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contents - BNP Paribas

C O N T E N T S

REPORT OF THE BOARD OF DIRECTORS 50

APPENDIX

Consolidated Income Statement Analysis 56

Net Banking Income 57

Operating Expense and Depreciation 58

Increase in Gross Operating Income by the Two Core Businesses 59

Addition to the Allowance for Credit Risks and Country Risks 60

Net Income 61

Income of BNP SA 62

Appropriation of Income 63

Consolidated Balance Sheet Analysis 64

Capital Stock and Capital Adequacy 65

Capital Adequacy 66

Internal Control System 67

Principles and Organization of Risk Management 68

- Banking Activities 68

• Decision-Making Authority and Chain of Command 68

• General Procedure for Granting Loans 68

• General Procedure for Monitoring Loans 69

• General Procedure for Reporting Risks 70

- Trading Activities 70

• Separation of Functions 70

• Risk Limits 71

Credit and Counterparty Risks 72

- Credit Risks 72

- Credit Risk Coverage 72

• Specific Risks 72

• Real Estate Risks 73

• Country Risks 73

• Balance Sheet Strength 73

- Counterparty Risk 74

Market Risk 76

Asset/Liability Management 77

- Management of Liquidity Exposure 78

- Management of Interest Rate Exposure 78

- Management of Net Foreign Exchange Position 78

Operational Risk 78

- Banking Activities 78

- Trading Activities 79

Business and Results of BNP’s Main Domestic Subsidiaries 79

Banque de Bretagne 79

BNP Bail 80

Crédit Universel 80

Meunier Promotion 81

BNP Gestions 81

Natio-Vie 82

Banexi 82

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50FIFTY

REPORT

OF THE BOARD

OF DIRECTORS

Net income attributable to the Group up 55% to FRF 5,962 million.

Quadrupling of earnings per share in four years.

FRF 3,020 million of risk provisions covering five Asian countries.

Continued growth in profitability of the two core businesses: domestic banking and

wholesale banking worldwide.

Further improvements made to asset quality.

Gross dividend per share of FRF 10.50 including the dividend tax credit.

Total distribution of FRF 1.5 billion.

Nineteen ninety-seven was a very

good year for Banque Nationale

de Paris. Business benefited from

a combination of positive factors:

rising stock prices, a strengthening

dollar, restructured Peruvian and

Russian debt, and the start of

economic recovery in France. In

the second half, however, it was

affected by the impact of the Asian

crisis on provisions. On the whole,

BNP significantly increased its

profitability thanks to largely

improved performance in virtually

all areas.

With FRF 44,066 million of net

banking income, the Group’s

revenues rose 11.6% in 1997.

Growth in value-added to capital

amounted to 10.6% and

commissions increased by 13.6%.

Commissions accounted for

33.5% of net banking income,

compared with 32.9% in 1996,

confirming the Group’s ability to

offset the narrowing of lending

margins by fee-based revenues,

particularly in retail banking.

Taking into account a 6.9%

increase in operating expense and

depreciation, reflecting business

development in wholesale

banking, gross operating income

totaled FRF 13,435 million, up

23.9% (20.9% at constant

exchange rates), and the

cost/income ratio fell below the

70% threshold. The BNP Group

made FRF 6,785 million of

additions to allowances, including

FRF 3,020 million on five

sensitive Asian countries.

Excluding the specific Asian

provisions, the net addition to

allowances was similar to that in

1996. The other income

statement items—the net gain on

disposals of long-term

investments, net of provisions; net

nonrecurring nonoperating

expenses; and the share of

earnings of companies carried

under the equity method—

amounted to a FRF 1,566 million

gain, bringing pretax income up

60.7%, to FRF 8,216 million.

The income tax charge doubled

compared with 1996, to FRF

1,997 million. Consolidated net

income totaled FRF 6,219

million, up 50.6%, and net

income attributable to the BNP

Group amounted to FRF 5,962

million, up 54.6% from 1996 and

representing a sixfold increase over

the result in 1993, the year of

privatization.

The two core businesses

continued to grow according to

their strategy, while affirming

their commercial vitality

and substantially increasing

profitability.

R E P O R T O F T H E


DOMESTIC BANKING

(DB)

The domestic banking business in

1997 showed commercial vitality

and increased profitability. Average

monthly loan outstandings grew

by 1.4% to FRF 396 billion. The

increase was higher for commercial

loans (up 1.9%) than for loans to

individuals (up 1.3%). Customer

funds increased by 10.2%

to FRF 637 billion, representing

a 30.4% increase in life/endowment

insurance balances, a 13.1%

increase in regulated savings

deposits, a 9.2% increase in

Gross operating income of the

Domestic Banking division rose

13.2% to FRF 5,069 million. Total

revenues were up 2.3% to FRF

24,611 million. The narrowing of

lending margins was more than

offset by an increase in commissions

related in particular to the

commercial innovations BNP

offered its customers. Productivity

increased once again: operating

expense and depreciation decreased

by 0.1%. The domestic banking

network increased its revenues by

2.4% and cut its operating expense

and depreciation by 0.3%, pushing

gross operating up by 17.9%.

Employment declined a further

demand deposits, and a 5.9%

increase in mutual fund assets.

This performance illustrates

BNP’s success in attracting new

business: 43,000 new individual

customers and 5,000 new

corporate relationships

(reestablishing BNP as the leading

bank to SMCs). It is also

indicative of BNP’s ability to sell

its new products and services, as

well as its preeminent position in

electronic and home banking.

Moreover, BNP’s agreement with

Cofinoga has opened up

promising new prospects.

3.8% in 1997 thanks to increasing

computerization and organizational

progress, and amid an ongoing

redeployment of administrative staff

to sales functions. The Domestic

Banking division controlled its costs

while adhering to investment

priorities: branch modernization,

workstation computerization,

expanding the fleet of ATMs, staff

training, and preparations for the

euro.

The Domestic Banking division

made a net FRF 2,402 million

addition to allowances for doubtful

loans, down 29.6%. This favorable

development could be ascribed to

The business of banking and

bank-related subsidiaries showed

improvement, on the whole, in

1997. Banque de Bretagne increased

its volumes and maintained its return

on equity at a high level despite

downward pressure on interest rates

and margins. BNP Bail, which is a

leading leasing company, increased its

total credit outstandings by 1.5%

thanks to an increase in new

contracts in all areas. Despite some

stagnation in its main markets,

Crédit Universel increased its

originations by 2.8% and its credit

outstandings by 7.9%, thus

improving its positions.

DB FAST-GROWING PROFITABILITY

Millions of French francs, DB Domestic network only

year ended 31 December 1997 % Change % Change

Net banking income 24,611 2.3 22,094 2.4

Operating expense and depreciation (19,542) (0.1) (18,309) (0.3)

Gross operating income 5,069 13.2 3,785 17.9

Provisions (2,402) (29.6) (1,938) (28.2)

the widespread use of techniques to

monitor lending decisions and

calculate the profitability of lending

operations, as well as to an

improvement of customers’ financial

condition.

The combination of these factors

had a strongly positive impact on

pretax earnings, which tripled for the

entire division, to FRF 2,014 million

(calculated for its subsidiaries on the

basis of their effective stockholders’

equity). Pretax income of the

domestic network, on the basis of

zero stockholders’ equity, rose

sevenfold, to FRF 1,240 million.

B O A R D O F D I R E C T O R S

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52

FIFTY-

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INTERNATIONAL BANKING AND FINANCE (IBF)

In a highly contrasted environment, characterized by a combination of positive factors offset in part by the

Asian crisis starting in the summer, the International Banking and Finance division greatly improved its

performance and increased its profitability.

IBF STEADILY INCREASING RESULTS

% % Change at

Millions of French francs, Change constant exchange

year ended 31 December 1997 rates

Net banking income 18,071 29.5 23.0

Operating expense and depreciation (11,434) 21.6 15.8

Gross operating income 6,637 46.0 37.8

Provisions (3,648) N/M N/M

The worldwide lines of business

had an excellent year on the whole.

The International Trade Finance

department increased its export

finance originations by 28%. The

Structured Finance department

was awarded 75 contracts as

arranger or advisor and was one

of the world’s top players in its

field. BNP Gestions increased its

assets under management by

9.8% to FRF 450 billion and

further globalized its business by

forming BNP Asset Management

Asia (Hong Kong) and BNP Asset

Management Argentina. The

Private Banking department,

with FRF 194 billion of customer

assets at year-end 1997,

strengthened its network with the

creation of a regional private

banking organization for Asia.

The Equities and Equity

Derivatives department had an

exceptional year: in origination

business, BNP Equities advised

France Télécom on its partial

privatization, and in intermediation

business, BNP Equities Du Bouzet

ranked among France’s top three

stock brokerage firms, and capacity

was increased in Europe and Asia.

BNP continued to be one of the

world’s leaders in equity derivatives.

It also had a good year for Money

Market and Foreign exchange

business, whereas the bond

business was substantially lower and

underwent restructuring. As a result

of active management, the Equity

investment and sovereign debt

portfolios made a significant

contribution to earnings.

The international network is

orienting its strategy toward

controlled growth and increased

profitability. BNP has implemented

a strict program for increasing

average weighted assets that is

nonetheless allowing for an

appreciable increase in gross

operating income in all regions.

Starting in mid-1997, the Asian

crisis introduced a major factor of

uncertainty in the markets. In a

region subject to flux, BNP carefully

selected its risks based on its longstanding

local experience. In the

five countries affected by the crisis,

BNP’s real estate risks are

immaterial, its off-balance sheet

outstandings have low risk exposure,

its trade finance receivables are selfliquidating,

and it booked no

losses on capital market business.

The Bank’s risk management

system, which has continually

been strengthened, ensures strict

monitoring of commitments. This

crisis also led to a widening of

margins and opened opportunities

that BNP seized, such as its

acquisition of Peregrine’s “Greater

China” business.

On the whole, the International

Banking and Finance division’s

pretax income, after sizable

additions to allowances, and

calculated for its subsidiaries

and branches on the basis of

their effective stockholders’

equity, amounted to FRF 5,560

million, up 22.6% compared

with 1996.

R E P O R T O F T H E


The net addition to allowances for

doubtful loans by the BNP Group

amounted to FRF 6,785 million,

representing an increase of 78.9%, or

FRF 2,992 million, compared with

1996. This sharp increase reflected a

sharp contrast between provisions

to cover exposure in the five sensitive

countries of East Asia and those for

other risks.

Excluding the coverage of risks in

the five Asian countries, the net

addition to allowances totaled

FRF 3,765 million, virtually

the same level as in 1996.

This development illustrates the

effectiveness of the risk monitoring

procedures BNP has implemented

since the time of privatization, as

well as the higher general quality of

the operating environment in most

countries.

BNP assessed all of its

commitments to the five Asian

countries at risk (Indonesia,

Thailand, the Philippines, South

Korea, and Malaysia) and valued

them at FRF 28.4 billion (USD

4.7 billion) at the end of January

1998. In precise terms, BNP’s

assessed commitments to these

five countries comprise balance

sheet and off-balance sheet

commitments, credits of all

maturities, including short-term

and trade finance, securities

investments and trading accounts,

and loans in local and foreign

currencies. They include all

operations in favor of governments,

banks, and corporates, excluding

subsidiaries of multinationals

headquartered outside the group

of sensitive countries. They

exclude the portion of risks

guarantied outside the group of

sensitive countries by French and

international institutions (such as

Coface) or by formally pledged

cash collateral.

BNP made provisions, item by

item, for all borrowers in the

five countries concerned, totaling

FRF 592 million. For reasons of

conservatism, BNP made an

additional FRF 2,428 million

provision based on a multifactor

analysis of the heightened

consequences that a possible

worsening of these countries’

economic and financial condition

would have on the Bank’s risks.

Altogether, BNP made FRF 3,020

million (USD 500 million) of

provisions to cover risks in these five

countries.

Further Improvements in Asset

Quality

Nonrecurring charges amounted

to FRF 1,391 million. These

included a FRF 611 million

addition to allowances to cover staff

commitments in France and abroad

(particularly for adjustments in

employee pension plans of

the Group’s international entities

and staff reductions of the

operational support centers due to

computerization in the domestic

network). BNP added FRF 285

million to the allowance to cover

the supplementary cost of adapting

to the year 2000 and the

introduction of the euro. BNP

completed the migration of its

computer systems to a single

database, for which it booked

a nonrecurring charge of

FRF 133 million.

Having observed the stabilization

in the commercial real estate market,

BNP readjusted the balance sheet

value of its main operating real

estate holdings in 1997. It took a

FRF 3,374 million provision charge

on the revaluation, posting the asset

value write-down (FRF 2,758

million, net of FRF 616 million of

related deferred income tax liabilities

set up in 1991-92) to stockholders’

equity. This operation impacted

net assets, in accordance with

regulations, similarly to the

procedure used for the 1991-92

revaluation.

The allowance for unforeseeable

sectoral risks stood at FRF 1,430

million, unchanged from its level at

year-end 1996, and remained

unallocated. The reserve for general

banking risks was increased slightly,

to FRF 6,718 million, reflecting

additions made by foreign

subsidiaries.

Average weighted assets rose by

3.0% in the first half of 1997 and

0.1% in the second half. BNP had

a Tier 1 and Tier 2 capital ratio of

9.9% and a Tier 1 capital ratio of

5.9% at 31 December 1997,

compared with ratios of 9.1% and

5.4%, respectively, a year earlier.

* * *

BNP crossed a new threshold in its

strategy of enhancing shareholder

value: return on equity amounted

to 10.4%. Earnings per share

increased again, to FRF 28.30,

which is four times the figure in

1993, the year of privatization.

Year after year, BNP has enhanced

its potential for achieving profitable

growth. The progress BNP has

made since privatization in 1993

confirms its in-depth performance

B O A R D O F D I R E C T O R S

53FIFTY-

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54

FIFTY-

FOUR

gains, and its capacity to create value

augurs well for the future.

The Board of Directors will

recommend that the 13 May 1998

Stockholders’ Meeting declare a net

dividend per share of FRF 7.00

(FRF 10.50 per share including the

dividend tax credit), up 30%

from 1996. The total dividend

distribution would amount to

FRF 1,493 million, up 33%.

Stockholders will be offered the

choice of a cash dividend or a stock

dividend between 26 May and

15 June inclusive. The Board of

Directors intends to eliminate this

option in 1999 for the 1998

dividend.

* * *

The Board of Directors will submit

a total of 16 resolutions for the

approval of the Annual and Special

Meeting of Stockholders on

13 May 1998.

The first eight resolutions will be

submitted to the Annual Meeting

of Stockholders:

• The first resolution is to

approve the balance sheet at

31 December 1997, and the

income statement for the year

then ended, after stockholders

have heard the Statutory

Auditors’ Report.

• The second resolution is to

appropriate income for 1997. Net

income of BNP SA, amounting

to FRF 2,099.873 million plus

FRF 1,508.426 million taken

from unappropriated retained

earnings, form a total of

FRF 3,608.299 million available

for distribution. The dividend

distributed to stockholders would

amount to FRF 1,492.719

million corresponding to a net

dividend of FRF 7.00 per share

which, combined with the

dividend tax credit of FRF 3.50

per share, would form a gross

dividend of FRF 10.50 per share.

After the appropriation of

FRF 14.523 million to the legal

reserve and FRF 774.032 million

to the special reserve for long-term

capital gains and other reserves,

FRF 1,327.025 million would be

carried forward as unappropriated

retained earnings.

The Board of Directors will propose

that the Stockholders’ Meeting

grant stockholders the option to

receive their dividend in the form

of shares of the Company. The

new shares created by this option

would have rights to income

earned from 1 January 1998 and

would be issued at a price representing

90% of the average

opening price for the period of

twenty consecutive trading days

preceding the date of the

Stockholders’ Meeting, less the

amount of the net dividend and

rounded up to the nearest whole

franc. Stockholders wishing to

receive the payment of their dividend

in the form of shares would

have to exercise this option between

26 May and 15 June 1998,

inclusive. As of 30 June 1998, dividends

will be payable in cash only.

• The third resolution is to approve

agreements governed by Sections

101 to 106 of the 1966 French

Companies Act, once stockholders

have heard the Statutory Auditors’

Special Report.

• The fourth resolution is to

authorize the Board of

Directors to make openmarket

purchases and sales of

BNP’s shares for the purpose

of moderating price fluctuations,

at a maximum purchase

price of FRF 550 and a minimum

selling price of FRF 200

a share. This authorization

would be given for a period to

expire at the close of the

Stockholders’ Meeting called

to approve the financial statements

for the year ended

31 December 1998.

• The fifth resolution is to authorize

the Board of Directors to issue

bonds with a face value of up to

FRF 40 billion in French francs

or the equivalent in euros or

foreign currencies, within a period

of five years.

• The sixth, seventh, and eighth

resolutions are to elect Lindsay

Owen-Jones, Louis Schweitzer, and

David Peake to the Board

of Directors. The elections of Messrs.

Owen-Jones and Schweitzer fall

within the framework of partial

elections to the Board of Directors

at regular intervals.

The remaining eight resolutions will

be submitted to the Special Meeting

of Stockholders.

• The ninth resolution is to

authorize the Board of Directors

to take all appropriate measures

to convert BNP’s capital stock

into euros in preparation for the

upcoming transition to the single

European currency.

• The tenth resolution is to renew the

authorizations given in the

R E P O R T O F T H E


fourteenth, fifteenth, and sixteenth

resolutions of the Special Meeting of

Stockholders of 22 May 1997, which

maintain the authorizations granted

to the Board of Directors during a

cash or stock-for-stock public tender

offer for the Company’s shares:

- to create and offer shares of the

Company and transferable

securities of any nature

whatsoever that are immediately

and/or subsequently convertible

into shares of the Company, with

or without the waiver of

preemptive rights

- to increase the Company’s capital

stock by incorporating into the

capital stock all or part of reserves,

net income, additional paid-in

capital in excess of par, premiums

on merger, or premiums on

acquisition.

• The eleventh resolution is to

propose that the stockholders

maintain the conditions for

determining the issue price of

transferable securities convertible

into shares of the Company, with

waiver of preemptive rights, whose

issue was authorized by the

fifteenth resolution of the Special

Meeting of Stockholders of

22 May 1997.

• Privatization offered an

opportunity for a large number

of BNP’s employees to become

stockholders of their company.

In this connection, the twelfth

resolution is to authorize the

Board of Directors to increase

the capital stock by a par value

of FRF 300 million through the

issue of shares reserved for

employees of Banque Nationale

de Paris and some of

its subsidiaries, who had

subscribed to BNP’s company

savings plan (Plan d’Epargne

Entreprise), with waiver of

preemptive rights.

• Similarly, in the thirteenth

resolution, the stockholders are

asked to renew the authorization

given to the Board of Directors

by the Special Meeting of

Stockholders of 14 December

1993, in accordance with the

law, to grant stock options to

Company directors and some

or all staff members of Banque

Nationale de Paris or some of

its subsidiaries, increasing the

capital stock through the

exercise of stock options by a

maximum par value of FRF 300

million. Authorization would

entail the express waiver of

preemptive rights.

• In preparation for the upcoming

transition to the euro, the

Special Meeting of Stockholders

will be asked:

- to maintain the authorizations

given by the Special Meeting of

Stockholders of 22 May 1997

to create and offer transferable

securities convertible into shares

after the conversion of the

capital stock into euros

(fourteenth resolution).

- to authorize the Company to

express the French franc

amounts stipulated in the

fourteenth, fifteenth, sixteenth,

eighteenth, and nineteenth

resolutions of the Special

Meeting of Stockholders of

22 May 1997, as well as the

eleventh, twelfth, thirteenth,

and fourteenth resolutions

being submitted for the approval

of the Special Meeting of

Stockholders of 13 May 1998,

to be expressed in euros once

that currency becomes legal

tender in France (fifteenth

resolution).

• The sixteenth resolution is to give

power of attorney for the purpose

of carrying out such registrations,

publications, and formalities as

may be required by law.

B O A R D O F D I R E C T O R S

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FIFTY-

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APPENDIX

TO THE REPORT OF THE

BOARD OF DIRECTORS

CONSOLIDATED INCOME STATEMENT ANALYSIS

SUMMARIZED CONSOLIDATED INCOME STATEMENT

% Change

Millions of French francs, in

year ended 31 December 1997 1996 1995 1994 1993 1997 (a)

Net banking income 44,066 39,502 37,708 39,311 41,675 11.6

Operating expense and depreciation (30,631) (28,658) (28,208) (28,920) (29,218) 6.9

Gross operating income 13,435 10,844 9,500 10,391 12,457 23.9

Net addition to allowance for

credit risks and country risks (6,785) (3,793) (5,533) (7,374) (10,808) 78.9

Net gain (loss) on disposals of

long-term investments, net of provisions 2,380 (704) 8 (124) (487) N/M

Net nonrecurring nonoperating expenses (1,526) (1,684) (828) (295) (24) N/M

Share of earnings of companies carried

under equity method 815 537 36 636 556 51.8

Amortization of goodwill (103) (88) (84) (126) (142) 17.0

Pretax income 8,216 5,112 3,099 3,108 1,552 60.7

Income taxes (1,997) (983) (1,174) (1,347) (580) 103.2

Consolidated net income 6,219 4,129 1,925 1,761 972 50.6

Net income attributable to Group 5,962 3,856 1,784 1,656 1,018 54.6

(a) Acquisitions and disposals had no significant impact on income captions in 1997.

