and expenses on fi nancial instruments that the Group designated as at fair value through profi t or loss. For the year ended 31 December 2018, this aggregate also includes interest on non-trading fi nancial instruments whose characteristics prevent their classifi cation at amortised cost or at fair value through equity.

The effective interest rate applied on the second series of Targeted Longer-Term Refi nancing Operations (TLTRO II) conducted by the European Central Bank takes into account a 40 bp interest incentive.

Interest income on individually impaired loans amounted to EUR 454 million for the year ended 31 December 2018, compared to EUR 547 million for the year ended 31 December 2017.