2018 Registration document and annual fi nancial report - BNP PARIBAS 441

5RISKS AND CAPITAL ADEQUACY PILLAR 3

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Appendix 1: Sovereign exposures [Audited]

Appendix 1: Sovereign exposures [Audited]

The BNP Paribas Group is exposed to sovereign risk, which is the risk of a State defaulting on its debt, i.e. a temporary or prolonged interruption of debt servicing (interest and/or principal). The Group is thus exposed to credit, counterparty or market risk according to the accounting category of the fi nancial asset issued by the sovereign State.

Exposure to sovereign debt mainly consists of securities. The Group holds sovereign bonds as part of its liquidity management process. Liquidity management is based in particular on holding securities eligible as collateral for refi nancing by central banks and includes a substantial share of highly rated debt securities issued by governments, representing a low level of risk. Moreover, as part of its assets and liability management

and structural interest rate risk management policy, the Group also holds a portfolio of assets including sovereign debt instruments, with interest- rate characteristics that contribute to its hedging strategies. In addition, the Group is a primary dealer in sovereign debt securities in a number of countries, which leads it to take temporary long and short trading positions, some of which are hedged by derivatives.

Sovereign exposures held by the Group are presented in the table hereafter in accordance with the method defi ned by the EBA for the 2014 stress tests covering a scope which includes sovereigns as well as local and regional authorities.