Net income attributable to the

BNP Group rose 54.6% to nearly

FRF 6 billion, which is almost six

times the amount in 1993, the year

of privatization.

Consolidated net banking income

totaled FRF 44,066 million, up

11.6%. Commissions (up 13.6%)

rose faster than value added to

capital (up 10.6%). Gross operating

income increased 23.9% to

FRF 13,435 million. BNP made

FRF 6,785 million of net additions

to allowances, including FRF 3,020

million to cover risks in the five

Asian countries considered to be

sensitive. Net nonrecurring

nonoperating items and other

amounted to FRF 1,566 million.

Taking into account a doubling of

income taxes, to FRF 1,997 million,

consolidated net income amounted

to FRF 6,219 million, up 50.6%.

R E P O R T O F T H E


NET BANKING INCOME

% Change

Millions of French francs, in

year ended 31 December 1997 1996 1995 1994 1993 1997

Value added to capital (a) 29,396 26,586 25,967 26,200 30,037 10.6

Commissions and other (a) 14,670 12,916 11,741 13,111 11,638 13.6

Net banking income 44,066 39,502 37,708 39,311 41,675 11.6

(a) Economic definitions.

Consolidated net banking income

rose 11.6% in 1997 (up 9.5%

excluding the impact of currency

fluctuations). This result reflected

increases of 10.6% in value added

to capital and 13.6% in

commissions.

All lines of business contributed to

the increase in revenues. Asset

management (including that of the

international private banking

business) rose by more than 25%.

Financial activities excluding asset

management – which mainly covers

capital market business and

management of BNP’s equity

investment and sovereign debt

Total revenues of the Domestic

Banking division were up 2.3% to

FRF 24,611 million. Revenues of

the domestic branch network rose

by 2.4% to FRF 22,094 million,

buoyed by a further increase in

service commissions (up FRF 1,018

portfolios – rose sharply, mostly

thanks to capital market business,

with the exception of bond market

business; the results of BNP’s

management of its equity and other

investments are reflected at another

level of the income statement. The

specialized finance business recorded

no interest on Eurotunnel debt

in 1997 due to rescheduling.

million), while the lending margin

narrowed by 13 basis points (down

FRF 669 million).

Total revenues of the International

Banking and Finance division were

up 29.5% to FRF 18,071 million.

IBF STEADILY INCREASING RESULTS IN THE VARIOUS LINES OF BUSINESS

Net banking income, % Change

millions of French francs, in

year ended 31 December 1997 1997

Asset management 1,002 25.9

Financial activities excluding asset management 6,207 63.4

Specialized finance 1,572 11.7

Wholesale banking 5,496 19.4

International retail banking 3,794 13.4

Total 18,071 29.5

The wholesale banking business

continued to grow, with strong

control over average weighted assets.

The international retail banking

business continued to advance

favorably, particularly at Bank of the

West, in California, and at the

network managed by Banque

Nationale de Paris Intercontinentale.

B O A R D O F D I R E C T O R S

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COMMISSIONS

% Change

Millions of French francs, in

year ended 31 December 1997 1996 1995 1994 1993 1997

On securities transactions 3,871 3,377 2,775 4,053 3,862 14.6

On customer transactions and other 3,151 2,792 2,210 2,299 2,250 13.1

On payment systems 2,093 1,960 1,869 1,745 1,680 6.7

On life/endowment insurance 854 734 713 546 417 15.5

Commission income (“BAFI” definition) 9,969 8,863 7,567 8,643 8,209 12.5

Other (a) 4,701 4,053 4,174 4,468 3,429 16.0

Total commissions (economic approach) 14,670 12,916 11,741 13,111 11,638 13.6

Total commissions as a percentage of

net banking income 33.5% 32.9% 30.5% 32.8% 29.0%

(a) These figures essentially correspond to income that is not recorded as commissions according to “BAFI” criteria but which is

economically related to commissions (such as foreign exchange commissions, software sales, and re-invoiced expenses).

Commission income rose 12.5% in accounting terms to FRF 9,969 million, and 13.6% in economic terms

to FRF 14,670 million. Total commissions, calculated according to the economic approach, accounted for

one-third of net banking income.

OPERATING EXPENSE AND DEPRECIATION

% Change

Millions of French francs, in

year ended 31 December 1997 1996 1995 1994 1993 1997

Salaries and employee benefits,

including profit sharing 18,991 17,920 17,640 17,825 17,946 6.0

Other operating expense 9,538 8,677 8,618 8,978 8,965 9.9

Depreciation, amortization, and provisions 2,102 2,061 1,950 2,117 2,307 2.0

Operating expense and depreciation 30,631 28,658 28,208 28,920 29,218 6.9

Operating expense and depreciation

rose by 6.9% in 1997 (up

5.2% excluding the impact of

exchange rate fluctuations), reflecting

the following tendencies:

• Operating expense and

depreciation of the Domestic

Banking division decreased

by 0.1%. BNP pursued its

policy of steadily reducing

employment in France by

means of voluntary departures.

Employment at the Domestic

Banking division decreased by

1,175 persons in 1997, and

employment in the domestic

branch network totaled

30,754 full-time equivalent

employees at year-end.

Adjustments reflected increasing

computerization, organizational

progress, and greater emphasis

on increasing the sales force.

R E P O R T O F T H E


EMPLOYMENT

% Change

Full-time equivalent, in

at 31 December 1997 1996 1995 1994 1993 1997

Domestic Banking division:

BNP France 30,754 31,984 33,094 33,961 34,891 (3.8)

French subsidiaries 2,163 2,108 2,109 2,088 2,019 2.6

Total Domestic Banking division 32,917 34,092 35,203 36,049 36,910 (3.4)

International Banking and Finance division:

In France 1,618 1,623 1,620 1,579 1,667 (0.3)

French subsidiaries 1,069 816 790 757 671 31.0

French overseas areas

Total International Banking

1,142 1,157 1,209 1,244 1,259 (1.3)

and Finance division 16,671 15,913 15,693 15,505 16,189 4.8

Outside France:

Europe 3,636 3,507 3,527 3,565 4,026 3.7

The Americas 3,331 3,204 3,144 3,021 3,130 4.0

Asia/Pacific 3,288 2,554 2,338 2,267 2,259 28.7

Africa/Middle East 2,587 3,052 3,065 3,072 3,177 (15.2)

Total Outside France 12,842 12,317 12,074 11,925 12,592 4.3

Other 2,832 2,757 2,704 2,915 3,042 2.7

Total BNP Group 52,420 52,762 53,600 54,469 56,141 (0.6)

• The International Banking and Finance division’s operating expense and depreciation rose 15.8% at constant

exchange rates; the increase was 21.6% due to exchange rate fluctuations. This increase could be ascribed

to the impact of local inflation, exchange rate fluctuations, business development expenditure (to strengthen

teams and resources, particularly in information technology), primarily in Europe (at the London group,

at BNP Arbitrage, and at BNP Finance), but also in Asia (at BNP Hong Kong and BNP Singapore).

INCREASE IN GROSS OPERATING INCOME

AT THE DOMESTIC BANKING AND INTERNATIONAL BANKING AND FINANCE DIVISIONS

Analysis of gross operating income according % Change

to core business, millions of French francs, in

year ended 31 December

Domestic Banking division:

1997 1996 1997

Domestic network 3,785 3,211 17.9

Domestic subsidiaries 1,284 1,267 1.3

Total Domestic Banking division

International Banking and Finance division:

International network:

5,069 4,478 13.2

Wholesale banking 2,263 1,743 29.8

International retail banking 1,430 1,113 28.5

Total international network

Financial activities in France and abroad:

3,693 2,856 29.3

Asset management 500 369 35.8

Financial activities excluding asset management 1,834 617 x 3.0

Total financial activities in France and abroad 2,334 986 x 2.4

International specialized finance 610 703 (13.2)

Total International Banking and Finance division 6,637 4,547 46.0

Other activities 1,729 1,819 (4.9)

Total BNP Group gross operating income 13,435 10,844 23.9

B O A R D O F D I R E C T O R S

59FIFTY-

NINE


60

SIXTY

Consolidated gross operating

income amounted to FRF 13,435

million in 1997, up 23.9% (or

20.9% excluding the impact of

exchange rate fluctuations), and

contributions could be analyzed as

follows:

• 37.8% from the Domestic

Banking division, whose gross

operating income rose 13.2% to

FRF 5,069 million (representing

a 17.9% increase in the domestic

Gross operating income of the

international network (all lines of

business) amounted to FRF 5,383

million in 1997, up 39.9%. The

branch network and a 1.3%

increase from domestic

subsidiaries).

• 49.3% from the International

Banking and Finance division,

whose gross operating income rose

by 46.0% to FRF 6,637 million

thanks in part to the good

performance of the international

network excluding capital market

activities (or a 29.8% increase from

wholesale banking and a 28.5%

breakdown between the various

continents was relatively even.

The relatively large share of the

Americas could be ascribed to

increase from international retail

banking); the contribution of

financial activities excluding asset

management was three times the

1996 figure.

• 12.9% from Other Activities

(including Asset/Liability

Management and management of

the Bank’s working capital), which

reported gross operating income

of FRF 1,729 million, down

4.9%.

ANALYSIS OF GROSS OPERATING INCOME OF THE INTERNATIONAL AND FRENCH OVERSEAS AREAS

NETWORK (ALL LINES OF BUSINESS), ACCORDING TO GEOGRAPHIC AREA

Millions of French francs,

year ended 31 December 1997 %

Europe (excluding France) 1,458 27.1

The Americas 1,802 33.5

Asia/Pacific 1,434 26.6

Africa/Middle East 689 12.8

Total 5,383 100.0

ADDITION TO THE ALLOWANCE FOR CREDIT RISKS AND COUNTRY RISKS

Bank of the West in California,

whose retail banking network has

continued to grow.

Millions of French francs,

% Change

in

year ended 31 December 1997 1996 1995 1994 1993 1997

Addition to allowance for specific risks 3,965 (a)

Addition to (deduction from) allowance

4,599 5,828 7,172 10,632 (13.8)

for country risks and related 2,820 (b)

(806) (295) 202 176 N/M

Addition to allowance for credit risks

and country risks 6,785 (c)

(a) Including five Asian countries: FRF 592 million.

(b) Including five Asian countries: FRF 2,428 million.

(c) Including five Asian countries: FRF 3,020 million.

3,793 5,533 7,374 10,808 78.9

R E P O R T O F T H E


• Excluding the coverage of risks in

the five Asian countries, the net

addition to allowances totaled

FRF 3,965 million, virtually

the same level as in 1996.

This development illustrates the

effectiveness of the risk

monitoring procedures BNP has

implemented since the time of

privatization, as well as the higher

general quality of the operating

environment in most countries.

BNP assessed all of its

commitments to the five Asian

countries at risk (Indonesia,

Thailand, the Philippines, South

Korea, and Malaysia) and valued

them at FRF 28.4 billion (USD 4.7

billion) at the end of January 1998.

In precise terms, BNP’s assessed

commitments to these five countries

comprise balance sheet and offbalance

sheet commitments, credits

of all maturities, including shortterm

and trade finance, securities

investments and trading accounts,

and loans in local and foreign

currencies. They include all

operations in favor of governments,

banks, and corporates, excluding

subsidiaries of multinationals

headquartered outside the group of

sensitive countries. They exclude

the portion of risks guarantied

outside the group of sensitive

countries by French and

international institutions (such as

Coface) or by formally pledged cash

collateral.

BNP made provisions, item by

item, for all borrowers in the

five countries concerned, totaling

FRF 592 million. For reasons of

conservatism, BNP made an

additional FRF 2,428 million

provision based on a multifactor

analysis of the heightened

consequences that a possible

worsening of these countries’

economic and financial condition

would have on the Bank’s risks.

Altogether, BNP made FRF 3,020

million (USD 500 million) of

provisions to cover risks in these

five countries.

• A FRF 1.3 billion addition was

made to the country-risk

allowance in relation to the

securitization of Peruvian and

Russian debt. BNP pursued its

program of making sovereign debt

sales, taking advantage of high

prices in the secondary markets

and enabling it to deduct FRF 1.1

billion from allowances.

NET INCOME

NET GAIN ON DISPOSALS OF

LONG-TERM INVESTMENTS

NET OF PROVISIONS

Thanks to its active management

of equity investments, BNP

realized a net gain of FRF 2,380

million on disposals of long-term

investments net of provisions. It

realized a sizable capital gain on

the disposal of its investment in

Compagnie de Suez.

NONRECURRING

NONOPERATING ITEMS AND

OTHER

Nonrecurring charges amounted

to FRF 1,391 million. These

included a FRF 611 million

addition to allowances to cover staff

commitments in France and

abroad (particularly for adjustments

in employee pension plans of the

Group’s international entities

and staff reductions of the

operational support centers due

to computerization in the domestic

network). BNP added FRF 285

million to the allowance, set up

with FRF 600 million in 1996, to

cover the supplementary cost of

adapting to the year 2000 and the

introduction of the euro. BNP

completed the migration of its

computer systems to a single

database, for which it booked

a nonrecurring charge of FRF 133

million.

SHARE OF EARNINGS OF

COMPANIES CARRIED UNDER

THE EQUITY METHOD

The share of earnings of companies

carried under the equity method

rose 51.8% to FRF 815 million,

thanks to Meunier Promotion’s

return to profitability and to Natio-

Vie’s good results (net income of

FRF 398 million, up 4.2%).

PRETAX INCOME

Pretax income rose 60.7% to

FRF 8,216 million:

• The Domestic Banking division

had pretax income of FRF 2,014

million (calculated for its

subsidiaries on the basis of their

actual stockholders’ equity), which

is more than three times the figure

in 1996: net banking income rose

2.3%, operating income and

depreciation declined by 0.1%,

and net additions to allowances

fell by 29.6%. The domestic

branch network increased its

pretax income by a factor of seven.

• The International Banking and

Finance division reported pretax

income of FRF 5,560 million

(calculated for its subsidiaries

on the basis of their actual

stockholders’ equity), up 22.6%,

or 16.9% at constant exchange

rates. Net banking income rose

29.5% (23.0% at constant

exchange rates), and operating

expense and depreciation

rose 21.6% (15.8% at constant

exchange rates). The net

addition to allowances rose

FRF 2,870 million to FRF

3,648 million, largely to cover

risks on the five sensitive Asian

countries.

B O A R D O F D I R E C T O R S

61SIXTY-

ONE


62

SIXTY-

TWO

• Other Activities showed pretax

income of FRF 642 million

(compared with a pretax loss of

FRF 44 million in 1996) related

to asset/liability management

and the management of the

Bank’s working capital. This

figure reflected the securitization

of Russian and Peruvian debt,

which had virtually no impact

on net income.

INCOME TAXES

The income tax charge for 1997

amounted to FRF 1,997 million,

NET INCOME OF BNP SA

BNP SA, the parent company,

had net banking income of

FRF 34,148 million, up 12.5%.

Operating income and depreciation

rose 5% to FRF 24,193 million.

Gross operating income totaled

FRF 9,955, up 36.1%.

Nonrecurring nonoperating items

were affected by BNP SA’s

transformation in 1997 of its

up 103.2%. The effective tax rate,

which is equal to income taxes

divided by pretax income (after

the share of earnings of companies

carried under the equity method

and the amortization of goodwill),

stood at 24.3%.

CONSOLIDATED NET

INCOME

Consolidated net income

amounted to FRF 6,219 million.

Net income attributable to the

BNP Group rose 54.6% to FRF

5,962 million, which is nearly six

portfolio management business

into a subsidiary, BNP Gestions.

In remuneration for the net

contribution valued at FRF 753

million, BNP Gestions issued

599,787 new shares with a par

value of FRF 100, for a total of

FRF 59,978,700, and recognized

a premium on contribution of

FRF 693 million. The remuneration

of this contribution is reflected in

times the amount in 1993, the year

of privatization. The return on

equity (ratio of net income

attributable to the BNP Group to

average stockholder’s equity,

Group’s share, after appropriations

of income for the year) amounted

to 10.4%, compared with 7.4% in

1996 an 2.2% in 1993.

% Change

Millions of French francs, in

year ended 31 December 1997 1996 1995 1994 1993 1997

Net banking income 34,148 30,346 30,296 31,727 32,868 12.5

Operating expense and depreciation (24,193) (23,032) (22,935) (23,522) (23,606) 5.0

Gross operating income 9,955 7,314 7,361 8,205 9,262 36.1

Net addition to allowance for credit

risks and country risks (5,506) (2,008) (3,154) (5,201) (8,141) N/M

Nonrecurring nonoperating items and other (2,680) (3,252) (2,268) (1,365) (1,207) 17.6

Pretax income (loss) 1,769 2,054 1,939 1,639 (86) (13.9)

Net income 2,100 2,375 1,777 1,320 58 (11.6)

BNP SA’s financial statements as a

nonrecurring capital gain.

Despite an increase in gross

operating income, and due to the

impact of covering its risks on five

Asian countries and revaluing its

operating real estate, BNP SA

reported net income of

FRF 2,100 million in 1997, down

11.6% from 1996.

R E P O R T O F T H E


APPROPRIATION OF

INCOME

The Board of Directors is

recommending that the Annual

Stockholders’ Meeting on 13 May

1998 appropriate 1997 net

income of 2,099,873,372.74,

APPROPRIATION OF INCOME FOR 1997

plus FRF 1,508,425,777.99 of

unappropriated retained earnings,

giving an amount available for

distribution of 3,608,299,150.73,

as follows:

• appropriation to the legal reserve

of FRF 14,522,987.50

Debit (in French francs) Credit (in French francs)

Taking into account a 2.8%

increase in the number of shares

outstanding, earnings per share

(net income attributable to

Group divided by the average

number of shares outstanding

during the period) amounted to

FRF 28.26 in 1997, compared

• appropriation to other

reserves and carry-forward

as retained earnings of

FRF 2,101,057,047.23

• distribution of a dividend of

FRF 1,492,719,116.00 to the

stockholders of BNP SA.

To the legal reserve 14,522,987.50 Unappropriated retained earnings,

prior years 1,508,425,777.99

Transfer to other reserves 774,031,912.20 Net income after operating expense,

Dividend distribution 1,492,719,116.00 depreciation, and provisions for

Retained earnings carried forward 1,327,025,135.03 general risks and commitments 2,099,873,372.74

Total debits 3,608,299,150.73 Total credits 3,608,299,150.73

with FRF 18.69 in 1996,

FRF 9.31 in 1995, FRF 8.95

in 1994, and FRF 6.65 in 1993,

the year of privatization.

1997 1996 1995 1994 1993

Net income attributable to Group,

millions of French francs 5,962 3,856 1,784 1,656 1,018

Total net dividend, millions of

French francs 1,493 1,120 694 608 552

Payout ratio 25.0% 29.0% 38.9% 36.7% 54.2%

Number of shares outstanding

at 31 December (a) 213,244,188 207,434,993 192,183,938 190,046,159 184,008,556

Earnings per share, French francs 28.26 18.69 9.31 8.95 6.65

Net dividend per share, French francs 7.00 (c) 5.40 3.60 (b) 3.20 3.00

(a) Including nonvoting shares until 1993.

(b) Paid to 192,904,218 shares, taking into account the 720,280 new shares created on 27 February 1996 following the public tender

offer for BNP España.

(c) Paid to 213,245,588 shares, taking into account the 1,400 new shares with rights from 1 January 1997 subscribed under the

1995-2002 stock option plan.

The net dividend per share (excluding the dividend tax credit) is FRF 7.00, up 29.6% from the previous year’s

dividend.

B O A R D O F D I R E C T O R S

63SIXTY-

THREE


64

SIXTY-

FOUR

CONSOLIDATED BALANCE SHEET ANALYSIS

SUMMARIZED CONSOLIDATED BALANCE SHEET

% Change

Billions of French francs, in

at 31 December 1997 1996 1995 1994 1993 1997

Interbank and money market items 752.3 713.1 567.9 487.6 459.7 5.5

Customer items 888.1 794.0 747.7 731.4 761.2 11.8

Securities portfolio 173.1 186.2 135.0 116.6 132.0 (7.1)

Other assets 207.5 150.6 125.7 99.4 106.2 37.8

Tangible and intangible assets 13.9 17.2 17.4 17.2 17.4 (19.1)

Total assets 2,034.9 1,861.1 1,593.7 1,452.2 1,476.5 9.3

Interbank and money market items 668.2 623.4 510.8 446.1 461.6 7.2

Customer deposits 717.8 638.1 578.1 523.2 510.6 12.5

Negotiable certificates of deposit 240.3 255.3 270.7 276.5 283.2 (5.9)

Other liabilities 271.6 224.7 126.7 99.7 115.5 20.9

Allowance for liabilities and charges 13.9 12.4 11.6 12.1 9.8 11.4

Subordinated debt and equity equivalents 52.5 43.1 36.6 35.9 36.0 21.7

Reserve for general banking risks 6.7 6.6 8.4 8.2 10.8 2.1

Stockholders’ equity

(after appropriation of income) 63.9 57.5 50.8 50.5 49.0 11.3

Total liabilities and stockholders’ equity 2,034.9 1,861.1 1,593.7 1,452.2 1,476.5 9.3

Consolidated assets of the BNP

Group amounted to FRF 2,034.9

billion at 31 December 1997, up

9.3% from 31 December 1996.

