2018 REGISTRATION DOCUMENT AND ANNUAL FINANCIAL REPORT

2018 Registration document and annual fi nancial report - BNP PARIBAS322

5 RISKS AND CAPITAL ADEQUACY PILLAR 3

Capital management and capital adequacy

➤ Split of on- balance sheet exposures (excluding derivatives, SFTs(*) and exempted exposures) (LRSpl)

In billions of euros 31 December 2018 1 January 2018

EU-1 Total on-balance sheet exposures (excluding derivatives, SFTs, and exempted exposures), of which: 1,381 1,329

EU-2 Trading book exposures 117 125

EU-3 Banking book exposures, of which: 1,264 1,205

EU-4 Covered bonds - -

EU-5 Exposures treated as sovereigns 310 307

EU-6 Exposures to regional governments, MDB, international organisations and PSE not treated as sovereigns 30 29

EU-7 Institutions 32 36

EU-8 Secured by mortgages of immovable properties 195 181

EU-9 Retail exposures 212 214

EU-10 Corporate 294 281

EU-11 Exposures in default 15 17

EU-12 Other exposures (e.g. equity, securitisations, and other non-credit obligation assets) 175 140

(*) Securities Financing Transactions: repurchase agreements and securities borrowing/lending. Pursuant to article R.511-16-1 of the French Monetary and Financial Code, BNP Paribas asset yield (i.e. net accounting income divided by the total balance sheet on a consolidated basis) is 0.39% in 2018 compared to 0.42% in 2017.

CAPITAL MANAGEMENT

To ensure the Group s sustainability, the Bank must maintain an adequate level of capital with respect to the risks to which it is exposed and its strategy. Capital is a rare and strategic resource which requires stringent, clearly defi ned, rigorous management according to an approach which takes account of the needs and demands of stakeholders, including shareholders, supervisors, creditors and depositors.

OBJECTIVES BNP Paribas capital management:

■ is governed by policies and procedures which make it possible to understand, document and supervise capital management practices throughout the Bank;

■ takes risk measurement into account to determine the use of the capital;

■ considers capital requirements and resources under normal operating conditions, as well as under situations of severe, but plausible stress;

■ presents a forward-looking vision of the Bank s capital adequacy to the Executive Management;

■ allocates the capital constraint to the business lines in keeping with their strategic objectives;

■ complies with the Internal Capital Adequacy Assessment Process (ICAAP);

■ is monitored by an appropriate governance.

CAPITAL MANAGEMENT AT CENTRAL LEVEL BNP Paribas capital management aims to ensure and verify that the Group has adequate capital to comply with the regulatory capital ratios, as well as special requirements, for instance to operate as a global systemically important bank. To ensure its capital adequacy, the Group abides by the following principles:

■ maintaining the capital at an appropriate level in view of BNP Paribas activities, risk appetite, growth and strategic initiatives;

■ maintaining BNP Paribas capital at a level which complies with regulatory requirements;

■ keeping a balance between capital adequacy and return on capital;

■ meeting its obligations vis-à-vis creditors and counterparties, at each due date;

■ continuing to operate as a fi nancial intermediary.

Governance

The governance of the development, approval and update of the capital planning process is handled by two committees:

■ the Risk-Weighted Assets Committee: it is jointly chaired by the Chief Financial Offi cer and the Chief Risk Offi cer, and comprises the operational divisions Chief Financial Offi cers and Chief Risk Offi cers. The committee meets quarterly to examine forecasts of the Group s risk-weighted assets in the context of the budget cycle and updating of its estimates.