2018 REGISTRATION DOCUMENT AND ANNUAL FINANCIAL REPORT

2018 Registration document and annual fi nancial report - BNP PARIBAS228

4 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

Notes to the fi nancial statements

The key parameters which are sensitive to the assumptions made are the cost of capital, the cost/income ratio, the cost of risk and the growth rate to perpetuity.

Cost of capital is determined on the basis of a risk-free rate, an observed market risk premium weighted by a risk factor based on comparables specifi c to each homogeneous group of businesses. The values of these parameters are obtained from external information sources.

Allocated capital is determined for each homogeneous group of businesses based on the Common Equity Tier One regulatory requirements for the legal entity to which the homogeneous group of businesses belongs, with a minimum of 7%.

The growth rate to perpetuity used is 2% for mature economies. For CGUs implemented in countries with high levels of infl ation, a specifi c add-on is taken into account (calculated according to infl ation rates disclosed by external sources).

The following table shows the sensitivity of cash generating unit valuations to changes in the value of parameters used in the DCF calculation: the cost of capital, the cost/income ratio in terminal value, the cost of risk in terminal value and the growth rate to perpetuity.

In 2017, the downward revision in growth prospects of Turk Ekonomi Bankasi led to the full impairment of the TEB goodwill (EUR 172 million).

➤ SENSITIVITY OF THE MAIN GOODWILL VALUATIONS TO A 10-BASIS POINT CHANGE IN THE COST OF CAPITAL, A 1% CHANGE IN THE COST/INCOME RATIO IN TERMINAL VALUE, A 5% CHANGE OF THE COST OF RISK IN TERMINAL VALUE AND A 50-BASIS POINT CHANGE IN THE GROWTH RATE TO PERPETUITY

In millions of euros BancWest Personal Finance

Cost of capital 8.5% 9.4%

Adverse change (+10 basis points) (127) (214)

Positive change (-10 basis points) 131 220

Cost/income ratio 61.6% 47.4%

Adverse change (+1%) (217) (485)

Positive change (-1%) 217 485

Cost of risk (163) (2,197)

Adverse change (+5%) (181) (295)

Positive change (-5%) 181 295

Growth rate to perpetuity 2.0% 2.2%

Adverse change (-50 basis points) (259) (451)

Positive change (+50 basis points) 302 517

For the impairment test of the BancWest homogeneous group of businesses, additional scenarios were analysed, based on a 9.5% cost of capital and a 3% growth rate to perpetuity specifi c to the Californian region. These analyses support the absence of impairment.