This development reflects the

following tendencies.

UNDER ASSETS

• There was an increase in interbank

and money market assets (up

5.5% to FRF 752.3 billion),

resulting on the one hand from

sizable increases in repurchase

transactions (up 73.3%, to

FRF 245.3 billion) and the

portfolio of Treasury bills and

money market instruments (up

60.6%, to FRF 248.5 billion), and

on the other, from a sharp decrease

in other interbank items (down

38.0%, to FRF 258.5 billion,

resulting primarily from a

FRF 149 billion decrease in loans

to other credit institutions). In

light of the very low risk weighting

of Treasury bills and securities

received under resale agreements,

and the decrease in interbank

loans, interbank outstandings

accounted for a sharply lower

proportion of weighted assets.

• Customer assets increased by

11.8% to FRF 888.1 billion

(representing 43.6% of total assets

at 31 December 1997, compared

with 42.7% a year earlier)

following the increase in loan

originations by the international

network.

• “Other items” rose 37.8%, to FRF

207.5 billion, due largely to the

strong increase in operations on

derivatives conducted within the

specialized lines of business.

UNDER LIABILITIES

• There was a 7.2% increase in

interbank and money market

liabilities, as well as a 20.9%

increase in “Other items” that was

caused by an increase in operations

on derivatives.

• Customer deposits rose 12.5%, to

FRF 717.8 billion.

R E P O R T O F T H E


CAPITAL STOCK AND CAPITAL ADEQUACY

CHANGES IN CAPITAL STOCK FROM 1992 TO 1997

Number of shares Amount in

outstanding French francs

Situation at 31 December 1992 70,739,443 3,536,972,150

1993

Two-for-one stock split bringing the

par value from FRF 50 to FRF 25 141,478,886 3,536,972,150

Exercise of subscription warrants

for nonvoting shares issued in 1990 12,048,924 301,223,100

Exercise of rights to subscribe to

common and nonvoting shares issued in 1993 30,480,746 762,018,650

Situation at 31 December 1993 184,008,556 4,600,213,9000

1994 (a)

Payment of the dividend in the form of shares of the company 1,685,603 42,140,075

Capital contribution of shares of Compagnie Financière Gamma 4,352,000 108,800,000

Situation at 31 December 1994 190,046,159 4,751,153,975

1995

Payment of the dividend in the form of shares of the company 2,137,779 53,444,475

Situation at 31 December 1995 192,183,938 4,804,598,450

1996

Stock-for-stock public tender offer for BNP España 720,280 18,007,000

Payment of the dividend in the form of shares of the company 1,675,995 41,899,875

Stock-for-stock public tender offer for Compagnie

d’Investissements de Paris 12,202,336 305,058,400

Private placement reserved for staff members 652,444 16,311,100

Situation at 31 December 1996 207,434,993 5,185,874,825

1997

Stock-for-stock public tender offer for BNPI 1,315,122 32,878,050

Payment of the dividend in the form of shares of the company 3,574,073 89,351,825

Private placement reserved for staff members 920,000 23,000,000

Situation at 31 December 1997 213,244,188 5,331,104,700

1998

Subscription to the 1995-2002 stock option plan 1,400 35,000

Situation at 31 March 1998 213,245,588 5,331,139,700

(a) The Special Stockholders’ Meeting of 7 December 1994 voted to convert nonvoting shares into common shares.

B O A R D O F D I R E C T O R S

65SIXTY-

FIVE


66

SIXTY-

SIX

At 31 December 1997 BNP SA had

capital stock of FRF 5,331,104,700

represented by 213,244,188 shares

with a par value of FRF 25. These

shares are fully paid up and held in

registered or bearer form, at the

stockholders’ discretion, in

accordance with applicable laws and

regulations. None of these shares has

double voting rights.

Increases in the number of shares

outstanding since 1 January 1997

STOCKHOLDERS’ EQUITY

The BNP Group’s consolidated

stockholders’ equity including

minority interests amounted to

FRF 63.9 billion, which is FRF 6.5

billion higher than the figure at 31

December 1996. The BNP Group’s

share of consolidated stockholders’

equity amounted to FRF 59.0 billion

at 31 December 1997, representing

a FRF 3.5 billion increase from 31

December 1996. This increase

reflected the following movements:

• FRF 1.2 billion of capital increases

during the year, FRF 4.5 billion of

occurred as a result of the

following three operations:

• the creation of 1,315,122 new

common shares on 28 June

1997 at the close of the stockfor-stock

public tender offer for

BNPI

• payment on 7 July 1997 of part

of the 1996 dividend in shares,

entailing the creation of

3,574,073 new shares

appropriations to reserves of

undistributed earnings in 1997,

and FRF 0.6 billion of effects of

exchange rate fluctuations and

other.

• A FRF 2.8 billion reduction

of the item “Capital gains on

restructuring” resulting from

BNP’s transfer of operating real

estate to its subsidiary Compagnie

Immobilière de France. The

amount of the item “Capital gains

on restructuring” at 31 December

1997 takes into account a

• the private placement on 17 July

1997 of 920,000 new shares

reserved for subscribers to BNP’s

company savings plan.

Following the subscription on

29 January 1998 to the 1995-

2002 stock option plan, entailing

the creation of 1,400 new shares,

BNP SA had capital stock of

FRF 5,331,139,700 represented

by 213,245,588 shares.

Millions of French francs, % Change

after appropriation of income, in

at 31 December 1997 1996 1995 1994 1993 1997

Consolidated stockholders’ equity, BNP Group’s share 59,040 55,552 48,642 48,160 46,833 6.3

Minority interests 4,884 1,882 2,212 2,297 2,155 N/M

Consolidated stockholders’ equity,

including minority interests 63,924 57,434 50,854 50,457 48,988 11.3

CAPITAL ADEQUACY

INTERNATIONAL CAPITAL RATIO

FRF 2,758 million asset value

write-down in order to reflect the

decline in real estate prices, which

is now considered to be durable.

Minority interests in BNP’s

consolidated stockholders’ equity

increased by FRF 3 billion primarily

due to the impact of the issue of

USD 500 million of noncumulative

preferred securities on the US

market by BNP US Funding LLC,

a subsidiary wholly controlled by

the BNP Group.

Millions of French francs, % Change

except as indicated, in

at 31 December 1997 1996 1995 1994 1993 1997

Weighted risks

Tier 1 and Tier 2 capital:

1,164.7 1,129.3 1,022.1 969.7 1,033.4 3.1

Tier 1 capital 69.0 60.8 56.1 55.7 57.4 13.4

Tier 2 capital 46.7 42.1 36.7 38.9 40.4 11.0

Total Tier 1 and Tier 2 capital 115.7 102.9 92.8 94.6 97.8 12.4

Tier 1 and Tier 2 capital ratio 9.9% 9.1% 9.1% 9.8% 9.5%

Tier 1 capital ratio 5.9% 5.4% 5.5% 5.7% 5.6%

R E P O R T O F T H E


At 31 December 1997, BNP’s Tier

1 and Tier 2 capital ratio stood at

9.9%, compared with 9.1% a year

earlier. At that same date, the Tier

1 capital ratio amounted to 5.9%,

up from 5.4% at 31 December

1996. This sizable increase could

be ascribed to the following

developments:

• a 12.4% (FRF 12.8 billion)

increase in total Tier 1 and Tier

2 capital, of which FRF 8.2 billion

corresponded to Tier 1 capital and

FRF 4.6 billion corresponded

to Tier 2 capital, mainly through

BNP’s ratio of available own funds

to required own funds, as defined

under the new regulations, stood at

123% at 31 December 1997 (115%

a year earlier), not including supercomplementary

own funds, and

130% taking super-complementary

own funds into account (120% at

31 December 1996).

INTERNAL CONTROL

SYSTEM

In order to optimize the

management of the risks inherent

in its operations, the BNP Group

has redefined its system of internal

controls according to four main

principles that underlie the Bank’s

organization:

• Hierarchy — The director of

each head office division defines

his internal control system in

the issue of undated floating-rate

subordinated notes and other

subordinated debt securities.

• an increase of only 3.1% (FRF

35.4 billion) in average weighted

assets, due to a sharp, intentional

reduction in interbank items

(down 22.3%, representing a

FRF 28 billion decrease in

weighted outstandings, or a

FRF 127 billion decrease in

unweighted outstandings) and a

6.0% increase in weighted

customer items. Weighted assets,

which rose by 3.0% during the

coordination with the Bank’s

other entities. He must ensure

that it functions correctly and

monitor effectively the activities

for which he is responsible.

• Separation of functions — This

principle applies primarily to

trading rooms and the

administrative departments that

settle completed transactions.

Separation of functions ensures

ongoing, independent monitoring

of business.

• Delegation — This is the

fundamental concept on which

the Bank’s decision-making

framework is based. Each

delegator must monitor the

implementation of his decisions.

• Instructions — Printed copies

of the Bank’s general policy,

first half of 1997, remained stable

(up 0.1%) in the second half.

CAPITAL ADEQUACY

At 31 December 1997, the BNP

Group’s total need for “own

funds”, determined in accordance

with the French regulation

and implementing instruction

corresponding to the European

Directive on the capital adequacy

of investment companies and

credit institutions, could be

analyzed as follows:

Billions of French francs

For credit risk exposure (excluding the trading account portfolio)

For market risk exposure:

86.2

For interest-rate risk exposure 3.6

For stock price risk exposure 1.5

For payment/counterparty risk exposure 1.8

For currency risk exposure 0.4

For large risk exposure —

Total 93.5

procedures, and controls are

distributed throughout the

entire BNP Group.

The BNP Group has created an

internal control database. It is

organized according to eight risk

families and four monitoring

levels, and takes existing

supervisory and service

relationships between BNP

Group entities into account. It

defines each individual’s internal

control responsibilities in the

form of rules and regulations

that state the scope and types of

responsibilities delegated, the

organization of monitoring

procedures, and reporting

requirements for each risk

family.

The internal control system is run

by a bank officer in charge of

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coordination and monitoring, and

it is evaluated by the Management

Audit and Inspection division,

which reports directly to the

Chairman and Chief Executive

Officer.

The BNP Group’s internal control

system, which is a major tool

guiding all of the company’s

decision-makers, complies with

French Banking Commission

(CRB) regulation 97-02, effective

1 October 1997.

PRINCIPLES AND

ORGANIZATION OF RISK

MANAGEMENT

Through its banking and trading

activities, BNP is exposed to

various types of risk: credit risk,

counterparty risk, market risk,

liquidity risk, transformation risk,

and operational risk (accounting,

administration, computer

processing).

BNP has created, and continually

improves upon, a set of standards

and procedures intended to identify,

measure, and manage its various

risks. This system operates

according to three demanding

principles: strict separation between

sales and risk analysis, individual

responsibility for lending decisions,

and attribution of the financial

consequences of decisions to the

operational entities that make them.

All of the Bank’s entities take part in

control procedures and work

together to ensure strict compliance,

particularly of ceilings imposed on

profit centers. New activities and

major changes to existing activities

are presented to BNP’s authorized

representatives so that the most

significant risks can be accurately

identified and the appropriate

standards and procedures procedures

implemented.

BANKING ACTIVITIES

Responsibility for managing the

Bank’s commitments rests with

its two core business divisions:

D omestic Banking and

International Banking and

Finance.

• Decision-Making Authority

and Chain of Command

The Chairman and Chief Executive

Officer delegates authority, with the

faculty of subdelegating to the

directors of the two core business

divisions. Delegations are defined

according to customer category,

credit rating, and in some cases,

business sector.

Subdelegations are organized in such a

way that lending decisions rest solely

with head office divisions for banks

and sovereign borrowers, and with

specialized units, which report to the

two core business divisions, for certain

operations requiring specific techniques

or expertise (such as international

commodity finance, specialized

finance, and structured finance).

Any staff member vested with the

authority to commit the Bank has

the right and the obligation to

reduce the amount of credit granted

to a customer if he feels that the risk

is deteriorating and warrants a

reduction, even if the credit file does

not fall within his powers.

The General Management

Credit Committee is the decision-making

authority for commitments

whose amount exceeds

the delegation given to the directors

of the two core business divisions.

This Committee, headed

by the Chief Operating Officer,

has permanent members (including

the director of the Risk

Policy and Industry Research

division, who holds veto power,

as well as the directors of the two

core business divisions), non-per-

manent members, representatives

of the Management Audit and

Inspection division, the Legal

and Tax Affairs division, and

credit application “sponsors”. This

Committee meets twice a week.

Decisions pertaining to impaired

assets – setting up allowances,

write-downs and write-offs of

receivables, closing of accounts –

are handled according to the same

procedure as that used to delegate

authority. However, the General

Management Impaired Credits

Committee has decision-making

power for loans of over

FRF 2.5 million. This Committee,

headed by the Chairman and

Chief Executive Officer of BNP,

has permanent members (including

the director of either the

Legal and Tax Affairs unit or the

Special Affairs and Collection unit,

as well as the director of the Risk

Policy and Industry Research division,

or their representatives), nonpermanent

members (including

representatives of the Management

Audit and Inspection division), and

application “sponsors”. This

Committee meets once a month.

In the specific area of country

risks, BNP’s authorized representatives

delegate authority to officers

of the International Banking

and Finance division. This delegation

is limited to a ceiling that

is set as a function of a country’s

risk rating. Responsibility for

amounts above that ceiling rests

with the General Management

Credit Committee.

• General Procedure for

Granting Loans

Decisions pertaining to new

originations must take into

account all of the BNP Group’s

commitments to the borrower or its

group, regardless of whether the

commitments were made by one of

BNP’s divisions or subsidiaries. Under

R E P O R T O F T H E


the principle of separation of powers,

a relationship manager must always

justify his position before a credit

analyst or risk auditor. In all cases,

both parties may decide of a

common accord to seek arbitrage at

a higher hierarchical level.

The Bank conducts a

comprehensive risk analysis for all

lending decisions and rates

borrowers according to probability

of default. The complete rating

system applies to corporations and

banks. A simplified system is used

for self-employed professionals, and

credit scoring is used as a decisionmaking

aid for individuals.

There are six distinct categories of

healthy risks, two of which are

considered “sensitive” or

“préoccupant ” (to be watched) under

certain circumstances or special

assessments. There are also two

categories of impaired assets: the first

includes doubtful loans (such as

receivables in arrears, whether or not

destined to be provisioned) and all

receivables that warrant allowances;

the second corresponds to receivables

in the process of collection and

applies to customers with which the

Bank has broken off commercial

relations, having reverted to the status

of simple creditor.

Country-risk ratings come under

the responsibility of the International

Banking and Finance

division, which cooperates closely

with the Economic Research

division. During bi-annual assessments

– the frequency of which

may be altered as needed – the

Bank rates all countries with which

it has relations.

The Risk Policy and Industry

Research division, reporting to

BNP’s authorized representatives,

designs the methods used

to identify and measure the risks

the Bank incurs in banking and

trading activities. This same

division participates in commitment

decisions in three ways: its

prior consent is mandatory for

applications falling under the

responsibility of the General

Management Credit Committee

and for applications coming

from a certain number of business

sectors, whether or not they

are presented to the Credit

Committee, and it consults

BNP’s various units, explaining

decisions or helping to define

upon request the Bank’s lending

policies.

• General Procedure for

Monitoring Loans

BNP monitors its loans at

different levels, as defined by

its general internal control

procedure.

The first level concerns the profit

centers. They monitor operations

carried in their books, conduct

periodic checks, and watch for

warning signals that determine

the Bank’s reaction to major

events that affect the security of

its commitments.

D omestic branches and

international subsidiaries and

branches following exactly the

same procedures. International

units also take into account local

customs and banking regulations

applicable in the countries in

which they operate.

Every day, branches receive a list

of customers that have exceeded

their limits. Every month the

Bank prepares an operations

summary of each customer

account, containing such

information as highest overdraft

and frequency of credit limit

overruns, which it forwards to the

branches. Every quarter, all

branches are required to prepare a

list of commitments that may be

downgraded and a list of impaired

assets. Depending on the warning

indications he receives, the

director of the entity concerned,

or his hierarchical superior,

decides whether or not to change

the customer’s risk rating.

All commitments are reviewed by

the qualified authority every

18 months (for the best ratings)

or every year (for other ratings).

For example, the General

Management Credit Committee

periodically reviews all commitments

for which it is responsible.

Once a customer is rated

“préoccupant ” or impaired, it is

specifically monitored by a dedicated

account manager, with or

without the assistance of either

the Legal and Tax Affairs or the

Special Affairs and Collection

unit depending on the size of

the commitments.

The collection channel in

France is run and monitored by

the Special Affairs and

Collection unit, which operates

directly or delegates its authority

to the domestic network and

domestic subsidiaries or to outside

service providers if needed.

Commitments classified as impaired

assets are reviewed annually

by the qualified authority. For

example, once a year, the General

Management Impaired Credits

Committee examines all affairs

involving commitments of more

than FRF 100 million.

At the second level, the commitment

authorities of the

D omestic Banking and

International Banking and

Finance divisions perform periodic

on-site or remote checks to

ensure that any authority they

have subdelegated is being used

correctly.

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The third level is ensured by the

Risk Policy and Industry Research

division, in order to identify

excessive concentrations of risk.

The fourth level is handled by the

Management Audit and Inspection

division, which reports directly to

the Chairman and Chief Executive

Officer. The purpose of this

monitoring level is to ensure that

General Management directives are

applied correctly, and to evaluate

the risks incurred on missions it

undertakes and the coherence of the

risk management system at the

various BNP entities.

• General Procedure for

Reporting Risks

Every month the Group’s General

Management receives a reporting

statement listing the risks at each

rating level and for each customer

category. Risk monitoring statements

covering corporate groups, banks, and

specific economic sectors are prepared

to enable General Management to

monitor developments affecting

them. Every half-year, the General

Management “Préoccupant” Credits

Committee, which is headed by the

Chief Operating Officer of BNP and

whose operation is analogous to that

of the General Management Credit

Committee, examines all

commitments rated as “préoccupant ”.

Every half-year, the General

Management Impaired Credits

Committee examines all

commitments rated as “doubtful” as

well as those in the process of

collection.

TRADING ACTIVITIES

The main risks the Bank incurs

and manages as part of trading

activities are risk of counterparty

default, risk of loss on balancesheet

and off-balance sheet

instruments due to market price

fluctuations, liquidity risk, and

operational risks.

BNP continues to implement

Group of Thirty recommendations

concerning the management of risks

related to derivatives traded over the

counter, valuing positions and

reporting revenues related to these

risks, measuring these risks

(counterparty risks and price risks

incurred on exposure to interest rates,

exchange rates, equities, options,

etc.), and the major operational

aspects of managing these risks.

The main recommendations apply

to two aspects of trading activities:

• Separation of Functions

BNP has made this an operating

principle for all activities that

incur risk. There is a complete

separation of functions and

responsibilities between sales staff

and risk analysts, as well as

between trading rooms, on the

one hand, and auditors, the

administrative departments that

settle completed transactions, and

the accounting departments that

monitor the accounts, on the

other hand. Risk control, which is

carried out independently of the

Capital Markets unit’s worldwide

lines of business, created several

years ago, has developed into a

system based on four basic levels

of internal monitoring:

At the first level, monitoring is

carried out by the Middle Office

(Business Monitoring), which is

responsible for detailed reporting

on utilizations and reports to

the General Secretariat of the

International Banking and Finance

division.

At the second level, monitoring

is entrusted to the Central Market

Risks Monitoring Unit, a specialized

department of the International

Banking and Finance division that

centralizes market risks, conducts

on-site inspections to ensure

compliance with limits set by

trading room managers and the

dispatch of various reports to the

appropriate hierarchical levels,

centralized reporting (now weekly

but soon daily, once the Bank has

installed its internal model),

auditing, and field support.

At the third level, monitoring is

ensured both by the Risk Policy

and Industry Research division,

which identifies, defines, and

measures trading activity risks the

same as it does for banking activity

risks, and by the Market Risk

Committee (the general authority

supervising the BNP Group’s

market risks), which defines BNP

Group policy concerning trading

activities, validates market risk

identification methods and

valuation standards proposed by the

Risk Policy and Industry Research

division and market risk monitoring

procedures, and sets limits for each

main business category. Members

of the Market Risk Committee are

representative of all of the Bank’s

functional and operational expertise,

so that its decisions apply to the

entire BNP Group, and the Risk

Policy and Industry Research

division acts as secretary for its

meetings.

