2018 Registration document and annual fi nancial report - BNP PARIBAS328
5 RISKS AND CAPITAL ADEQUACY PILLAR 3
5
Risk management [Audited]
■ operational risk:
The Group aims to protect its customers, employees and shareholders from operational risk. To do so it has developed a risk management infrastructure based on identifying potential risks, strategies to mitigate risk, and actions to raise awareness of these risks. Some specifi c risks have resulted in the defi nition of dedicated principles, in particular:
■ non-compliance risk:
t he Group is committed to compliance with all applicable laws and regulations. It undertakes to implement a system to manage the risk of non-compliance, including through special programs dedicated to the most important regulations for its business,
■ Information, Communication and Technology risk:
t he Group endeavours to reduce the risks related to the security of its information through various awareness actions, enhanced supervision of outsourced activities, heightened protection of terminals, incident monitoring, and a technology watch over IT vulnerabilities and attacks;
■ insurance activities:
BNP Paribas Cardif is exposed mainly to credit, underwriting and market risks. The entity closely monitors its exposures and profi tability, taking into account its risks and the adequacy of its capital with regard to solvency rules. It endeavours to contain potential losses in adverse scenarios at acceptable levels.
Moreover, the Group applies the principles of its C ode of conduct and its responsible bank principles including its social and environmental responsibility, (see chapter 7 A Committed Bank : Information concerning the economic, social, civic and environmental responsibility of BNP Paribas) to all its activities.
SUPERVISION OF RISK PROFILE INDICATORS The Risk Appetite Statement sets out the indicators that measure the Group s risk profi le for its risk exposure categories.
Risk level thresholds are assigned to each metric. When these thresholds are reached, they trigger an established process to inform Executive Management and the Board of directors, and if need be, to implement action plans.
These indicators are monitored quarterly in the r isk d ashboards presented to the CCIRC.
For example, the following ratios (described in the Key figures of section 5.1) are included in the Risk Appetite indicators :
■ the fully loaded CET1 ratio;
■ the balance of the breakdown of risk-weighted assets by business line (IFS, DM and CIB);
■ the cost of risk on outstanding loans (in annualis ed basis points);
■ the liquidity coverage ratio (LCR).
STRESS TESTING
To ensure dynamic risk supervision and management, the Group has implemented a comprehensive stress testing framework.
STRESS TESTING FRAMEWORK The stress testing framework forms an integral part of the risk management and financial monitoring system and is used in three main areas: forward-looking risk management, planning of regulatory resources and liquidity requirements, and optimisation of the deployment of these resources within the Group, mainly through the Group s and its main entities ICAAP and ILAAP processes.
Different types of stress tests
There are two types of stress tests:
■ r egulatory stress tests:
These involve primarily the stress tests requested by the EBA, the ECB, or any other supervisory authority.
The EBA and the ECB conducted EU-wide stress tests of the forty-eight largest European banks in 2018. All banks were required to apply certain macroeconomic scenarios and methodological assumptions for comparison purposes. A scenario of severe macroeconomic stress over a period of three consecutive years (the adverse scenario ) was used to test the impact on exposure to credit, market, operational and revenue (rates and commission) risk. This was the fi rst European regulatory year completed under the new IFRS 9 accounting standard, enabling its potential impact in the event of a major macroeconomic crisis to be analysed.
The impact of this major stress scenario on BNP Paribas capital was to reduce the full CET1 ratio by 288 basis points compared with the level at 31 December 2017, restated for calculation changes in the fi rst half of 2018(1), versus an average reduction of -385 basis points across all of the forty-eight European banks tested.
In 2017, the ECB conducted a regulatory stress test focused on the scope of interest rate risk for the banking book. The main European banks had taken part in this exercise, which demonstrated the Group s resilience to the various interest rate scenarios defi ned by the ECB;
(1) Relating to the entry into force of IFRS 9, to the deduction from CET1 capital of irrevocable payment undertakings (IPU) and to risk-weighted assets associated with operational risk which were treated using a standardised approach.
