2018 REGISTRATION DOCUMENT AND ANNUAL FINANCIAL REPORT

2018 Registration document and annual fi nancial report - BNP PARIBAS398

5 RISKS AND CAPITAL ADEQUACY PILLAR 3

Market risk

➤ TABLE 75: MARKET RISK-WEIGHTED ASSETS MOVEMENTS BY KEY DRIVER (EU MR2-B)

In millions of euros

a b c d f g

VaR SVaR IRC(*) CRM(**) Standardised

approach Total

RWAs Total capital

requirements

1 31 December 2017 4,335 7,330 2,597 590 1,814 16,666 1,333

2.a Asset size 579 1,507 (580) (24) (67) 1,415 113

2.b Asset quality 215 120 (8) (86) (240) 1

3 Model update 369 373 426 - (0) 1,168 93

4 Methodology and policy - - - - - - -

5 Acquisitons and disposals - - - - - - -

6 Currency - - - - - - -

7 Other (10) (7) (0) - 715 698 56

8 31 DECEMBER 2018 5,488 9,323 2,436 479 2,222 19,948 1,596

(*) Incremental Risk Charge. (**) Comprehensive Risk Measure.

The VaR and SVaR increased in 2018 mainly relating to increases in asset volumes market parameters and model updates.

IRC fell in 2018 due to an increase in hedging instruments and a reduction of positions offsetting the increased effects of the model updates.

MARKET RISK RELATED TO TRADING ACTIVITIES

INTRODUCTION [Audited] Market risk arises mainly from trading activities carried out within Corporate and Institutional Banking (CIB), mainly within Global Markets and encompasses different risk factors defi ned as follows:

■ interest rate risk is the risk that the value of a fi nancial instrument will fl uctuate due to changes in market interest rates;

■ foreign exchange risk is the risk that the value of an instrument will fl uctuate due to changes in foreign exchange rates;

■ equity risk arises from changes in the market prices and volatilities of equity shares and/or equity indices;

■ commodities risk arises from changes in the market prices and volatilities of commodities and/or commodity indices;

■ credit spread risk arises from the change in the credit quality of an issuer and is refl ected in changes in the cost of purchasing protection on that issuer;

■ option products carry by nature volatility and correlation risks, for which risk parameters can be derived from option market prices observed in an active market.

Trading activities at BNP Paribas are directly related to economic relations with business line customers, or indirectly as part of market-making activities. BNP Paribas s proprietary trading activities were transferred to the Opera Trading Capital subsidiary in mid-2015.

MARKET RISK MANAGEMENT ORGANISATION [Audited] The market risk management system aims to track and control market risks as well as control fi nancial instrument valuation whilst ensuring that the control functions remain totally independent from the business lines.

Within RISK, three departments are responsible for monitoring market risk:

■ Global Markets RISK (GM RISK) covers Global Markets activities;

■ Enterprise Risk Architecture (ERA ALMT RISK) covers ALM-Treasury activities;

■ International Retail Banking RISK (IRB RISK) covers International R etail B anking activities.