At the fourth level, monitoring is

entrusted to the Management Audit

and Inspection division, which

ensures the coherence and

performance of every type of

monitoring procedure and regularly

reports to BNP’s authorized

representatives.

This separation of functions,

between departments that incur

risks and those in charge of

administration and risk

monitoring, prevails at all sites and

at all levels of the Bank’s worldwide

lines of business. Local staff

members in charge of monitoring

market risks report to their local

director and to the Central Market

Risks Monitoring Unit. Back offices

R E P O R T O F T H E


and accounting departments

report to the General Secretariat of

the International Banking and

Finance division, which acts as

central coordinator. In this way,

administrative and operational risks

can be identified and handled in the

appropriate manner. When BNP

organized its capital market activities

into worldwide lines of business, it

arranged to give managers real-time

information on positions taken by

the various profit centers.

The separation of functions,

combined with the appropriate

reporting systems, enables the

Bank’s General Management to stay

abreast of risks incurred and all

noteworthy events, on a regular and

objective basis.

• Risk Limits

In accordance with Group of Thirty

recommendations, the Bank

imposes aggregate and individual

risk limits that correspond to

measurements and that are clearly

understood both Management and

traders alike.

Counterparty risk is controlled

by applying authorizations per

counterparty. The Capital Markets

unit, with its worldwide lines of

business, has not been delegated

authority concerning risk of loss on

the Bank’s counterparties, with the

exception of specific authority

concerning the most solvent equity

and debt securities issuers. The head

office divisions and profit centers

in charge of relations with

counterparties submit their requests

at the appropriate decision-making

level. Authorized credit lines are

determined within the general

framework of credit risk control.

BNP’s computer system, which

can handle more than 150,000

operations in progress, nearly 30,000

authorizations, and roughly 16,000

counterparties, is now capable of

performing global centralization and

continuous monitoring of authorized

credit utilizations. It can centralize

counterparty risk authorizations,

issue reports on trading room and

site operations and positions,

calculate counterparty risk

utilizations (including risks related

to issuers and delivery), manage

overruns and abnormalities on

request for connected sites, directly

or indirectly mark trades to market,

and generate reports on capital

market operations from trading

room and site back offices in order to

satisfy regulatory requirements

(regulation 95-02 and the EU

Capital Adequacy Directive, or

“CAD”).

In order to ensure that its derivatives

transactions are legally protected,

BNP systematically signs legal

agreements (using either the ISDA

or AFB model), which allow it to

use netting in the event of default by

a counterparty, thereby mitigating

counterparty risk. The Group will

only trade in long-term or highly

volatile derivatives with the most

creditworthy counterparties. To

date, BNP has signed multi-product

agreements with 278 of the 450

most prominent counterparties,

which together account for 84% of

all outstanding off-balance sheet

commitments reported.

BNP places aggregate risk

exposure and operational limits

on market risk. Once a year, the

Market Risk Committee gives

BNP’s authorized representatives

a recommended amount of

market risk limit authorizations

for the Group’s capital market

activities for the year. That

amount is also broken down

according to type of business and

risk class: exposure to interest

rates, exchange rates, equities,

options, and commodities. It also

gives the delegating entities their

profitability targets.

The Market Risk Committee

ensures that limit authorization

requests correspond to a satisfactory

balance and diversification of

market risks, particularly among

the largest financial markets and

the regions in which the Bank’s

capital market units and sites

operate. As part of the decisionmaking

process, it weighs the

Bank’s expertise in the proposed

risk areas, its monitoring and

reporting logistics, and profitability

statistics and forecasts for the risks

proposed. Individual and aggregate

limit authorization requests are

expressed in the form that is best

suited to the transactions and risks

concerned. The statistical approach

known as Notional Risk of Loss

(RNP) is currently used, though

in the case of specific activities or

instruments where it is not suitable,

requests may be expressed as

position and/or revenue amounts,

or else as standard unit amounts.

At this point, BNP is paying

particularly close attention to

liquidity risk.

At 31 December 1997, the total

market risk authorization was

FRF 4 billion and around 56% of

that amount was being used.

Twice a year, the Market Risk

Committee submits a report on

the utilization of market risk

authorization to BNP’s authorized

representatives, who relay the

information to the Board of

Directors.

The Market Risk Committee

exercises general supervision over

market risks. Every month it

monitors the use and results of market

risk authorizations. It analyzes market

risk authorization use by each site

and worldwide line of business,

and it checks up on secondary

monitoring performed by the Central

Market Risks Monitoring Unit in the

trading rooms. Once a month, this

B O A R D O F D I R E C T O R S

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Committee also examines significant

gains and losses declared by sites and

worldwide line of business.

Among other things, the rules for

reporting significant gains and

losses contain thresholds above

which gains and losses must be

reported as soon as they are

detected, the Bank entities to

which reports must be submitted,

the conditions under which these

entities may issue instructions to

the reporting site, if necessary, and

the nature of supporting

information needed to explain the

gains or losses reported.

Significant gains and losses declared to

the Market Risks and Activities

Committee must be classified under

one of the following four categories:

those related to ordinary trading

activities which undergo more or less

sizable variations caused by

fluctuations in risk factors; those,

related to model risk, resulting from

a methodological error caused by a

lack of applicable standard or the

incompatibility between an existing

standard and the prevailing situation

in the markets; those related to

personnel risks, caused by

dysfunctions such as limit overruns

and noncompliance with established

procedures; and those, related

to operational risks, such as

those inherent in accounting,

administrative, and computer systems.

CREDIT AND

COUNTERPARTY RISKS

CREDIT RISKS

Failure by a borrower to meet its

obligations exposes the Bank to a

risk of loss, referred to as credit risk.

The loss is potential when default

has not occurred; it materializes

when the borrower defaults.

The probability of default and

subsequent developments may be

measured in terms of factors that

are specific to the borrower (e.g.,

financial condition, quality of

management, competitive

environment) and that are used to

ascertain the actual risk of default.

BNP currently measures its credit

risk on a transaction, company,

portfolio of companies, or business

sector on a conservative basis that

only reflects its exposure to the

transaction, company, portfolio of

companies, or business sector,

in other words, the total amount

of credit utilizations (temporary

bank overdrafts and financing

commitments) and off-balance sheet

commitments and confirmed lines

of credit given.

The “RECORD” program, introduced

in July 1997 and intended to assess

the economic profitability of risks

to borrowers, will enable BNP to

assess credit risk more accurately. It

will first be applied to SMCs and

self-employed professionals, followed

by major corporations and other

customer categories. This program,

which complies with internal control

requirements, is a management aid

for use in identifying yield/risk

optimization parameters and a

management tool used to assess risk

of concentration and measure

business performance through credit

portfolios.

CREDIT RISK COVERAGE

By applying credit risk management

principles and organization, BNP

further improved the quality of its

assets in 1997.

• Specific Risks

Provisioning of specific risks in France

and abroad amounted to 53% of

exposure at year-end 1993. At yearend

1997 that figure stood at 64%.

COVERAGE OF ALL (a) OF THE BNP GROUP’S DOUBTFUL SPECIFIC RISKS

Billions of French francs, except as

indicated, at 31 December 1997 1996 1995 1994 1993

Doubtful loans outstanding 61.8 63.5 63.2 68.4 67.9

Allowances (b) 39.5 40.1 38.0 37.2 35.8

Total coverage 64% 63% 60% 54% 53%

(a) Including credit risks (receivables, securities, and off-balance sheet commitments) on customers (including real estate risks) and credit

institutions.

(b) Excluding the reserve for unforeseeable sectoral risks.

Doubtful specific risks amounted to FRF 61.8 billion, or 6.7% of gross customer loans outstanding at yearend

1997, compared with 7.6% at year-end 1996 and 8.5% at year-end 1993. The ratio of allowances for

specific risks to gross customer loans stood at 4.2%, compared with 4.8% at year-end 1996.

R E P O R T O F T H E


RATIO OF DOUBTFUL SPECIFIC RISKS TO CONSOLIDATED GROSS CUSTOMER LOANS

Billions of French francs,

except as indicated,

at 31 December 1997 1996 1995 1994 1993

Gross customer loans 929.5 834.1 786.2 771.1 799.9

Doubtful specific risks as a percentage

of gross customer loans 6.7% 7.6% 8.0% 8.9% 8.5%

Allowances for specific risks as a percentage

of gross customer loans 4.2% 4.8% 4.8% 4.8% 4.5%

• Real Estate Risks

BNP has set up allowances to cover all risks on loans to real estate professionals (REPs), as and when

needed. The provision charge in 1997 amounted to FRF 101 million, bringing risk coverage to 70% of

exposure. Coverage of doubtful loans to REPs worldwide by specific allowances was brought up to 61% of

exposure. Real estate has once again become an ordinary risk.

COVERAGE OF REAL ESTATE RISKS IN FRANCE

Billions of French francs,

except as indicated,

at 31 December 1997 1996 1995 1994 1993

Loans outstanding (a) 12.5 12.9 13.1 14.0 15.4

Doubtful loans and related 6.2 6.7 6.5 6.0 6.8

Specific allowances 4.3 4.6 4.4 4.0 3.5

Coverage of doubtful loans 70% 69% 67% 66% 51%

Loans outstanding as a percentage

of gross customer loans 1.3% 1.5% 1.7% 1.8% 1.9%

(a) Excluding risks on operators whose business is not exclusively in real estate.

• Country Risks

In 1997 the Bank actively pursued

its disposition program of sovereign

assets. As a result of that program,

it was able to deduct FRF 1.1

billion from allowances.

Rescheduling of Peruvian and

Russian debt had practically no

impact on net income.

For reasons of conservatism, BNP

made a FRF 2,428 million

provision to cover its

commitments to Indonesia,

Thailand, the Philippines, South

Korea, and Malaysia based on a

multifactor analysis of the

heightened consequences that a

possible worsening of these

countries’ economic and financial

condition would have on the

Bank’s risks.

The differential between the book

value of BNP’s sovereign loans

and their market value rose

further in 1997. BNP’s valuation

of these assets is particularly

conservative compared with

their discount in the secondary

market.

At 31 December 1997, the countryrisk

allowance stood at FRF 14.5

billion, up from FRF 13.1 billion

at 31 December 1996.

• Balance Sheet Strength

Reserve for general banking

risks — In accordance with a

French Banking Commission

regulation, BNP set up a reserve

for general banking risks in 1993

containing general risk reserves

and an additional sum

corresponding to the general risk

related to the expected imbalance

between BNP’s active and retired

staff members. At 31 December

1997 the reserve for general

banking risks stood at

FRF 6,718 million, up FRF 138

million from 31 December 1996,

following additions by subsidiaries

of the international network.

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Pensions and benefits — The

various BNP Group units are

committed to pay statutory or

contractual benefits, such as

pensions and seniority bonuses,

to staff members. In addition, the

Bank is encouraging voluntary

departures or early retirement

among eligible staff members in

France. The allowances set up

to cover these benefits amounted

to FRF 4,522 million at

31 December 1997.

Allowance for unforeseeable

sectoral risks — At the end of

1994, the BNP Group set up a

FRF 2.6 billion allowance to cover

sectoral risks that might arise. At

31 December 1997 the allowance

for unforeseeable sectoral risks

contained FRF 1,430 million,

unchanged from 31 December

1996. No portion of this

allowance is allocated to cover any

specific risks.

Asset-value adjustment of

operating real estate — Having

taken note of the stabilization

in the commercial real estate

market, BNP readjusted the

balance sheet value of its main

operating real estate holdings

in 1997. This adjustment had

no impact on consolidated

earnings, in the same way

as the initial adjustment in

1991-92. It took a FRF 3,374

million provision charge on

the revaluation, posting to

stockholders’ equity the asset value

write-down (FRF 2,758 million),

net of related deferred income tax

liabilities (FRF 616 million).

COUNTERPARTY RISK

In capital market business,

counterparty risk is the risk of loss

caused when a counterparty fails

to honor an obligation. It is

considered a credit risk when the

counterparty’s principal

obligation is the repayment of a

loan. Delivery-versus-payment

risk occurs when the Bank has

honored its side of an obligation

without being able to determine

whether the counterparty has

done the same.

The Bank manages these two

types of counterparty risk in the

same way as credit risk, though it

uses a specific procedure for

monitoring delivery-versuspayment

risk that entails breaking

down transaction flows with each

counterparty according to

maturity.

By holding negotiable securities

(mainly stocks and bonds), the

Bank incurs another type of

counterparty risk: issuer risk,

which is the risk of loss caused by

market price fluctuations

reflecting factors specific to an

issuer, such as its business sector

and the markets’ perception of its

creditworthiness. BNP measures

issuer risk continuously by

marking to market the inventory

of the issuer’s securities and its

forward positions in those

securities. Once the internal

market risk model is in use, BNP

will also be able to measure

specific risk, a larger view than

issuer risk, on the basis of

circumstantial factors related to

business sector or geographical

location, liquidity of securities, or

risk of credit rating downgrade or

default, that could affect the

issuer.

Capital market transactions with

counterparties lead to funds

flows that are either certain or

conditional between the Bank and

its counterparties. The amount

and direction of those flows

depend on the prices of the

underlying instruments.

Contingent credit risk is the

Bank’s risk of loss when a

counterparty defaults and market

prices move in the Bank’s favor in

the interval between contract

execution and default. The Bank

is thus deprived of future funds

flows which, when marked to

market, give the instantaneous

replacement value of the

transaction. Contingent credit risk

may be measured at any moment

as the replacement value of the

transaction plus add-ons reflecting

market price movements between

the time of valuation and the time

of possible default. BNP currently

values add-ons for each

instrument and as a function of

market price volatility over the

time remaining until the contract

matures or expires.

The widespread use of multiproduct

legal agreements for

netting all of the Bank’s positions,

counterparty by counterparty, has

raised the need for tools that are

more effective than this unitamount

measurement based on

add-ons, which have the

advantage of being productspecific

but also the drawback of

being static and difficult to

aggregate.

BNP has developed the

“Valrisk” project to measure

contingent credit risk. Valrisk

generates a risk profile for the

interval between the valuation

date and the expiration of the

longest transaction outstanding,

in real time and for each

counterparty.

• Assessment of Counterparty

Risk

The Bank’s exposure to

counterparty risks on forward and

options contracts, before and after

the impact of netting arrangements,

is shown below:

R E P O R T O F T H E


CREDIT RISK ON FORWARD AND OPTIONS CONTRACTS

Millions of French francs, 1997 1996

at 31 December Positive Weighted Positive Weighted

replacement risk replacement risk

cost equivalent cost equivalent

Risks on government administrations and related 492 — 854 —

Risks on credit institutions headquartered in Zone A (a) 94,565 28,422 60,766 18,511

Risks on credit institutions headquartered in Zone B (a) 17,648 13,706 11,204 9,140

Total, before impact of netting arrangements 112,705 42,128 72,824 27,651

Risks on interest-rate contracts 50,772 15,956 43,066 13,055

Risks on foreign exchange and other contracts 61,993 26,172 29,758 14,596

Total, before impact of netting arrangements 112,705 42,128 72,824 27,651

Impact of netting arrangements (29,415) (8,963) — —

Total, after impact of netting arrangements 83,290 33,165 72,824 27,651

(a) Zone A consists of the member states of the European Union (EU), other member states of the Organization for Economic Cooperation

and Development (OECD) provided that they have not rescheduled any external sovereign debt within the previous five years, and

countries that have negotiated special borrowing agreements with the International Monetary Fund (IMF) within the

framework of the IMF’s General Agreements to Borrow (GAB). Zone B consists of all other countries.

Weighted risk equivalent determined on forward and options contracts represented 0.38% of the sum of

the notional amounts for over-the-counter transactions alone (excluding sales of options) of the BNP

Group at 31 December 1997, compared with 0.42% at 31 December 1996.

The analysis according to credit rating (Standard & Poor’s) of forward and options contracts traded over

the counter for which weighted risk equivalent is computed, is shown below:

Analysis according Face value (%), maturing

to credit rating within one after one year after five

at 31 December 1997 year but within five years years Total

AAA,AA 41.7 15.0 6.6 63.3

A 17.3 5.2 1.7 24.2

BBB 2.3 1.4 0.6 4.3

BB or lower 5.6 2.0 0.6 8.2

Total 66.9 23.6 9.5 100.0

B O A R D O F D I R E C T O R S

75SEVENTY-

FIVE


76

SEVENTY-

SIX

MARKET RISK

BNP measures its market risks in

terms of RNP, which is defined as

sensitivity (of a position, portfolio,

book, etc.) to very large assumed

innovations in market prices. BNP’s

current in-house RNP model uses

five years of underlying data to

estimate the impact of these adverse

market fluctuations on the Group’s

interest rate, foreign exchange, and

equity positions over a five-day

holding period, assuming a 95%

confidence level. It also examines

the underlying data of the previous

12 months to determine whether

volatility, measured according to

the same criteria, has not varied in

even greater proportions.

Since adverse market price

changes are very large, they relate

to the one or two most extreme

fluctuations in very broad risk

factors (e.g., short- and long-term

interest rates; euro-zone

currencies, other freely floating

currencies, and centrally

administered currencies), which

apply to each class of risk.

RNP limits for interest rate,

foreign exchange, and equity

positions and for each currency

are applied to each book and

trader at each decision-making

center. Each site is also given

volume position limits, which

are easier to monitor on a daily

basis. Additional rules for

The BNP Group has the following notional risk exposure:

second-order risks (such as

decorrelation between two

similar but not identical

instruments) round out the limit

framework. BNP uses a scenario

based method to perform specific

checks on options due to the

complexity of the non-linear risks

they present. For reasons of

conservatism, all authorizations

for market risk limits, qualified as

a maximum RNP, imposed by

BNP’s authorized representatives

based on a proposal by the

Market Risk Committee, and

presented to the Board of

Directors, are currently spread

over the various books without

taking any offsetting correlations

into account.

Millions of French francs, 1997 1996

at 31 December BNP Including BNP Including

BNP BNP

Group France Group France

Interest-rate risk exposure:

On French franc and foreign currency

money market instruments and bonds .. 119 .. 84

On derivatives .. 779 .. 543

Total interest-rate risk exposure 1,735 898 1,417 626

Currency risk exposure:

On foreign exchange forward instruments .. 18 .. 2

On foreign exchange options .. 24 .. 32

Total currency risk exposure 66 42 45 34

Stock price risk exposure 485 76 429 67

R E P O R T O F T H E


Notional risk exposure may be broken down according to worldwide line of business, as shown below:

Millions of French francs, 1997 1996

at 31 December Including Including

Including worldwide Including worldwide

BNP BNP option line BNP BNP option line

Group France of business Group France of business

Money market and

foreign exchange 621 248 24 492 201 32

Bonds 488 — — 377 — —

Swaps and derivatives 692 692 85 456 456 47

Equities 409 — 345 421 52 360

Other 76 76 — 147 19 —

In order to ensure effective risk

management during major crises,

the Bank performs historical

simulations on its notional risks

of loss.

Under the “Internal Model”

project for measuring market

risks, the Risk Policy and Industry

Research division has prepared

the methodological shift from

RNP to “Value at Risk” (VaR),

which expresses an amount of loss

and the probability of sustaining

that loss over a given time period,

while complying with qualitative

and quantitative criteria dictated

by the supervisory authorities for

the validation – in progress – of

the internal model developed by

the Bank. In addition to its

regulatory framework, and unlike

RNP, VaR enables the Bank to

compare and aggregate market

risks. VaR also takes into account

actual conditions prevailing in the

markets, such as the possibility of

changes in the value of risk

factors, which may be usual or

extreme, and for which two

approaches to measuring risks are

better than one based on RNP

alone. Whether market conditions

are usual or extreme, market risk

measurement will reflect both

uncertainty in risk factors, over

which the Bank has no control,

and the Bank’s exposure to that

uncertainty, which it can control

by applying limits and allocating

total capital to specific trading

activities. Thus, BNP will measure

its market risks through a

combination of two criteria:

actual risk (measured in terms of

actual VaR) incurred through

exposure to uncertainty in risk

factors, and maximum authorized

risk (measured in terms of VaR

limit) deriving from management

decisions. The order of magnitude

of uncertainty in risk factors

makes the difference between

actual risk and risk exposure. This

difference of magnitude ensures

that the internal model’s

measurement of exposure to risk

is coherent with its measurement

of the risk itself, in compliance

with French Banking Commission

(CRB) Regulation 97-02

concerning internal controls. On

the one hand, Management

must authorize a maximum

amount of uncertainty, and on

the other, it must continuously

measure actual uncertainty

prevailing in the markets. VaR

expresses an amount and the

probability of losing that amount

in an environment defined in

terms of various parameters. In

its internal model, BNP defines

three different sets of conditions

to describe the environment:

• one for actual risk, which refers

to all yields and correlations

observed

• another for risk exposure, which

refers to yields and correlations

defining a maximum authorized

dispersion

• a third for analyzing stress

scenarios, which refers only to

yields observed under extreme

market conditions and is used

to define an extreme degree of

dispersion beyond which the

Bank may not commit itself.

