2018 Registration document and annual fi nancial report - BNP PARIBAS374

5 RISKS AND CAPITAL ADEQUACY PILLAR 3

5

Securitisation in the banking book

5.5 Securitisation in the banking book

Securitisation means a transaction or scheme, whereby the credit risk associated with an exposure or pool of exposures is tranched, having the following characteristics:

■ payments made in the transaction or scheme are dependent upon the performance of the exposure or pool of exposures;

■ the subordination of tranches determines the distribution of losses during the life of the risk transfer.

Any commitment (including derivatives and liquidity lines) granted to a securitisation operation must be treated as a securitisation exposure. Most of these commitments are held in the prudential banking book (section 5.5). Commitments held in the trading book are set out in Market risk (section 5.7).

The securitisation transactions described below are those that meet the defi nition set out in Regulation (EU) No. 575/2013.

Assets securitised as part of proprietary securitisation transactions that meet Basel eligibility criteria, particularly in terms of signifi cant

risk transfer (effi cient securitisation), are excluded from the credit risk framework. Only positions held by the Bank and any commitments subsequently granted to the securitisation structure are included in the capital requirement calculation as explained in this section, with the exception of positions deducted from CET1 (EUR 153 million at 31 December 2018).

Proprietary securitisation exposures that do not meet the Basel eligibility criteria (ineffi cient securitisation) remain in the portfolio to which they were initially assigned. The capital requirement is calculated as if they had not been securitised and is included in the section on credit risk.

Consequently, the securitisation transactions discussed below only cover:

■ the programmes originated by the Group deemed to be effi cient under Basel 3 regulatory framework;

■ the programmes sponsored by the Group, in which it has retained positions;

■ the programmes originated by other parties to which the Group has subscribed.

ACCOUNTING METHODS [Audited]

(See note 1 to the consolidated fi nancial statements Summary of signifi cant accounting policies applied by the Group).

The accounting classifi cation of securitisation positions in the banking book is shown in Table 10 : Prudential balance sheet by risk type (EU LI1-B).

Securitisation positions classifi ed as Financial assets at amortised cost are measured using the method described in note 1.e.1 to the fi nancial statements: the effective interest rate used to recognise interest income is measured on the basis of an expected cash fl ow model. From the outset, these positions are subject to an impairment calculation for expected credit risk losses (see note 1.e.5).

Securitisation positions classifi ed on an accounting basis as Financial assets at fair value through equity are measured using the method described in note 1.e.2 to the fi nancial statements. Changes in fair value determined according to the principles listed in note 1.e .10 to the financial statements (excluding revenue recognised using the effective interest method) are presented in a specifi c subsection of shareholders equity along with expected credit risk losses calculated using the methods described in note 1.e.5 to the fi nancial statements. Upon disposal, amounts previously recognised in recyclable equity are transferred to the profi t and loss account.

Securitisation positions classifi ed on an accounting basis as Financial instruments at fair value through profi t or loss are measured using the method described in note 1.e.7 to the fi nancial statements.

Proceeds from the sale of securitisation positions are recognised in accordance with rules for the category of origin of positions sold.

Synthetic securitisations in the form of credit default swaps or received guarantees follow the same accounting rules as transaction derivatives (see note 5.a to the consolidated financial statement) or financial guarantee received .

Assets pending securitisation are classifi ed as:

■ fi nancial instruments at amortised cost or at fair value through equity and in the prudential banking book in the case of exposures resulting from the bank s balance sheet, for which the bank will be originator in the future securitisation within the meaning of Basel 3;

■ fi nancial instruments at fair value through profi t or loss and in the prudential banking book in the case of exposures purchased and put into warehousing, for which the bank will be sponsor in the future securitisation within the meaning of regulation.