2018 Registration document and annual fi nancial report - BNP PARIBAS 357

5RISKS AND CAPITAL ADEQUACY PILLAR 3

5

Credit risk

INTERNAL RATING SYSTEM SPECIFIC TO RETAIL CUSTOMERS [Audited] Retail customers are characterised by a high degree of granularity, small unit volumes and a standard risk profi le.

The majority of retail borrowers are assigned a behavioural score which serves as a basis to determine the probability of default and, for each transaction, the Global Recovery Rate (GRR) and Exposure at Default (EAD). These parameters are calculated every month on the basis of the most up-to-date information. They are supplemented by different scores that are made available to the commercial function. The latter has no involvement in determining risk parameters. These methods are used consistently for all retail customers. The general principles of the rating system are set out in the Rating System paragraph in the section Credit Risk Management Policy.

Scoring techniques are used to assign retail customers to risk groups presenting the same default risk characteristics. This also applies to the other credit risk inputs: EAD and LGD.

The chart below shows a breakdown by credit rating of performing loans and commitments in the retail book for all the Group s business lines, measured using the internal ratings based approach.

This exposure to performing loans represented EUR 253 billion at 31 December 2018, an increase compared with EUR 245 billion at 1 January 2018.

➤ FIGURE 8: IRBA EXPOSURE BY INTERNAL RATING RETAIL PORTFOLIO [Audited]

0%

5%

10%

15%

20%

25%

% of exposure Excellent, good and average risks Under credit watch

2 9

11.96%

10

28.41%

8

6.56%

7

2.87%

6

1%

5

0.37%

4

0.16%

3

0.07%

Rating

0.03% Average PD at

one year horizon at 31/12/2018

31 December 2018 1 January 2018

RETAIL PORTFOLIO The following table gives the breakdown by PD range of the retail loans and commitments for all of the Group s business lines using the advanced IRB Approach. Total exposure represented EUR 264 billion as at 31 December 2018 compared with EUR 257 billion as at 1 January 2018.