ASSET/LIABILITY

MANAGEMENT

In 1997, the combination of

continued sluggish demand for

credit and an appreciable increase

in regulated savings deposits

entailed very active asset/liability

management in order to limit the

structural interest rate risk associated

with French franc operations.

B O A R D O F D I R E C T O R S

77SEVENTY-

SEVEN


78

SEVENTY-

EIGHT

MANAGEMENT OF LIQUIDITY

EXPOSURE

The BNP Group’s funding

requirements stagnated again due

to weakness in the demand for

credit in France. The Group had

increasingly comfortable short-term

liquidity, and transformation

in French francs and foreign

currencies was kept within strict

prudential limits set by the Group.

The increase in stable French

franc resources, particularly home

savings deposits, enabled BNP to

suspend its issues of French franc

denominated medium- and longterm

debt. By contrast, the BNP

Group added USD 2.8 billion to its

long-term foreign currency

denominated funding, including

USD 1.3 billion of subordinated

debt and USD 500 million of

noncumulative preferred securities.

These issues enabled BNP to increase

its Tier 1 and Tier 2 capital while

reducing the sensitivity of its capital

ratios to fluctuations in the dollar.

Customer deposits at 31 December

1997, all currencies combined,

including retail certificates of

deposit and negotiable certificates

of deposit, exceeded customer

loans, including leasing and related

transactions, net of allowances.

Moreover, BNP’s supply of funds

is stable. Demand, savings, and

time deposits come from the more

than 10 million accounts held by

individuals and companies.

Liquidity is also provided by liquid

assets such as demand deposits,

Treasury bills, securities received

under repurchase agreements,

negotiable certificates of deposit,

government securities, and stocks

and bonds in various currencies.

The Group’s strong financial

condition ensures it easy access to

the capital markets on excellent

terms.

MANAGEMENT OF INTEREST

RATE EXPOSURE

BNP takes into account all balance

sheet and off-balance sheet

operations, including futures and

options, in its analysis of interest

rate risk.

Interest rate exposure on foreign

currency denominated operations

is small. Changes in interest rates

have a similar impact on sources

and uses of funds, which for the

most part are indexed to the same

official rates. Fixed-rate foreign

currency debenture issues are

generally swapped to eliminate

interest rate risk.

By contrast, interest rate risk on

French franc operations in the

domestic network is a structural

feature of universal banking, which

consists in transforming part of

customer deposits into medium

and long-term loans to individuals

and corporations.

In 1997, changes in the balance

sheet profile of customer items

continued to take place. Customers

shifted a considerable portion of

their deposits away from products

paying market interest rates (time

deposits and negotiable certificates

of deposit) and toward fixed or

quasi-fixed-rate instruments (home

savings, passbook and Codevi

savings accounts, and demand

deposits). Similarly, there was an

acceleration in the movement, that

began in mid-1996, of customers

making early repayments to

amortize loans and renegotiating

loans with lower interest rates,

causing a further decline in fixed

rate loan outstandings despite an

appreciable increase in originations.

In order to offset the increase in

net fixed-rate customer funds, the

Asset/Liability Management

division actively reinvested its

portfolio. It made large purchases

of securities maturing between

three and eight years. In order

to take advantage of interest rate

differentials, and in preparation

for European monetary union,

BNP arranged a sizable portion

of its hedges in D-marks and

ECUs, on which the exchange

rate risk happens to be covered.

MANAGEMENT OF NET

FOREIGN EXCHANGE

POSITION

BNP’s management of its net foreign

exchange position follows fixed

guidelines. This position is small with

respect to the BNP Group’s earnings

and stockholders’ equity.

OPERATIONAL RISK

At BNP, operational risk covers

administrative, accounting, and

computer risks, as well as the risk

of fraud, which the Bank’s internal

auditing system classifies as staff

related.

BANKING ACTIVITIES

In 1997 BNP validated qualitative

procedures based on locating and

implementing basic checkpoints,

local audit plans based on the

“KEOPS” (kit for assessing on site

operations) methodology used

by both the Domestic Banking

division and the Management

Audit and Inspection division,

and consolidated reporting per

operating group and network

division and by the Domestic

Network division.

R E P O R T O F T H E


TRADING ACTIVITIES

Operational risk control is based

on several principles: accountability

of the hierarchy, written procedures

describing monitoring channels

and audit trails, continuous

rationalization of processing

software, a system for reporting and

handling incidents, and inspection

assignments by the specialized audit

departments. All of BNP’s banking

and computer organization teams,

from the Organization and

Information Systems division

(which plays a general role) to

the Systems and Back Office

Engineering departments of the

International Banking and Finance

division (in charge of organizing

execution services), help ensure

the security of procedures. These

entities have undertaken a major

quality certification program that

is now in progress. As the

foreseeable part of operational risk

is to be considered as an expense,

this program will enable BNP to

look into the possibility of insurance

coverage.

Due to rapid changes occurring in

the markets, continuous adjustments

must be made to control systems,

reporting procedures, and computer

applications in order to put these

principles into operation. BNP

develops new products and

businesses taking operational risk

into account.

BUSINESS AND RESULTS OF BNP’S MAIN DOMESTIC SUBSIDIARIES

BANQUE DE BRETAGNE

This regional bank mainly serves

Brittany (60 of its 66 offices), but

also has branches in the neighboring

départements of Loire Atlantique and

Mayenne and in the greater Paris

area. Its firm establishment in

Brittany’s economic fabric, the

permanence and competence of its

staff, and its decision-making

proximity earned it the title of

“leading bank to SMCs in Brittany”

(Dun & Bradstreet survey, published

in the February 1998 issue of

Challenge du Management). For the

past several years, the bank has also

been putting its business and

revenues back into balance through

a structured, offensive retail banking

approach to individuals and selfemployed

professionals.

In 1997 Banque de Bretagne

continued to innovate, launching

the linked product Duo Jeune

with Carte Plus. This event was a

premiere in France involving

Visa cards. It also updated its

videotex services and Duo

Sauvegarde (an IT vault for corporate

clients). It offered individual

customers a mortgage simulation

tool and began to market a

mortgage loan with rate cap. It

strengthened its product offering by

Model risk, arising from potential

gaps between a price or risk

model’s representation of reality

and the actual situation, has now

been integrated into operational

risk. Starting in 1998 it will be

covered by procedures aimed at

making the following processes

systematic:

• evaluating the robustness of model

calibrations, introducing new

variables and extensions to cover

new products,

• implementing a research and

maintenance program designed

to detect drops in quality,

incorporate the latest data, and

handle computer system updates.

% Change

Millions of French francs 1997 1996 1995 1994 1993 1997 1996 1995 1994

Customer loans

(average outstandings) 5,779 5,356 5,083 4,303 4,218 7.9 5.4 18.1 2.0

Originations 1,813 1,387 1,458 1,530 693 30.7 (4.9) (4.7) x 2.2

Customer deposits

(average balances) 5,185 4,876 4,866 4,324 4,076 6.3 0.2 12.5 6.1

continuing to market BNP Group

life/endowment insurance, mutual

funds, and other products.

Banque de Bretagne further

modernized its branch network by

renovating and repositioning certain

branches and by virtually doubling

its ATM fleet.

Positive developments in business,

and growth in volumes, enabled

Banque de Bretagne to keep its

financial performance and return on

equity at high levels despite

downward pressure on interest rates

and margins.

B O A R D O F D I R E C T O R S

79SEVENTY-

NINE


80

EIGHTY

BNP BAIL

% Change

Millions of French francs

Credits outstanding

at 31 December:

1997 1996 1995 1994 1993 1997 1996 1995 1994

Equipment 13,672 13,213 13,030 13,962 15,827 3.5 1.4 (6.7) 11.8

Real estate

Total credits outstanding

21,417 21,365 20,846 20,432 20,111 0.2 2.5 2.0 1.6

at 31 December

Originations:

35,089 34,578 33,876 34,394 35,938 1.5 2.1 (1.5) (4.3)

Equipment 6,765 6,189 5,582 5,262 5,064 9.3 10.9 6.1 3.9

Real estate 2,608 2,064 3,432 2,356 2,136 26.4 (39.9) 45.7 10.3

Total originations 9,373 8,253 9,014 7,618 7,200 13.6 (8.4) 18.3 5.8

BNP Bail is a leading equipment

and real estate leasing company.

B usiness in 1997 was

characterized by continued

sluggishness in equipment

leasing for companies and a high

level of internal financing,

though some signs of an upturn

became visible at the end of the

year.

CRÉDIT UNIVERSEL

Equipment and real estate leasing

originations advanced by 9.3% and

26.4%, respectively.

Total outstandings increased for the

second consecutive year, to FRF 35.1

billion (up 1.5%). Significantly, this

increase could be ascribed to the

equipment sector, where outstandings

rose by 3.5% to FRF 13.7 billion.

Real estate outstandings remained

stable, totaling FRF 21.4 billion at

year-end 1997, following a 2.5%

increase in 1996 that was a direct

consequence of the start-up of the

large number of contracts signed in

1995 in relation to the elimination

of the “sicomi” commercial and

industrial real estate tax status on

31 December 1995.

% Change

Millions of French francs 1997 1996 1995 1994 1993 (a) 1997 1996 1995 1994

Average credits outstanding 17,312 15,987 14,641 14,031 13,759 8.3 9.2 4.3 2.0

Originations 10,499 10,217 8,231 8,013 7,201 2.8 24.1 2.7 11.3

(a) Excluding Universal Factor, which was sold to Natiocrédit.

Crédit Universel, a wholly-owned

subsidiary of Natiocrédit, finances

capital goods for individuals

(lending and lease financing) and

for companies (investment loans

and leasing) through a network of

partner/vendors.

During the course of the year,

Crédit Universel consolidated its

positions in its main lines of

business and began to rearrange

its organization in order to

facilitate specialization by its

network and its management

centers. Moreover, it undertook a

major investment program to

modernize its computer system,

for the purpose of lowering

operating costs and improving

service quality.

Originations rose once again in

1997, to FRF 10.5 billion, up

2.8%, following a 24.1% increase

in 1996.

Financings for individuals rose

thanks to good performance in

the car, motorcycle, and motor

home markets. Crédit Universel

strengthened its positions in the

corporate market despite a stagnation

in productive investment. Its real

estate financings rose 56% from what

were admittedly low levels.

Crédit Universel’s average credits

outstanding rose by 8.3% in 1997,

compared with 9.2% in 1996.

R E P O R T O F T H E


MEUNIER PROMOTION

% Change

Millions of French francs

Commercial and industrial

1997 1996 1995 1994 1993 1997 1996 1995 1994

real estate 1,019 954 1,574 2,561 949 6.8 (39.4) (38.5) N/M

Including client representation

contracts 978 662 1,431 1,729 520 47.7 (53.7) (17.2) N/M

Residential real estate

Revenues of real estate

1,020 517 520 1,007 1,061 97.3 (0.6) (48.4) (5.1)

partnerships 2,039 1,471 2,094 3,568 2,010 38.6 (29.8) (41.3) 77.5

The Meunier group operates in

real estate development and

management.

In 1997 Meunier Promotion

accentuated its presence in the

residential market with the

launching of roughly 1,000 housing

units. It maintained commercial real

BNP GESTIONS

Billions of French francs 1997 1996 % Change

in

1997

Fund management 177 175 1.1

Institutional management 189 167 13.2

Private asset management under management contract 84 68 23.5

Total 450 410 9.8

The domestic institutional and

fund management activities, which

had previously been part of BNP,

were transformed into a subsidiary

at the beginning of the year in

order to adjust to international

standards of organization and to

recommendations issued by France’s

Commission des Opérations de

Bourse (COB). The subsidiary

estate business at a high level,

launching 31,000 m 2 of office

programs under client representation

contracts in which it assumes only

the technical risks, as all financial

risks have been eliminated. The

Meunier group continued to expand

its property management business

through specialized subsidiaries,

BNP Gestions, which employs a

staff of 220 persons, posted

satisfactory results.

Its staff members enjoy an excellent

reputation, which was crowned by

a number of awards in 1997. It is

in the process of globalizing its

business, with the development of

new management centers: BNP

which manage office buildings and

apartment buildings for ownerinvestors,

as well as condominium

owners associations.

Meunier Promotion returned to a

good level of profitability thanks

to operations in all its lines of

business.

Asset Management Asia (located

in Hong Kong and Singapore) and

BNP Asset Management Argentina

(located in Buenos Aires). Total

assets under management by the

BNP Group, including assets

managed by Natio-Vie and private

banking assets, amounted to nearly

FRF 450 billion at year-end 1997,

up 9.8% from 1996.

B O A R D O F D I R E C T O R S

81EIGHTY-

ONE


82

EIGHTY-

TWO

NATIO-VIE

Millions of French francs, % Change

except as indicated

Assets under management

1997 1996 1995 1994 1993 1997 1996 1995 1994

at 31 December

Premiums written

132,072 102,880 78,532 59,682 47,586 28.4 31.0 31.6 25.4

(including Assu-Vie)

Number of policies

29,306 23,792 20,841 16,070 12,277 23.2 14.2 29.7 30.9

(thousands) 1,490 1,387 1,320 1,244 1,102 7.4 5.1 6.1 12.9

Market share (%)

• Banks, financial institutions,

and insurance companies 5.7 5.1 4.9 4.0 3.6

• Banks and financial institutions 9.3 8.6 8.6 7.1 7.0

Natio-Vie had another excellent year

in 1997, with consolidated written

premiums of FRF 29.3 billion, up

23.2%. Its assets under management

amounted to FRF 132.1 billion (up

28.4%). This growth, well ahead of

the market, helped Natio-Vie

consolidate its position as France’s

fifth-largest life insurance company in

terms of written premiums. Natio-

Vie’s products are distributed by BNP

BANEXI

1997 1996 1995 1994 1993

Number of companies in the equity investment

portfolio at 31 December 362 380 362 (a) 566 565

Portfolio value, millions of French francs at 31 December 4,627 4,427 4,694 3,749 3,653

Excluding funds managed for clients 3,801 3,553 3,880 3,089 3,115

Investments during year, millions of French francs 721 383 2,344 655 617

Number of merger and acquisition operations 62 57 72 84 90

(a) After the removal of BNP Développement from Banexi’s scope of consolidation and the addition of CFJPE.

Banexi operates in both fields of

merchant banking: equity investment

and fund management, on the one

hand, and financial advisory and

mergers and acquisitions, on the

other hand.

Banexi profited from the upturn in

business opportunities in 1997. It

made FRF 721 million of

investments for its own account

(FRF 324 million in 1996),

corresponding to FRF 637 million

of direct equity investments mainly

in the telecommunications,

and its French banking subsidiaries,

which regularly offer customers a

range of appropriate products. This

sharp increase was facilitated by

substantial transfers from “PEP” plans

and by changes in tax law, which led

to an inflow of subscriptions at the

end of the year. Natio-Vie launched

a “group pension fund” line of

business, which generated FRF 1.5

billion of written premiums during

agribusiness, automotive, and

electronics/computer industries, as

well as FRF 84 million of

investments in funds. At the same

time, it realized FRF 669 million of

capital gains on FRF 1,502 million

of exits: its highest figures ever.

Merger and acquisition business

was characterized by an increase

in restructurings in France: they

were more numerous, more

complex, and higher in value. There

was also stiff competition from

firms in the English-speaking

the year. In 1997 it increased its sales

of unit-linked contracts enabling

customers to take advantage of the

bull market for equities.

The company appreciably

strengthened its balance sheet. It

lifted its capitalization reserve to over

FRF 1 billion, which enhances its

protection against interest rate

increases.

countries. Under these conditions,

Banexi maintained its leadership

position in mergers and acquisitions,

in terms of number of operations

(62), and it was the sixth

ranked merchant bank in terms

of transaction volume (FRF 89

billion, excluding privatizations;

source: Fusions-Acquisitions magazine).

Moreover, Banexi ranked eighteenth

worldwide, with an aggregate

transaction value of FRF 30 billion,

and as such, was the only French

merchant bank to make it into the

top 20.

REPORT OF THE BOARD OF DIRECTORS


C O N T E N T S

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheet 84

Consolidated Income Statement 86

Consolidated Financial Statements in ECUs 87

Consolidated Statement of Changes in Financial Position 89

Notes to the Consolidated Financial Statements 90

The BNP Group at 31 December 1997 and BNP Group Offices Outside France 148

Joint Statutory Auditors’ Report on the Consolidated Financial Statements 151

83EIGHTY-

THREE


84

EIGHTY-

FOUR

CONSOLIDATED

BALANCE SHEET

ASSETS

Millions of French francs, 1997 1996 1995

at 31 December

Interbank and money market items (Note 3):

Cash and due from central banks and post office banks 11,863 15,115 8,286

Treasury bills and money market instruments (Note 5) 248,496 154,692 85,848

Due from credit institutions 491,905 543,260 473,736

Total interbank and money market items

Customer items (Notes 4 and 7):

752,264 713,067 567,870

Due from customers 832,432 741,513 698,723

Leasing receivables 55,651 52,473 49,003

Total customer items 888,083 793,986 747,726

Bonds and other fixed-income instruments (Note 5) 113,450 119,319 85,851

Equities and other non-fixed-income instruments (Note 5)

Equity securities held for investment

and other stock investments (Note 6):

32,639 36,470 16,895

Equity securities held for investment 10,398 6,619 7,417

Other stock investments

Total equity securities held for investment

11,298 19,316 11,099

and other stock investments

Investments in companies carried

under equity method (Notes 8 and 9):

21,696 25,935 18,516

Financial companies 1,193 1,032 689

Nonfinancial companies

Total investments in companies carried

4,163 3,518 13,111

under equity method 5,356 4,550 13,800

Tangible and intangible assets (Note 10) 13,883 17,168 17,391

Accrued income and other assets (Note 11) 114,229 90,392 80,279

Other assets (Note 11) 92,753 59,988 45,223

Goodwill (Note 12) 518 178 172

Total assets 2,034,871 1,861,053 1,593,723

Commitments given:

Financing commitments given (Note 23) 397,044 324,530 305,141

Guaranties and endorsements given (Note 23) 189,316 174,641 126,750

Commitments given on securities (Note 23) 63,593 55,543 20,122

Commitments incurred on forward and options contracts (Note 24) 14,490,145 11,516,390 8,890,853

The accompanying notes are an integral part of the financial statements.

B N P


LIABILITIES AND STOCKHOLDERS’ EQUITY

Millions of French francs, 1997 (a) 1996 1995

at 31 December Before appropriation After appropriation After appropriation

of income of income* of income

Interbank and money market items (Note 13)

Due to central banks and post office banks 23,926 23,926 12,721 5,304

Due to credit institutions

Total interbank and

644,313 644,313 610,657 505,493

money market items 668,239 668,239 623,378 510,797

Customer deposits (Note 14)

Bonds and negotiable debt instruments:

717,741 717,741 638,049 578,062

Retail certificates of deposit (Note 14) 17,647 17,647 17,164 17,766

Interbank market securities (Note 13) 1,753 1,753 2,224 3,220

Negotiable certificates of deposit (Note 14) 169,208 169,208 176,854 183,378

Bonds, including short-term portion (Note 15) 50,881 50,881 58,154 65,583

Other debt instruments 759 759 880 790

Total bonds and negotiable debt instruments 240,248 240,248 255,276 270,737

Accrued expense (Note 16) 87,345 87,345 71,971 67,722

Other liabilities (Note 16) 182,691 184,294 152,777 59,008

Allowance for liabilities and charges (Note 17) 13,889 13,889 12,468 11,568

Subordinated debt (Note 18) 52,473 52,473 43,120 36,622

Reserve for general banking risks (Note 20)

Stockholders’ equity (Note 21):

6,718 6,718 6,580 8,353

Capital stock

Additional paid-in capital in excess of par

5,331 5,331 5,186 4,742

and premium on acquisition

Consolidated retained earnings, revaluation surplus,

translation adjustment, equity method adjustments:

20,877 20,877 19,853 17,447

Group’s share 28,363 32,832 30,513 26,453

Minority interests in consolidated subsidiaries 4,737 4,884 1,882 2,212

Total stockholders’ equity

Net income:

59,308 63,924 57,434 50,854

Net income attributable to Group 5,962 - - -

Minority interests 257 - - -

Consolidated net income 6,219 - - -

Total liabilities and stockholders’ equity 2,034,871 2,034,871 1,861,053 1,593,723

Commitments received:

Financing commitments received (Note 23) 9,909 9,410 12,170

Guaranties and endorsements received (Note 23) 158,759 118,284 116,701

Commitments received on securities (Note 23) 52,172 55,856 21,320

(a) Based on proposed appropriation of income submitted to the stockholders’ meetings of BNP and its consolidated subsidiaries.

The accompanying notes are an integral part of the financial statements.

