2018 Registration document and annual fi nancial report - BNP PARIBAS332

5 RISKS AND CAPITAL ADEQUACY PILLAR 3

5

Credit risk

TRENDS IN CREDIT RISK EXPOSURE The EUR 26 billion increase in credit risk exposure excluding the foreign exchange effect in 2018 (excluding Other items and Equities), is due mainly to the Bank s current business activity. Currency effects had a signifi cant infl uence on the increased exposure (+ EUR 9.5 billion) under the combined effect of appreciation of the US dollar (+ EUR 15.1 billion) and the depreciation of the Turkish l ira (- EUR 5.1 billion). Excluding these currency effects, the main changes by exposure class are the following:

■ the increased corporate exposures of EUR 10.9 billion mainly arises from CIB (+ EUR 12.7 billion) in relation to large corporates in the United States and Europe, as well as by the acquisition of the core banking activities of Raiffeisen Bank in Poland partially offset by the sale of First Hawaiian Bank in the United States;

■ the increased retail exposures of EUR 12.7 billion is related in part to the organic growth, the development of Personal Finance partnerships and the acquisition of the core banking activities of Raiffeisen Bank in Poland, and also to increased residential mortgage business in France and Belgium. This increase is partially offset by the sale of First Hawaiian Bank in the United States.

APPROACHES USED TO CALCULATE CAPITAL REQUIREMENTS BNP Paribas has opted for the most advanced approaches allowed under Basel 3. In accordance with the European Directive and its transposition into French law, in 2007 the supervisor authorised the Group to use internal models to calculate capital requirements starting on 1 January 2008.

For credit risk, the share of exposures under the IRBA approach is 71% as at 31 December 2018 , stable compared to 1 January 2018 . This significant scope includes in particular Corporate and Institutional Banking (CIB), French Retail Banking (FRB), BNL SpA, a part of the BNP Paribas Personal Finance business (consumer loan book) and the entities BNP Paribas Fortis and BGL BNP Paribas. The main models used by the Fortis Group, which prior to its acquisition had been authorised by its banking supervisor to use the advanced approach, converged to Group methodologies (with the exception of those concerning retail customers). The IRBA scope nevertheless excludes certain entities such as those of the BancWest sub-group and subsidiaries in emerging countries.

Within the scope of equity exposures, the Group has mainly opted for the simple weighting method.

➤ FIGURE 6: CREDIT RISK EXPOSURE BY APPROACH [Audited]

At 31 December 2018

28% Standardised approach

1% Simple weighting method

71% IRB approach

Total: EUR 1,544 billion

At 1 January 2018

28% Standardised approach

1% Simple weighting method

71% IRB approach

Total: EUR 1,505 billion