2018 Registration document and annual fi nancial report - BNP PARIBAS 317

5RISKS AND CAPITAL ADEQUACY PILLAR 3

5

Capital management and capital adequacy

➤ TABLE 21: OVERALL TOTAL CAPITAL REQUIREMENT

2018(***) 2019

Total Capital (T1 + T2): Minimum requirement (Pillar 1) 8.0% 8.0%

Pillar 2 Requirement(*) 1.25% 1.25%

Capital conservation buffer 1.875% 2.5%

G-SIBs buffer applicable to BNP Paribas 1.5% 1.5%

Countercyclical capital buffer(**) 0.03% 0.08%

TOTAL CAPITAL 12.655% 13.33%

(*) Only the Pillar 2 requirement is made public. (**) Countercyclical capital buffer as at 1 January 2018 and 1 January 2019. (***) Transitional arrangements implementation.

The fully loaded CET1 capital requirement is 9.83% at 1 January 2019 and 9.91% at 31 December 2019 (excluding Pillar 2 guidance ), in view of the capital conservation buffer at 2.5%, a G-SIBs buffer at 1.5%, the gradual activation of the countercyclical buffer in certain countries and a Pillar 2 requirement at 1.25%.

With a fully loaded CET1 capital ratio of 11.8% as at 31 December 2018, BNP Paribas is well above the minimum requirement applicable for 2018. Compared to 1 January 2018, the fully loaded CET1 ratio was up 20 basis points as at 31 December 2018, due primarily to:

■ the net income for the year (excluding capital gain on the sale of 43.6% of First Hawaiian Bank) after taking into account dividend payment (+50 bp);

■ the increase in risk- weighted assets, in particular in Domestic Markets and Personal Finance, excluding foreign exchange effect and operational risk (-20 bp);

■ the risk-weighted assets related to operational risk brought to the standard method level (-10 bp);

■ the other effects which have a negligible impact on the ratio overall (including the effects of the acquisitions and sales of the year).

The Group anticipates a CET1 ratio of at least 12% and a total capital ratio of at least 15% in 2020, at constant regulatory framework.

BNP Paribas ratios are monitored and managed centrally, on a consolidated basis. Where a French or international entity is required to comply with banking regulations at its own level, its ratios are also monitored and managed directly by the entity (see section Capital management at local level).

Requirements applicable to the Insurance business

Since 1 January 2016, BNP Paribas insurance business is governed by Solvency II, the new standard for calculating the solvency coverage ratio (Directive 2009/138/EC as transposed into French law).

The objective of Solvency II is to:

■ integrate the concepts of risks and risk appetite to which insurance companies are exposed;

■ harmonise the insurance regulatory regimes across Europe;

■ give more power to supervisory authorities.

Solvency II is divided into three pillars aiming to:

■ Pillar 1: assess solvency using what is known as an economic capital- based approach;

■ Pillar 2: implement qualitative requirements, i.e. governance and risk management rules that include a forward-looking approach to risk assessment. This assessment is called ORSA (Own Risk & Solvency Assessment);

■ Pillar 3: improve the transparency of the insurance business by making solvency the cornerstone of disclosures to the public and the supervisory authority.

The BNP Paribas Cardif group complies with this new regulation both in terms of risk management and governance, as well as calculation and reporting. Solvency II-related data as at 31 December 2017 are available in the Solvency and Financial Condition Report (SFCR) for the BNP Paribas Cardif group, published on the institutional website https:// www.bnpparibascardif.com.

Insurance risks are presented in section 5.10 Insurance risks.

Solvency II sets out two capital requirements:

■ the solvency capital requirement (SCR);

■ the minimum capital required (MCR) or, for groups, the SCR Group Minimum.

The SCR (Solvency Capital Requirement) is the level of own funds required to absorb a full series of bicentenary impacts after accounting for the correlation between risks. It is calibrated to cover such an event with a return period of 200 years within a one-year timescale (Value at Risk at 99.5%). The BNP Paribas Cardif SCR is evaluated by means of the standard formula.

The Capital Management Policy of BNP Paribas Cardif aims notably to ensure that the prudential solvency requirement are met, to cover at least 100% of the SCR defi ned within the scope of the ORSA assessment and to structure own funds so that the best balance can be found between the share capital, subordinated debt and other own funds elements, complying with the limits and levels laid down by regulations.

As at 31 December 2017, eligible own funds to meet the SCR stood at EUR 12,061 million. The amount of SCR was EUR 7,696 million and the SCR coverage ratio was 157%. Eligible own funds to meet the SCR Group Minimum amounted to EUR 9,036 million. The amount of SCR Group Minimum was EUR 3,548 million, and the SCR Group Minimum coverage ratio was 255%.

The Solvency Report as at 31 December 2018 will be published on 3 June 2019 .