G R O U P

85EIGHTY-

FIVE


86

EIGHTY-

SIX

CONSOLIDATED INCOME

STATEMENT

Millions of French francs, year ended 31 December 1997 1996 1995

Net interest and assimilated income:

Net interest and assimilated income on interbank items (Note 26) (64) (1,096) (240)

Net interest and assimilated income on customer items (Note 27) 26,124 28,577 30,845

Net interest and assimilated income on lease transactions 4,196 4,326 4,471

Interest expense on bonds and negotiable debt instruments (Note 25)

Interest income on bonds and

(18,612) (19,258) (21,422)

other fixed-income instruments (Note 28) 11,605 11,263 8,905

Income on equities and other non-fixed-income instruments (Note 28) 902 1,028 934

Net interest and assimilated income 24,151 24,840 23,493

Net commissions (Note 29) 9,969 8,863 7,567

Net gains (losses) on financial operations (Note 25) 8,489 4,467 4,948

Other net income from banking operations 1,457 1,332 1,700

Net banking income (Notes 25 and 34)

Operating expense:

44,066 39,502 37,708

Salaries and employee benefits, including profit sharing (Note 30) (18,991) (17,920) (17,640)

Other expense (9,538) (8,677) (8,618)

Total operating expense

Depreciation, amortization, and provisions

(28,529) (26,597) (26,258)

on tangible and intangible assets (Note 10) (2,102) (2,061) (1,950)

Gross operating income (Note 34) 13,435 10,844 9,500

Net addition to allowance for credit risks and country risks (Note 7) (6,785) (3,793) (5,533)

Net operating income 6,650 7,051 3,967

Gains (losses) on disposals of long-term investments, net of provisions (Note 32)

Net (addition to) deduction from reserve

2,380 (704) 8

for general banking risks and miscellaneous risks (135) 1,733 (128)

Nonrecurring items (Note 33)

Income before taxes, share of earnings of companies carried

(1,391) (3,417) (700)

under equity method, and amortization of goodwill 7,504 4,663 3,147

Income taxes (Note 35) (1,997) (983) (1,174)

Share of earnings of companies carried under equity method 815 537 36

Amortization of goodwill (Note 12) (103) (88) (84)

Consolidated net income 6,219 4,129 1,925

Minority interests 257 273 141

Net income attributable to Group 5,962 3,856 1,784

Earnings per share (a) (French francs) 28.26 18.69 9.31

(a) Based on the following weighted average numbers of shares outstanding: 210,951,379 in 1997, 206,264,600 in 1996,

and 191,680,120 in 1995.

Based on shares outstanding at 31 December, consolidated net income per share is FRF 27.96 for 213,244,188 shares outstanding

as of 31 December 1997, FRF 18.59 for 207,434,993 shares outstanding as of 31 December 1996 and FRF 9.28 for

192,183,938 shares outstanding as of 31 December 1995.

The accompanying notes are an integral part of the financial statements.

B N P


PRESENTATION OF THE

CONSOLIDATED BALANCE

SHEET AND INCOME

STATEMENT IN ECUS

In recognition of an environment

that is more than ever

marked by the drive and the

imminence of implementing the

single European currency, and

the need to facilitate comparisons

among European credit

institutions, BNP presents

below its consolidated financial

statements in ECUs.

The principles and basis of

consolidation are given in Note 1

(“Accounting Policies”) to the

consolidated financial statements

in French francs. The closing rate

method was used to translate all

balance sheet items, and income

statement items were translated

on the basis of the average

exchange rate for the year accor-

CONSOLIDATED BALANCE SHEET IN ECUS

ding to the accounting method

specified in French regulations.

At year-end 1995, 1996, and

1997 ECU exchange rates were

6.28, 6.51, and 6.61 French

francs, respectively. The average

ECU exchange rates in 1995,

1996, and 1997 were 6.44,

6.41, and 6.59 French francs,

respectively.

ASSETS

Millions of ECUs,

at 31 December 1997 1996 1995

Interbank and money market items 113,807 109,534 90,447

Customer items 134,355 121,964 119,093

Bonds and other fixed-income instruments 17,163 18,329 13,673

Equities and other non-fixed-income instruments 4,938 5,602 2,691

Equity securities held for investment and other stock investments 3,282 3,984 2,949

Investments in companies carried under equity method 810 699 2,198

Tangible and intangible assets 2,100 2,637 2,770

Accrued income 17,281 13,675 12,783

Other assets 14,032 9,425 7,206

Goodwill 79 27 28

Total assets 307,847 285,876 253,838

LIABILITIES AND STOCKHOLDERS’ EQUITY After appropriation of income

Millions of ECUs,

at 31 December 1997 1996 1995

Interbank and money market items 101,095 95,757 81,357

Customer deposits 108,584 98,010 92,070

Bonds and negotiable debt instruments 36,346 39,213 43,121

Accrued expense 13,214 11,055 10,784

Other liabilities 27,881 23,469 9,401

Allowance for liabilities and charges 2,101 1,915 1,843

Subordinated debt 7,939 6,624 5,833

Reserve for general banking risks 1,016 1,011 1,330

Stockholders’ equity (including net income) 9,671 8,822 8,099

Total liabilities and stockholders’ equity 307,847 285,876 253,838

G R O U P

87EIGHTY-

SEVEN


88

EIGHTY-

EIGHT

CONSOLIDATED INCOME STATEMENT IN ECUS

Millions of ECUs 1997 1996 1995

Net interest and assimilated income 3,664 3,875 3,651

Net commissions 1,513 1,383 1,176

Net gains (losses) on financial operations 1,288 697 769

Other net income from banking operations 221 208 264

Net banking income 6,686 6,163 5,860

Operating expense:

Salaries and employee benefits, including profit sharing (2,882) (2,795) (2,741)

Other expense (1,447) (1,354) (1,339)

Total operating expense (4,329) (4,149) (4,080)

Depreciation, amortization, and provisions

on tangible and intangible assets (319) (322) (304)

Gross operating income 2,038 1,692 1,476

Net addition to allowance for credit risks and country risks (1 029) (592) (860)

Net operating income 1,009 1,100 616

Gains (losses) on disposals of long-term investments, net of provisions 361 (110) 1

Net (addition to) deduction from reserve for general banking

risks and miscellaneous risks (20) 270 (20)

Nonrecurring items (211) (533) (108)

Income before taxes, share of earnings of companies

carried under equity method, and amortization of

goodwill 1,139 727 489

Income taxes (303) (153) (183)

Share of earnings of companies carried under equity method 124 84 6

Amortization of goodwill (16) (14) (13)

Consolidated net income 944 644 299

Net income attributable to Group 905 601 277

Minority interests 39 43 22

B N P


CONSOLIDATED STATEMENT

OF CHANGES IN FINANCIAL POSITION

Millions of French francs, year ended 31 December 1997 1996 1995

Funds provided:

Funds provided from stockholders’ equity and equivalents:

From stockholders’ equity:

From operations:

Consolidated net income 6,219 4,129 1,925

Depreciation and amortization 2,102 2,061 1,950

Net addition to allowances 3,655 7,047 5,667

Share of earnings of companies carried under equity method (815) (537) (36)

Total funds provided from operations 11,161 12,700 9,506

Cash dividend (1,603) (1,197) (779)

Change related to operations involving capital stock and reserves:

Share attributable to BNP Group (1,321) 4,168 (525)

Minority interests 2,855 (526) (163)

Increase in funds provided from stockholders’ equity 11,092 15,145 8,039

Increase (decrease) in reserve for general banking risks 138 (1,773) 172

Increase in subordinated debt 9,353 6,498 752

Total funds provided from stockholders’ equity and equivalents 20,583 19,870 8,963

Funds provided from other sources:

Increase in interbank items 44,861 112,581 64,751

Increase in customer deposits 79,692 59,987 54,824

Increase (decrease) in bonds and negotiable debt instruments (15,028) (15,461) (5,775)

Increase (decrease) in other financial items (8,353) 72,836 143

Increase in funds provided from other sources 101,172 229,943 113,943

Total increase in funds provided: 121,755 249,813 122,906

Funds used:

Increase (decrease) in interbank loans (52,326) 75,529 57,922

Increase in customer loans 99,521 51,660 22,164

Increase in securities transactions 11,064 101,274 30,386

Increase in long-term investments 64,679 19,512 10,280

Increase (decrease) in tangible and intangible assets (1,183) 1,838 2,154

Total increase in funds used 121,755 249,813 122,906

G R O U P

89EIGHTY-

NINE


90

NINETY

NOTE 1 - ACCOUNTING

POLICIES

BASIS OF

PRESENTATION

The consolidated financial

statements include the accounts

of Banque Nationale de Paris and

its main subsidiaries and affiliates.

Accounting policies applied in

preparing the consolidated balance

sheet and income statement comply

with the accounting principles

established for the French banking

industry. The financial statements

of foreign subsidiaries and

affiliates, prepared in accordance

with accounting policies applied

in their respective countries,

have been restated prior to

consolidation to conform to

Group accounting policies.

PRINCIPLES AND BASIS

OF CONSOLIDATION

The consolidated financial

statements include the accounts

of BNP and its subsidiaries and

affiliates with total assets in excess

of 10 million ECUs in which

BNP holds a direct and/or

indirect interest of 20% or more.

• Fully Consolidated

Subsidiaries

In order to reflect the predominance

of the BNP Group’s banking

activity, only financial institutions,

bank holding companies, and

companies whose activities are a

direct extension of the banking

activity are fully consolidated when

BNP has a direct or indirect

ownership interest of at least 50%,

when the BNP Group exercises

exclusive control over their

management on statutory or

contractual grounds, or through its

power to appoint a majority of their

management board, and when the

total assets of these units exceed

FRF 100 million (approximately

15 million ECUs).

• Proportionally Consolidated

Subsidiaries

Affiliates that the BNP Group

controls jointly with other

stockholders are proportionally

consolidated. When no exclusive

control exists, joint control is

deemed to exist when a small

number of stockholders can jointly

appoint the members of their board

of directors in order to define and

apply a joint strategy.

• Companies Carried Under the

Equity Method

Affiliates that are less than 50%owned

and in which the BNP Group

exercises significant influence over

financial policy and management,

which is deemed to exist when the

Group holds at least 20% of their

voting rights, are carried under the

equity method unless the BNP

Group exercises dominant or joint

influence (see above). Majority-owned

financial institutions with total assets

of 10 million to 15 million ECUs, as

well as nonbanking subsidiaries

(insurance and bank-related service

companies) are also carried under the

equity method.

• Other Stock Investments

Whenever the BNP Group’s ability

to control the operations or assets

of a subsidiary or affiliate is severely

and durably impaired, the

investment is neither consolidated

nor carried under the equity

method, but is posted to “Other

stock investments”.

• Change in Group Ownership

Interest in a Consolidated Subsidiary

or Equity-Method Affiliate

In the event that the BNP Group’s

ownership interest in a consolidated

subsidiary or equity method affiliate

changes, the proportionate change

in BNP’s ownership interest is reflected

in consolidated stockholders’ equity.

FOREIGN CURRENCY

TRANSLATIONS

Foreign currency denominated

assets, liabilities, and off-balance sheet

commitments of foreign branches,

subsidiaries, and affiliates have been

translated into French francs at

official year-end exchange rates,

except nonmonetary assets and

liabilities of the entities in countries

with high inflation, which were

translated at historical rates to correct

for high inflation in those countries.

Income statements are translated at

average exchange rates for the year

for foreign branches, subsidiaries,

and affiliates, except in countries

with high inflation, which are

translated at year-end exchange rates.

Exchange differences calculated on

the basis of year-end exchange rates

for capital, reserves, retained

earnings, net income and the equity

base of branches are posted to equity.

GOODWILL

Goodwill represents the excess of

the book value of the parent

B N P


company’s shares in consolidated

subsidiaries or equity-method

companies over their net assets at

the date of acquisition, for the

portion of the purchase price not

allocated to specific assets or

liabilities. Goodwill is shown as

such in the balance sheet and is

amortized on a straight-line basis

over a maximum period of seven

years. The portion allocated to

specific assets is recognized using

the accounting policies that apply

to the corresponding assets.

The portion allocated to specific

assets or liabilities of companies

carried under the equity method is

posted to the item “Investments in

companies carried under equity

method”.

INTERCOMPANY BALANCES

AND TRANSACTIONS

Securities issued by a fully

consolidated BNP Group company,

purchased by the BNP Group, and

held on a long-term basis are

eliminated in consolidation, with

the exception of those issued by

BNP and held in accordance with

French regulations concerning the

BNP Group’s employee stock

option plan. Intercompany balances,

as well as income and expense on

material intercompany transactions

between fully or proportionally

consolidated companies, are

eliminated in consolidation.

LEASE FINANCING

Income from finance leases is

recorded as financial revenue.

Assets leased to others are carried

in the balance sheet at cost less

accumulated depreciation. Such

depreciation is adjusted to reflect

the financial amortization of the

invested capital. The resulting

amortization expense is included

in “Lease transaction income”.

G R O U P

Deferred tax is recorded for only

half of the tax liability attributable

to book-vs-tax timing differences.

INCOME AND EXPENSE

RECOGNITION

Interest income and related

commissions are recognized on an

accrual basis. Fees for services (not

interest-related) are recorded when

the services are rendered.

FOREIGN CURRENCY

TRANSACTIONS

Foreign exchange positions are

generally valued at official yearend

exchange rates. Currency gains

and losses on ordinary transactions

denominated in a foreign currency

are recorded in income and

expense. Translation adjustments

calculated on the basis of official

year-end exchange rates for assets

denominated in foreign currencies

and held on a long-term basis,

including debt securities held for

investment, equity securities held

for investment, the equity base of

BNP branches outside France, and

investments in foreign affiliates,

are not reflected in the income

statement.

BOND ISSUES

Issuing costs are prorated over the

term of the bond.

SECURITIES

The term “securities” covers interbank

market securities (mainly promissory

notes and mortgage notes); Treasury

and other negotiable debt

instruments; bonds and other fixedincome

instruments (whether fixedor

floating-rate); and equities and

other non-fixed-income instruments.

Securities are classified as “Trading

account assets”, “Investment

securities held for sale”, “Debt

securities held for investment”,

“Equity securities held for

investment”, and “Other stock

investments”. Investments in

companies carried under the equity

method are isolated as a separate

asset class.

• Trading Account Assets

Securities held for up to three

months are recorded under “Trading

account assets” and valued

individually at market. Changes

in market values are posted to

income.

• Investment Securities Held for

Sale

This category includes securities held

for at least three months, but which

the BNP Group does not intend to

hold on a long-term basis. Bonds

and other fixed-income instruments

are valued at the lower of cost

(excluding accrued interest) or their

probable market value, which is

generally determined on the basis

of market prices. Accrued interest

is posted to income under

“Interest income on bonds and

other fixed-income instruments”.

Stocks are valued at the lower of cost

or their probable market value,

which is generally determined on

the basis of stock market prices, for

listed stocks, or the BNP Group’s

share in net assets calculated on the

basis of the most recent financial

statements available, for unlisted

stocks. Dividends received are posted

to income under “Income on

equities and other non-fixed-income

instruments” at the time of their

payment.

The cost of sale of investment

securities held for sale is determined

on a first in, first out (FIFO) basis.

Capital gains on disposal are

reflected in the income statement

91NINETY-

ONE


92

NINETY-

TWO

under “Net gains (losses) on

financial operations”, as are

provisions for market value writedowns

or recoveries.

• Debt Securities Held for

Investment

Fixed-income securities (mainly

bonds, interbank market securities,

Treasury securities, and other

negotiable debt securities) are

recorded under “Debt securities

held for investment” to reflect the

BNP Group’s intention of holding

them on a long-term basis. Bonds

classified under this heading are

financed by matching funds or

hedged against interest rate exposure

to maturity.

The difference between cost and the

redemption price of these securities

is prorated over the life of the

securities and posted to “Interest

income on bonds and other fixedincome

instruments” in the income

statement. In the balance sheet, their

carrying value is amortized to their

redemption value.

Interest on debt securities held for

investment is posted to income under

“Interest income on bonds and other

fixed-income instruments”.

A provision is made when a

decline in the credit standing of

an issuer jeopardizes redemption

at maturity.

• Equity Securities Held for

Investment

This category includes shares and

related instruments that the BNP

Group intends to hold on a longterm

basis, without taking an

active part in the management of

the issuing companies. “Equity

securities held for investment”

are recorded individually at the

lower of cost or fair market value.

Fair market value of listed

securities is primarily determined

according to the average market

price over the previous two fiscal

years, or according to a more

recent market price when a

decrease in value of the

underlying security is likely to

endure. Fair market value of

unlisted securities is determined

according to net asset value per

share (consolidated, if applicable).

Dividends received are posted to

income under “Income on equities

and other non-fixed-income

instruments” at the time of their

payment.

• Other Stock Investments

This category includes affiliates

in which the BNP Group

exercises significant influence over

management or investments

considered as strategic for the

Group’s business development.

Influence over management is

deemed to exist when the Group

holds an ownership interest

of at least 10%. “Other stock

investments” are recorded

individually at the lower of cost

or fair market value. Fair market

value of listed securities is

primarily determined according

to the average market price over

the previous two fiscal years, or

according to a more recent market

price when a decrease in value of

the underlying security is likely

to endure. Fair market value of

unlisted securities is determined

according to net asset value per

share (consolidated, if applicable).

Capital gains or losses on

disposals are recorded as “Gains

(losses) on disposals of longterm

investments, net of provisions”

in the income statement.

Dividends on other stock

investments are posted to income

when the stockholders of those

companies have voted to

distribute the dividends during

the year. They are posted to

“Income on equities and other

non-fixed-income instruments”.

• Investments in Companies

Carried Under the Equity

Method

Changes in net assets of companies

carried under the equity method

are posted to assets under

“Investments in companies carried

under equity method” and

to consolidated reserves under

“Retained earnings”. The

difference between the book value

of the parent company’s shares and

its share of net assets at the date of

acquisition is also posted to the

item “Investments in companies

carried under equity method” for

the portion allocated to specific

assets or liabilities.

FORWARD FINANCIAL

INSTRUMENTS

The BNP Group operates in

interest rate and foreign exchange

forward financial instruments,

optional and non optional, both

on organized exchanges and in

over-the-counter transactions. It

engages in interest rate and

currency swaps to manage its

interest rate and exchange rate

risk exposure, as well as for

the purposes of arbitrage and

trading.

• Forward Interest Rate

Instruments

Interest rate futures and options

contracts traded on organized

exchanges are valued at market at

the balance sheet date. Realized and

unrealized gains and losses are taken

to income under “Net gains (losses)

on financial operations”.

Gains and losses on certain

contracts, which are traded over

the counter on narrow markets,

or which are isolated open

positions, are taken to income

B N P


either when the contracts are

unwound or on a prorated basis

depending on the nature of the

instruments. Provisions for risks

are made to cover unrealized

losses.

Gains and losses on interest rate

contracts designated as hedging

operations are recognized similarly

to gains and losses on the hedged

instrument.

• Forward Foreign Exchange

Instruments

Options contracts are marked to

market and valuation differences

are posted to income. Identical

treatment is used for forward

exchange contracts bought and

sold for trading purposes. As a

general rule, when these

transactions are hedged, the

hedging contracts are valued at the

cash price prevailing at the end of

the period. Premiums and

discounts on contracts designated

as a hedge are recognized on an

accrual basis and posted to the

income statement over the life of

the hedged transaction.

• Equity and Equity Index

Derivatives

BNP buys and sells equity and

equity index options for trading

and hedging purposes. In the case

of trading operations, unrealized

gains and losses on contracts that

have not been unwound by the

balance sheet date are carried

directly to income. Gains and

losses on settled equity and equity

index contracts designated as

hedging operations are recognized

similarly to gains and losses on

the hedged instrument.

CUSTOMER LOANS

“Customer loans” cover credits to

entities other than credit

institutions and are broken down

G R O U P

into commercial and industrial

loans, customer overdrafts, and

other credits. Customer loans are

carried in the balance sheet at

principal amount plus accrued

interest. Whenever management

determines that borrowers may not

be able to repay their loans, a

provision for credit risk is charged

to income. Provisions are calculated

on a case-by-case basis, taking into

account guaranties held by the

bank, except in the case of small

receivables, on which the risk is

calculated taking into account the

bank’s loan loss experience on this

category of receivables.

In the case of real estate

professionals, potential losses are

computed on the basis of the fair

market value of the assets

financed, guaranties, and losses

on unfinished developments

(reflecting income and expenses

pending). The fair market value

of assets financed takes into

account rental values, prices of

recent transactions involving

comparable operations, and any

possible capital losses. Expenses

pending take into account all

interest expenses that will be due

until complete exit of the building

program, construction costs, fees

for professional services pending,

and operating expenses.

Allowances for credit risks on

items carried under assets in the

consolidated balance sheet are

deducted from the corresponding

asset items. Allowances reported

under liabilities consist of

allowances for guaranties and

endorsements, allowances for

losses on unfinished real estate

developments in which equity

investments have been made,

allowances for legal proceedings

pending, and allowances deemed

necessary to cover potential risks

related to certain commitments

or business sectors (allowances for

risks not specifically identified and

allowances for unforeseeable

sectorial risks).

Additions to and deductions from

allowances, loan losses, and

recoveries of loans written off are all

carried under “Net addition to

allowance for credit risks and

country risks” in the income

statement. Additions to allowances

for unforeseeable sectorial risks made

by means of transfers from the

reserve for general banking risks are

recorded as nonrecurring expenses.

These allowances are utilized to

cover substantial risks identified by

the income statement heading under

which the corresponding allowance

was recorded.

COUNTRY RISK PROVISIONS

BNP determines its country risk

coverage on the basis of the

future solvency of each of the

countries at risk and the nature

of the loans outstanding to those

countries. Country risk provisions

and write-backs are

reflected in the consolidated

income statement under “Net

addition to allowance for credit

risks and country risks”.

RESERVE FOR GENERAL

BANKING RISKS

For reasons of conservatism, the

BNP Group has set up a reserve

for general banking risks.

Specific additions to, and

deductions from, this reserve are

reflected in the consolidated

income statement under “Net

(addition to) deduction from

reserve for general banking risks

and miscellaneous risks”. This

reserve was originally set up

through transfers from other

reserves under the conditions

described in Note 20.

93NINETY-

THREE


94

NINETY-

FOUR

PROVISIONS FOR

MISCELLANEOUS RISKS

The BNP Group makes provisions

for miscellaneous risks to

cover specific risks that are

uncertain and not quantifiable.

These provisions may be written

back in the case of individual

risks which become certain and

quantifiable and which are

covered by specific provisions.

FIXED ASSETS

In 1991 and 1992, as allowed by

French regulations, BNP

transferred its main operating real

estate holdings to its subsidiary

Compagnie Immobilière de France.

This transaction covered wholly

owned buildings and buildings

leased to BNP SA (the parent

company) by one of its specialized

subsidiaries. BNP intends to hold

these buildings on a long-term

basis. The revaluation arising from

this transaction has been posted to

consolidated stockholders’ equity,

net of the related deferred tax effect.

A deferred tax allowance has been

provided for. The resulting capital

gain is now posted to the

consolidated income statement in

proportion to the additional

depreciation charge taken by

Compagnie Immobilière de France.

In order to reflect what now appears

to be a lasting decline in the real

estate market, the BNP group wrote

down in 1997 the book value of the

above referred real estate. The impact

of this adjustment, net of the related

deferred income tax effect,

was posted to consolidated

stockholders’equity, consistently

with the initial adjustment. This

adjustment has therefore no impact

on consolidated net income.

Other premises and equipment

are stated at cost or valued in

accordance with France’s

appropriation laws of 1977 and

1978 or, for certain foreign

subsidiaries, in accordance with

local rules (see below).

Assets leased by BNP from its

specialized subsidiaries are

recorded as premises, equipment,

and other under “Tangible and

intangible assets”.

The restructured real estate

portfolio is depreciated over a

fifty-year period starting from the

date of transfer using the straightline

method. Depreciation of other

fixed assets is computed using the

straight-line method over their

estimated functional lives. Furniture

and fixtures are depreciated over a

period of eight to 12 years,

equipment is depreciated over a

period of five to eight years, and

vehicles are depreciated over a period

of two to six years.

BNP and its French subsidiaries

have adopted accelerated

depreciation for their individual

company accounts. In the

consolidated financial statements,

depreciation is restated (in most

cases using the straight-line

method) to allocate the cost of

the assets concerned over their

estimated functional lives.

Deferred taxes have been

calculated on the restatement.

Amortization of assets leased

by BNP from its leasing subsidiaries

is reflected in the income

statement under “Depreciation and

amortization”.

STATUTORY REVALUATION

In 1978, in accordance with

applicable tax laws, BNP and some

of its French subsidiaries revalued

land and buildings owned at

31 December 1976 and still carried

in their balance sheets at the date of

revaluation. The revalued amounts,

computed at 31 December 1976,

were established by independent

appraisers.

At the same time, investments in

affiliates and subsidiaries were also

revalued either at 31 December

1976 market values for companies

listed on the Paris Stock Exchange,

or on the basis of their net asset value

as taken from the 31 December

1976 balance sheet after

appropriation of income.

BNP has included in stockholders’

equity the portion of the revaluation

surplus relating to nondepreciable

assets arising from this operation.

INCOME TAXES

BNP Group companies are subject

to income tax based on rules and

rates prevailing in the countries in

which they operate. In France, the

standard income tax rate is 33.33%.

Long-term capital gains are taxed at

a rate of 19%. Capital gains and

losses on securities in the various

portfolios losses are taxed at the

standard income tax rate of 33.33%,

with the exception of “Other stock

investments”, which are subject to

long-term capital gains taxation.

Dividends received from companies

in which the BNP Group has an

ownership interest of more than

10% or more than FRF 150 million

are nontaxable.

In 1995 the French government

imposed a 10% surtax on

corporate income for an

unspecified period of time, and

in 1997 it imposed a

15% surtax on corporate income,

which will be lowered to 10% for

fiscal year 1999 and expire at yearend

1999. BNP has taken these

surtaxes into account to

determine income taxes for each

B N P


subsequent period that are

currently payable, and has used

the liability method to adjust the

amount of deferred taxes for cases

where they would be subject to

the surtax when the timing

differences reverse themselves at

any time in the future. This

position is in accordance with the

September 15, 1997 option of the

French National Accounting

Council.

A charge for income taxes is taken

in the year in which the respective

taxable income and expense are

booked, regardless of the time

when the tax is actually paid. As

a result, BNP Group companies

book deferred taxes calculated on

the basis of timing differences

between profit and loss items for

accounting and tax purposes,

under the liability method.

However, the deferred income tax

provision on reserves related to

leasing operations is determined

on the basis of the portion of the

reserves that might be taxed in the

foreseeable future; this portion

may not be less than one-half of

the existing related reserve.

In accordance with international

accounting principles, the BNP

Group now records defered tax

benefits based on the probability

of their utilization, regardless of

the amount of offsetting deferred

tax liabilities.

G R O U P

PROFIT-SHARING PLAN

As required by French law, BNP

and its French subsidiaries provide

for profit sharing in the year in

which the profit arises, and report

the provision under salaries in

“Operating expense” in the

consolidated income statement.

RETIREMENT AND PENSIONS

FOR FORMER EMPLOYEES

Upon retirement, BNP Group

employees receive pensions

according to the laws and customs

prevailing in the countries where

BNP Group companies operate.

Outside France, BNP Group

companies and their employees

contribute to mandatory pension

plans managed by independent

organizations.

Retired employees of the BNP

Group’s French subsidiaries and

affiliates belonging to the banking

industry are entitled to the following

pension system starting 1 January

1994, pursuant to a new industrywide

agreement on pensions:

• Retirees receive pension benefits

from the social security system and

two nationwide organizations,

which are financed by

contributions received from

employers and employees.

• Retirees receive additional benefits

from the pension fund of BNP and

its French subsidiaries relative to

services rendered prior to

31 December 1993. Funding for

these additional benefits is provided

by transfers from the pension funds’

existing reserves and by employer

contributions, which are limited to

a percentage of payroll costs. The

amount of such additional benefits

is adjusted to reflect the funding

level of the pension funds and may

consequently be reduced in due

proportion.

The working capital contributions

made to the two nationwide

pension organizations in 1994 are

treated as prepaid expenses and

amortized over the average number

of years left to retirement of BNP’s

affiliated employees, which is

currently twenty years.

EMPLOYEE BENEFITS

Under various agreements, the

bank is committed to pay early

retirement, retirement, and

seniority bonuses. Each year, the

Group estimates the net current

value of these commitments and

adjusts the related allowance. The

net current value of these

commitments is determined on

the basis of a market rate that

corresponds to expected yields on

funds invested for the long term.

95NINETY-

FIVE


96

NINETY-

SIX

NOTE 2 - SUBSIDIARIES

AND AFFILIATES

OF THE BNP GROUP

FULLY CONSOLIDATED COMPANIES

Financial Institutions Group Group

voting ownership

interest (%) interest (%)

IN FRANCE

Credit Institutions

Banexi (1) 100.00 100.00

Banque Arabe et Internationale d’Investissements “ BAII “ (1) 100.00 100.00

Banque de Bretagne (1) 100.00 100.00

Banque de la Cité (1) 99.95 99.95

Banque de Wallis et Futuna 51.00 51.00

BNPI 81.91 81.91

BNP Bail (1) 100.00 100.00

BNP Factor (France) (1) 100.00 100.00

BNP Finance (1) 100.00 100.00

BNP Guadeloupe (1) 100.00 100.00

BNP Guyane 100.00 100.00

BNP Martinique (1) 100.00 100.00

BNP Nouvelle-Calédonie 100.00 100.00

Crédit Universel (1) 100.00 100.00

Locafinance 100.00 100.00

Natiobail 71.59 71.59

Natiocrédibail 100.00 100.00

Natiocrédimurs 100.00 100.00

Natioénergie 100.00 100.00

Natiolocation

Other Financial Institutions

(1) 100.00 100.00

Arius Finance 67.62 67.62

Banexi Communication SA (1) 100.00 100.00

Banexi Société de Capital Risque 100.00 100.00

BNP Arbitrage (1) 100.00 100.00

BNP Développement SA 100.00 100.00

BNP Gestions (1) 100.00 100.00

BNP Immobilier (1) 100.00 100.00

Compagnie d’Investissement de Paris “CIP” 100.00 100.00

Codexi 99.91 99.91

Du Bouzet SA (1) 99.52 99.52

Financière BNP (1) 100.00 100.00

Immo Investissements BNP (1) 100.00 100.00

Natiocrédit (1) 100.00 100.00

Natioinformatique 100.00 100.00

Promopart BNP (1) 100.00 100.00

Société Auxiliaire de Participations et de Gestion “SAPEG” (1) 100.00 100.00

Société Bridoise de Participations 100.00 100.00

Société Cristolienne de Participations (1) 100.00 100.00

Société Française Auxiliaire “SFA”

Other

(1) 100.00 100.00

Arius SA 67.62 67.62

Compagnie Immobilière de France “CIF” (1) 100.00 100.00

Fleurantine de Participations (1) 100.00 100.00

Négocéquip 100.00 100.00

SNC Goya 100.00 100.00

SNC Immobilier Haussmann 1 100.00 100.00

SNC Meunier Barjac

OUTSIDE FRANCE

Credit Institutions

Europe

100.00 100.00

BNP Bank NV (Netherlands) 100.00 100.00

BNP Espana (Spain) 99.05 99.05

BNP Finans A/S Norge (Norway) 100.00 100.00

BNP Ireland Ltd (Group) 100.00 100.00

BNP KB Norge (Norway) 100.00 100.00

BNP Luxembourg 100.00 91.77

BNP Plc Londres (United Kingdom) 100.00 100.00

BNP Suisse (Switzerland) 97.66 94.04

(1) Companies included within the entity considered as a group for tax reporting in France at 31 December 1997.

B N P


Financial Institutions Group Group

voting ownership

The Americas

interest (%) interest (%)

Banco BNP Brasil SA (Brazil) 100.00 100.00

Bank of the West (United States) 100.00 100.00

BNP (Canada) 100.00 97.99

BNP (Mexico) SA 100.00 100.00

BNP (Panama) SA 91.80 84.77

BNP (Uruguay) SA 100.00 100.00

BNP Private Bank & Trust Cie Bahamas Ltd

Asia

100.00 100.00

BNP Arbitrage Hong Kong Ltd 100.00 100.00

BNP Primeeast Labuan Holding (Malaysia) 70.00 70.00

BNP Primeeast Securities (Hong Kong)

Africa

100.00 70.00

Banque Malgache de l’Océan Indien “BMOI” (Madagascar) 55.64 48.85

Banque pour l’Industrie et le Commerce (Comoros) 51.00 41.77

BCI Mer Rouge (Djibouti) 51.00 41.77

Banque Marocaine pour le Commerce et l’Industrie “BMCI” (Morocco) 50.00 40.96

UBCI (Tunisia)

Other Financial Institutions

Europe

50.00 40.96

BAII Asset Management Ltd (United Kingdom) 100.00 100.00

BNP Capital Finance Ltd (Ireland) 100.00 100.00

BNP Factor (Portugal) 95.00 95.00

BNP Leasing Limited (United Kingdom) 100.00 100.00

BNP Leasing Spa (Italy) 100.00 100.00

BNP SIM SA Milan (Italy) 100.00 100.00

BNP UK Holdings Ltd (United Kingdom) 100.00 100.00

Cipango Ltd (United Kingdom) 50.00 50.00

Interconti - Finance (Ireland)

The Americas

100.00 100.00

BNP Cooper Neff (United States) 100.00 100.00

BNP Leasing Corporation Dallas (United States) 100.00 100.00

BNP Mexico Holding (Mexico) 100.00 100.00

BNP Securities Inc. (United States) 100.00 100.00

BNP US Funding LLC (United States) 100.00 100.00

French American Banking Corporation “FABC” (United States)

Asia/Pacific

100.00 100.00

BNP Equities Australia Ltd 80.00 80.00

BNP Finance Hong Kong Ltd 100.00 100.00

BNP IFS Hong Kong Ltd 100.00 100.00

BNP IFS Singapour Ltd (Singapore) 100.00 100.00

BNP Pacific Ltd (Australia) 100.00 100.00

BNP Vila Ltd (Vanuatu) 100.00 100.00

Pt BNP Lippo Indonesia (Indonesia) 70.00 70.00

Pt BNP Lippo Utama Leasing (Indonesia)

Africa

80.00 56.00

BMCI Offshore (Morocco) 100.00 40.96

Interleasing Maroc (Morocco) 71.76 29.39

Union Tunisienne de Leasing (Tunisia)

Other

Asia/Pacific

56.64 31.78

90 William Street Pty Ltd (Australia) 100.00 100.00

G R O U P

SEVEN

97NINETY-


98

NINETY-

EIGHT

PROPORTIONALLY CONSOLIDATED COMPANIES

Financial Institutions Group Group

voting ownership

interest (%) interest (%)

IN FRANCE

Other

CFJPE 50.00 50.00

Europcar Lease

OUTSIDE FRANCE

Credit Institutions

Europe

50.00 50.00

BNP AK Dresdner Bank AS (Turkey) 30.00 27.47

BNP Dresdner Bank ZAO (Russia) 50.00 50.00

BNP Dresdner Bank (CR) a.s. (Czech Republic) 50.00 50.00

BNP Dresdner Bank (Polska) SA (Poland) 50.00 50.00

BNP KH Dresdner Bank Rt (Hungary) 50.00 50.00

United European Bank (Switzerland)

The Americas

50.00 50.00

Dresdner Banque Nationale de Paris Chile (Chile) 44.15 44.15

Inversiones Dresdner BNP Chile (Chile)

Asia/Pacific

50.00 50.00

International Bank of Paris and Shanghai (China)

Other

Europe

50.00 50.00

BNP AK Dresdner Finansal Kiralama (Turkey) 30.00 27.47

Société Financière pour les Pays d’Outre Mer “SFOM” (Switzerland)

The Americas

48.36 48.36

Dresdner BNP Chile Corredores de Bolsa (Chile) 27.50 27.50

COMPANIES CARRIED UNDER THE EQUITY METHOD

Financial Institutions Group Group

voting ownership

interest (%) interest (%)

IN FRANCE

Other

Béarnaise de Participations 100.00 100.00

Chinonaise de Participations (1) 100.00 99.52

DGC Participations 100.00 100.00

Euromezzanine SCA 28.29 28.29

Euromezzanine SCA 2

OUTSIDE FRANCE

Credit Institutions

Europe

27.83 27.83

BNP Dresdner Bank (Bulgaria) AD

Africa

40.00 40.00

Banque du Caire et de Paris (Egypt) 76.00 76,00

Banque Internationale pour le Commerce et l’Industrie “BICI”, Côte d’Ivoire (Group)

Banque Internationale pour le Commerce, l’Industrie

34.54 34.54

et l’Agriculture du Burkina Faso “BICIA” (Burkina Faso) 29.38 29.38

Banque Internationale pour le Commerce et l’Industrie du Gabon “BICI” 34.86 34.86

Banque Internationale pour le Commerce et l’Industrie du Sénégal “BICI” (Senegal) 35.69 35.69

BTCI Togo 35.75 35.75

International Bank of Southern Africa “SFOM” Ltd (South Africa) 39.46 39.46

The Commercial Bank of Namibia Ltd “CBON” 21.20 21.20

Union Africaine de Crédit “UFAC” (Morocco)

Asia

63.58 26.04

BNP PrimeEast Indonesia 85.00 48.99

(1) included within the entity considered as a group for tax reporting in France at 31 December 1997.

B N P


Financial Institutions Group

voting

Group

ownership

Other

The Americas

interest (%) interest (%)

BNP Canada - Valeurs mobilières

Europe

100.00 97.99

Financière du Régent (Belgium) 100.00 100.00

Nonfinancial Institutions Group Group

voting ownership

interest (%) interest (%)

IN FRANCE

Insurance

Natio-vie (Group)

Real Estate

(1) 100.00 100.00

Cimoxi (1) 100.00 100.00

Meunier Promotion (Group) (1) 100.00 100.00

Société Française de Développement Immobilier

Services

(1) 100.00 100.00

Société Française du Chèque de Voyage

OUTSIDE FRANCE

Insurance

21.00 21.00

BNP Ré Luxembourg 100.00 99.24

(1) Companies included within the entity considered as a group for tax reporting in France at 31 December 1997.

The list of subsidiaries and affiliates

changed as follows in

the twelve months prior to

31 December 1996:

• The following companies

are now fully consolidated:

Haumontoise de Participations,

BNP Securities Hong Kong Ltd.,

BNP SIM (Italy), BNP

Securities Ltd. (Australia), and

BNP Equities Ltd. (Australia),

which are newly created

subsidiaries; as well as Fleurantine

de Participations, SNC Goya,

SNC Meunier Barjac, and SNC

Immobilière Haussmann 1,

which now satisfy the criteria for

full consolidation.

• The following companies are now

carried under the equity method:

BNP Asset Finance BV

(Netherlands), which was

previously fully consolidated; as

well as BNP Dresdner Chile,

BNP Dresdner Bulgaria, La

Financière du Régent (Belgium),

G R O U P

and Société Française pour le

Développement de l’Immobilier,

the criteria for being carried under

the equity method.

• The following companies are

proportionally consolidated:

Compagnie Financière de

Participations and BNP Dresdner

Polska, which are newly created

companies; as well as Compagnie

Financière Jean Paul Elkann,

which was acquired.

• The following companies are

no longer consolidated:

Promonegocios (Spain), BAII

Securities Inc. (Panama), BNP

Jersey Trust (Jersey), and BNP

US Finance Corporation

(United States), which no

longer satisfy the criteria for

consolidation.

• The following companies are

no longer carried under the

equity method: Epicea,

Sofidema (Macao), and UAP

Group (see Note 21), which no

longer satisfy the criteria for

being carried under the equity

method.

• Financière Gamma, which was

previously fully consolidated, and

Orgepro, which was carried under

the equity method, have been

merged with Banexi and Banexi

Communication, respectively.

The list of subsidiaries and

affiliates changed as follows

in the twelve months prior to

31 December 1997:

• The following companies are now

fully consolidated: Banco BNP

Brazil, BNP Primeeast Labuan

Holding, BNP US Funding LLC

(United States), BNP Arbitrage

Hong Kong, and Arius Finance,

which are newly created

subsidiaries; BNP PrimeEast

Securities Hong Kong and BNP

Private Bank Trust Bahamas, which

were acquired; and BNP Gestions,

NINE

99NINETY-


100

ONE HUNDRED

BNP Mexico Holding, BMCI

Offshore (Morocco), Codexi, and

Arius SA which now satisfy the

criteria for full consolidation.

• The following companies are now

carried under the equity method:

Euromezzanine SCA 2, newly

created subsidary; BNP PrimeEast

Indonesia; and BNP Canada

Valeurs Mobilières, which now

satisfies the criteria for being carried

under the equity method.

• The following companies are

proportionally consolidated:

Dresdner BNP Chile and

Europcarlease, which were

previously carried under the equity

method; Inversiones Dresdner

BNP Chile, Dresdner BNP Chile

Corredores Bolsa, and UEB Trust

Bahamas, which now satisfy the

criteria for being proportionally

consolidated.

• The following companies are no

longer consolidated: Delloise de

Participations, BNP Securities

Hong Kong, BNP Securities

Australia, and BNP Capital

Markets, which no longer satisfy

the criteria for consolidation.

• The following company is no

longer carried under the equity

method: BNP Asset Finance

BV, which no longer satisfies

the criteria for being carried

under the equity method.

• Compagnie Financière Jean-

Paul Elkann and Société

Hautmontoise de Participations

were merged with Société

Financière de Participations

(renamed CFJPE) and BNP

Finance, respectively.

• Crédifimo and Mauritius

Leasing Company, which were

previously carried under the

equity method, were sold

during the period.

B N P


NOTE 3 - INTERBANK

AND MONEY

MARKET ITEMS

Millions of French francs, 1997 1996 1995

at 31 December Gross Allowance Net Net Net

Cash and due from central banks

and post office banks:

Cash and due from post office banks 3,966 (19) 3,947 2,876 ..

Due from central banks 7,904 — 7,904 12,227 ..

Related receivables 12 — 12 12 ..

Total cash and due from

central banks and post office banks

Treasury bills and money market

11,882 (19) 11,863 15,115 8,286

instruments (Note 5)

Due from credit institutions:

248,537 (41) 248,496 154,692 85,848

Demand deposits 26,609 (68) 26,541 28,394 29,487

Term loans and time deposits (a) :

Central banks 10,429 — 10,429 16,810 ..

Other credit institutions 205,984 (5,910) 200,074 349,067 ..

Related receivables 9,809 (717) 9,092 7,088 ..

Total term loans and time deposits 226,222 (6,627) (b) 219,595 372,965 359,690

Securities and bills purchased firm

or under resale agreements:

Securities received under resale

agreements 234,338 — 234,338 132,602 67,561

Bills purchased firm or under

resale agreements:

Central banks — — — 77 ..

Other credit institutions 10,918 — 10,918 8,827 ..

Related receivables 42 — 42 37 ..

Total securities and bills purchased

firm or under resale agreement 245,298 — 245,298 141,543 84,266

Subordinated loans 474 (3) 471 358 293

Total due from credit institutions 498,603 (6,698) 491,905 543,260 473,736

Total interbank and money

market items 759,022 (6,758) 752,264 713,067 567,870

Including: accrued interest on interbank

and money market items .. .. 11,511 8,013 7,433

(a) The item “ Term loans and time deposits” includes overnight and term loans which are not materialized in a bill or security, particularly

financial credits. Commercial loans with an initial term of more than one year granted to credit institutions, where the ultimate borrowers

are business entities other than financial sector companies, generally entities from developing countries on which cross-border exposure

has been provisioned (Note 7), are considered financial credits.

(b) Allowances for cross-border exposure on sovereign debt.

G R O U P

101

ONE HUNDRED

ONE


102

ONE HUNDRED

TWO

NOTE 4 - CUSTOMER

ITEMS

Millions of French francs, 1997 1996 1995

at 31 December Gross Allowance Net Net Net

Customer items:

Due from customers:

Commercial and industrial loans:

Discounting and related 18,090 — 18,090 22,293 ..

Acceptances 2,421 — 2,421 1,653 ..

Other commercial and industrial loans 15,713 — 15,713 10,434 ..

Total commercial and industrial loans 36,224 — 36,224 34,380 40,533

Overdrafts 70,576 — 70,576 62,834 61,657

Other credits:

Short-term loans 150,206 — 150,206 144,844 ..

Mortgage loans 134,264 — 134,264 128,101 ..

Investment loans 103,430 — 103,430 95,335 ..

Export loans 24,650 (4,540) 20,110 17,935 ..

Other customer loans 243,619 (49) 243,570 215,156 ..

Total other credits 656,169 (4,589) (a) 651,580 601,371 561,259

Doubtful customer loans 51,313 (34,857) 16,456 19,457 19,658

Receivables related to customer loans

Securities and bills purchased firm or under

4,423 — 4,423 3,686 5,062

resale agreements 52,367 — 52,367 18,707 9,374

Subordinated loans (b) 1,002 (196) 806 1,078 1,180

Total due from customers (c) 872,074 (39,642) 832,432 741,513 698,723

Leasing receivables 57,448 (1,797) 55,651 52,473 49,003

Total customer items 929,522 (41,439) 888,083 793,986 747,726

Including: accrued interest on customer items .. .. 5,602 4,393 5,766

(a) Allowance for cross-border exposure on sovereign debt.

(b) Participating loans granted to BNP customers, included under “Subordinated loans”, amounted to FRF 509 million at 31 December

1997, compared with FRF 684 million at 31 December 1996 and FRF 806 million at 31 December 1995.

(c) Customer items eligible for rediscounting by the Bank of France amounted to FRF 65,510 million at 31 December 1997, compared

with FRF 82,120 million at 31 December 1996 and FRF 89,606 million at 31 December 1995.

B N P


NOTE 5 - TRADING ACCOUNT

ASSETS, INVESTMENT SECURITIES

HELD FOR SALE, AND DEBT

SECURITIES HELD FOR INVESTMENT

Millions of French francs, 1997 1996 1995

at 31 December Gross Allowance Net book Market Net book Market Net book Market

value value value value value value value

Trading account assets:

Treasury bills and money

market instruments

Bonds and other

119,181 — 119,181 119,181 93,561 93,561 30,913 30,913

fixed-income instruments

Equities and other

46,186 — 46,186 46,186 45,311 45,311 25,124 25,124

non-fixed-income instruments 31,392 — 31,392 31,392 31,544 31,544 14,542 14,542

Own stock held within Group

Total trading

11 — 11 11 44 44 105 105

account assets

Including: unlisted equities

196,770 — 196,770 196,770 170,460 170,460 70,684 70,684

and bonds

Investment securities

held for sale:

Treasury bills and money

3,898 — 3,898 3,898 99 99 456 456

market instruments

Bonds and other

fixed-income instruments

8,888 (41) 8,847 8,927 12,418 12,482 19,913 20,059

Public-sector issuers 5,166 (1,767) 3,399 4,360 4,114 4,835 6,680 6,681

Other issuers

Total bonds and other

25,849 (292) 25,557 25,977 31,841 32,253 22,216 22,609

fixed-income instruments

Equities and other

31,015 (2,059) 28,956 30,337 35,955 37,088 28,896 29,290

non-fixed-income instruments 1,387 (151) 1,236 1,537 4,576 4,948 2,234 2,452

Own stock held within Group

Total investment securities

306 342 14 27

held for sale:

Including: unlisted equities

41,290 (2,251) 39,039 40,801 53,255 54,860 51,057 51,828

and bonds

Debt securities held

for investment:

Treasury bills and money

4,129 (119) 4,010 4,131 5,286 5,338 2,978 3,214

market instruments

Bonds and other

fixed-income instruments:

120,468 — 120,468 121,974 48,713 50,303 35,022 35,180

Public-sector issuers 10,982 — 10,982 10,959 8,374 7,460 7,949 6,109

Other issuers

Total bonds and other

27,397 (71) 27,326 27,972 29,679 29,863 23,882 23,986

fixed-income instruments

Total debt securities

38,379 (71) 38,308 38,931 38,053 37,323 31,831 30,095

held for investment

Including: unlisted equities

158,847 (71) 158,776 160,905 86,766 87,626 66,853 65,275

and bonds

Total trading account assets,

2,001 (13) 1,988 1,986 1,941 1,948 899 805

investment securities held for

sale, and debt securities

held for investment (a) Including:Treasury bills and

396,907 (2,322) 394,585 398,476 310,481 312,946 188,594 187,787

money market instruments

Bonds and other

248,537 (41) 248,496 250,082 154,692 156,346 85,848 86,152

fixed-income instruments 115,580 (2,130) 113,450 115,454 119,319 119,722 85,851 84,509

Including: unlisted bonds

Equities and other

8,935 (101) 8,834 8,947 5,211 5,235 4,143 4,233

non-fixed-income instruments 32,790 (151) 32,639 32,940 36,470 36,878 16,895 17,126

Including: unlisted equities 1,093 (31) 1,062 1,068 2,115 2,151 190 242

(a) Mutual fund shares held by the BNP Group amounted to FRF 742 million at 31 December 1997 (FRF 1,580 million at 31 December

1996 and FRF 964 million at 31 December 1995). This amount includes FRF 347 million in shares of growth funds, of which

FRF 278 million corresponded to shares of funds incorporated in France (compared with FRF 992 million at 31 December 1996, of

which FRF 912 million corresponded to shares of funds incorporated in France, and FRF 631 million at 31 December 1995, of which

FRF 621 million corresponded to shares of funds incorporated in France).

G R O U P

103

ONE HUNDRED

THREE


104

ONE HUNDRED

FOUR

In 1995, 1996, and 1997, securities were reclassified among the various portfolios as follows:

Former classification Amount transferred

during year

Net premiums on debt securities

held for investment, reflecting an

acquisition price higher than the

redemption price, totaled

FRF 1,798 million at 31 December

1997 (compared with FRF 465

million at 31 December 1996 and

FRF 547 million at 31 December

1995). They are amortized over the

remaining life of the securities.

Receivables corresponding to

securities lent amounted to

FRF 2,379 million at 31 December

1997 (FRF 3,991 million at

31 December 1996 and FRF 1,091

million at 31 December 1995).

Accrued interest on fixed-income

instruments totaled FRF 4,256

million at 31 December 1997,

compared with FRF 2,822 million

at 31 December 1996 and

FRF 2,068 million at 31 December

1995.

A number of developing countries

have obtained troubled debt

restructuring from their bankers.

Since 1990, the BNP Group has

swapped a number of loans for 15to

30-year fixed- and floating-rate

bonds. Some of these bonds,

received in exchange for loans that

were rescheduled with lower interest

rates, are guarantied at maturity by

zero-coupon bonds issued by the

(millions of French francs)

New classification 1997 1996 1995

Trading account assets Investment securities held for sale 2,235 10,108 902

Investment securities held for sale Debt securities held for investment 36 611 224

Debt securities held for investment Investment securities held for sale 516 24 1,307

Trading account assets Debt securities held for investment 1,909 5,005 —

US and French Treasuries with

a revolving guarantee of 14 to

18 months of interest payments.

The BNP Group held FRF 6,156

million of “Brady bonds” (gross)

outstanding at 31 December 1997

(FRF 7,658 million at 31 December

1996 and FRF 8,668 million

at 31 December 1995). At 31

December 1997, FRF 3,202 million

of these bonds were recorded under

“ Investment securities held for sale “

(compared with FRF 3,672 million

at 31 December 1996 and

FRF 4,710 million at 31 December

1995). FRF 2,954 million of these

bonds (FRF 3,986 million at

31 December 1996 and FRF 3,958

at 31 December 1995) were

recorded under “Debt securities held

for investment”.

Net unrealized capital gains,

calculated as the difference between

fair value and book value for

investment securities held for sale and

debt securities held for investment,

totalled FRF 3,433 million at

31 December 1997 excluding

“Brady bonds” (FRF 3,891 million

net unrealized capital gains including

“Brady bonds”), compared with

FRF 2,603 million at 31 December

1996 (FRF 2,465 million net

unrealized capital gains including

“Brady bonds”) and FRF 1,037

million at 31 December 1995

(FRF 807 million net unrealized

capital losses including “Brady

bonds”).

Pursuant to stockholder

authorization, BNP SA has made

open-market purchases and sales

of its shares for the purpose of

moderating price fluctuations. In

1997 BNP sold 589,607 shares

at an average price of FRF 216.74

and bought 492,267 shares at an

average price of FRF 233.64. In

the first half of 1997, the three

BNP Group subsidiaries that

exchanged the shares they held

of Compagnie d’Investissement

de Paris prior to BNP’s stock-forstock

public tender offer for CIP

(see Note 21) sold 1,572,905

BNP shares carried as “Investment

securities held for sale” at

31 December 1996. At

31 December 1997, the BNP

Group held 3,490 shares issued

by BNP SA carried as

“Investment securities held for

sale”. Part of the shares held by

BNP are intended for distribution

as part of employee stock option

plans. In addition, one BNP

subsidiary engaged in arbitraging

on stock market indexes held

34,797 shares issued by BNP SA

at 31 December 1997 and carried

as “Trading account assets”.

B N P


NOTE 6 - EQUITY SECURITIES

HELD FOR INVESTMENT AND

OTHER STOCK INVESTMENTS

Millions of French francs, 1997 1996 1995

at 31 December Gross Net Fair Net Fair Net Fair

book book market book market book market

value value value value value value value

Equity securities held

for investment:

Unlisted securities:

Portfolio valued according to net assets

Portfolio valued according to fair

548 191 263 145 225 174 255

market value 2,670 1,309 1,490 1,423 1,556 1,478 1,675

Portfolio valued at cost

Listed securities

457 446 452 464 530 502 503

(a) :

Portfolio valued according to

year-end market prices

Portfolio valued according to average

254 194 286 280 423 391 491

market prices of previous two years 8,771 8,258 10,701 4,307 5,079 4,872 5,771

Total equity securities held

for investment

Other stock investments:

Securities issued by affiliates neither

12,700 10,398 13,192 6,619 7,813 7,417 8,695

consolidated nor carried under

equity method (b) Other stock investments, other:

1,789 1,389 1,509 1,305 1,382 1,086 1,261

Unlisted securities (b) Listed securities

4,275 2,843 3,283 2,243 2,849 2,660 3,538

(a) :

Portfolio valued according

to year-end market prices

Portfolio valued according to average

242 203 400 930 1,085 310 384

market prices of previous two years

Portfolio valued according to

932 869 1,182 5,257 5,754 7,043 7,676

other methods 6,072 5,994 5,997 9,581 9,607 — —

Total other stock investments, other 11,521 9,909 10,862 18,011 19,295 10,013 11,598

Total other stock investments

Total equity securities held

13,310 11,298 12,371 19,316 20,677 11,099 12,859

for investment and other stock

investments 26,010 21,696 25,563 25,935 28,490 18,516 21,554

(a) Fair market value is determined according to the average stock market price over the previous two fiscal years or according to a mor

recent market price when a decrease in value of the underlying security is likely to endure.

(b) Fair market value is determined according to the BNP Group’s share of the companies’ net assets.

Shareholdings in subsidiary and

affiliated credit institutions classified

as “Other stock investments”

amounted to FRF 253 million and

FRF 1,329 million, respectively, at

31 December 1997, compared

with FRF 314 million and

G R O U P

FRF 1,070 million at 31 December

1996 and FRF 181 million and

FRF 1,125 million at 31 December

1995.

In 1997 the BNP Group

reclassified FRF 5,743 million of

investments (see Note 9)

previously carried under “Other

stock investments” as “Equity

securities held for investment” in

recognition of the fact that they

are managed more actively.

105

ONE HUNDRED

FIVE


106

ONE HUNDRED

SIX

The main companies included under “Equity securities held for investment and other stock investments” with

a net book value of more than FRF 250 million in the BNP Group’s accounts are listed below:

Millions of French francs Consolidated Consolidated Net book

stockholders’ net income value in

Head equity (loss) BNP Group’s

office in 1996 (a) in 1996 accounts

Shareholding interests of less than

5% of the investee’s capital stock

Axa-UAP Paris, France 44,836 3,809 5,994

Saint-Gobain La Défense-Courbevoie, France 47,355 4,323 1,472

Elf Aquitaine Courbevoie, France 79,655 6,977 1,189

Compagnie Générale des Eaux Paris, France 33,682 1,953 795

Havas Neuilly-sur-Seine, France 12,894 1,000 771

Rhône-Poulenc La Défense-Courbevoie, France 37,478 (4,991) (c) 626

Pechiney Courbevoie, France 13,734 (2,977) 593

Dresdner Bank Frankfurt, Germany 51,315 5,182 551

Renault Boulogne-Billancourt, France 37,770 (5,248) 477

Bouygues St. Quentin-en-Yvelines, France 7,041 654 333

Lagardère Groupe Paris, France 7,216 1,038 308

Peugeot Paris, France 55,501 734 288

Air France Roissy, France 7,161 394 )(d) 286

AGF Paris, France 24,420 1,536 270

Lafarge Paris, France 24,160 1,846 254

Shareholding interests of between

5% and 10% of the investee’s capital stock

Cofinoga Paris, France 1,795 338 310

Shareholding interests of more than

10% of the investee’s capital stock

ACEC Union Minière Méxique SCS Brussels, Belgium 283 (b) 280

(a) Including net income of 1996, before appropriation.

(b) Unconsolidated.

(c) Consolidated figures for 1997.

(d) Consolidated figures as at 31 March 1997.

Net unrealized capital gains on

equity securities held for

investment and other stock

investments (calculated by

reference to year-end market

prices for listed securities) totaled

FRF 7,723 million at

31 December 1997 (FRF 2,847

million at 31 December 1996 and

FRF 989 million at 31 December

1995).

Net unrealized capital gains on

total portfolio detailed in notes

5 and 6 represent FRF 11,614

million at 31 December 1997

as compared with FRF 5,312

million at 31 December 1996 and

FRF 182 million at 31 December

1995.

B N P


NOTE 7 - ALLOWANCE FOR

CREDIT RISKS

AND COUNTRY RISKS

Allowance at Net additions Write-offs Other Allowance at

31 December (deductions) adjustments 31 December

Millions of French francs

Allowances reflected

under assets

1996 (a) 1997

(b) :

On interbank items (c) 7,573 2,666 (559) (2,963) 6,717

On customer items (Note 4) 40,082 2,973 (4,351) 2,735 41,439

On securities (c) Total allowances reflected

2,784 87 (1,129) 1,198 2,940

under assets 50,439 5,726 (6,039) 970 51,096

Allowances reflected

under liabilities (Note 17):

On off-balance sheet commitments 2,108 (21) (94) 560 2,553

For other credit risks

Total allowances reflected

2,851 169 (475) 2,545

under liabilities 4,959 148 (94) 85 5,098

Total allowance for credit

risks and country risks

Allowances reflected

under assets

55,398 5,874 (6,133) 1,055 56,194

(b) :

Designated to cover country risks 12,830 2,305 (1,853) 111 13,393

Designated to cover specific risks

Total allowances reflected

37,609 3,421 (4,186) 859 37,703

under assets

Allowances reflected

under liabilities:

50,439 5,726 (6,039) 970 51,096

Designated to cover country risks

Designated to cover specific risks

308 838 1,146

and banking risks

Total allowances reflected under

4,651 148 (94) (753) 3,952

liabilities

Total allowance for credit risks

4,959 148 (94) 85 5,098

and country risks 55,398 5,874 (6,133) 1,055 56,194

(a) The impact of variations in exchange rates amounted to FRF 1,498 million.

(b) As receivables purchased or swapped are carried at their face value, premiums and differences between purchase price and face value

are recorded as allowances.

(c) Allowances on loans to credit institutions mainly concern financial credits exposed to country risk (see Note 3). Allowances on securities

shown in this table cover the country risk affecting securities held by the BNP Group.

Credit-risk allowances relating to

on balance sheet exposures are

recorded under assets in the

allowance for credit losses account.

Allowances for off-balance sheet

commitments are reflected under

liabilities, as are allowances for legal

G R O U P

proceedings pending, allowances

for risks not specifically identified,

and allowances for unforeseeable

sectoral risks.

Outstanding allowances on

principal and interest, premiums

and discounts in relation

to sovereign loans totaled

FRF 14,539 million at 31

December 1997 (FRF 13,138

million at 31 December 1996

and FRF 13,113 million at

31 December 1995).

107

ONE HUNDRED

SEVEN


108

ONE HUNDRED

EIGHT

Millions of French francs

Net addition to allowance for credit risks

1997 1996 1995

and country risks

Addition to allowance for unforeseeable

sectoral risks (Note 33) reflected under

5,874 5,380 4,901

nonrecurring items

Net (addition to) deduction from allowance

for interest arrears reflected under net

— (1,788) —

banking income 505 (193) (145)

Loan losses

Utilizations of allowances to cover loan losses

6,982 5,128 5,548

and losses on debt sales (6,133) (4,260) (4,269)

Recoveries of amounts written off

Net credit risk and country risk provision

(443) (474) (502)

charge for year 6,785 3,793 5,533

Provision charge for specific risks 3,965 4,599 5,828

Provision charge (write-back) for country risks 2,820 (806) (295)

REAL ESTATE

OPERATIONS

Real estate operations comprise all

forms of financing for operations

conducted by real estate

professionals (REPs), as well as

guaranties and endorsements carried

as off-balance sheet commitments.

REPs include developers engaged in

building or renovating buildings for

subsequent sale, transfer, or rental,

brokers, and all other nonfinancial

agents engaged in real estate

development on a regular basis.

Commitments given to the real

estate sector amounted to

FRF 31,986 million at 31

December 1997. This amount does

not include real estate commitments

given to major industrial

corporations whose main business

is not real estate and on which risk

is not related to developments in

the real estate sector (FRF 5,633

million at 31 December 1997,

including FRF 2,507 million of offbalance

sheet commitments,

compared with FRF 6,440 million

at 31 December 1996, including

FRF 3,081 million of off-balance

sheet commitments, and FRF 5,593

million at 31 December 1995,

including FRF 2,175 million of offbalance

sheet commitments).

Millions of French francs, 1997 1996 1995

at 31 December France Outside France Total Total Total

Securities (stocks and bonds) 3,075 — 3,075 2,294 1,671

Loans granted 9,457 11,461 20,918 21,935 21,347

Total cash outstanding 12,532 11,461 23,993 24,229 23,018

Off-balance sheet commitments 5,404 2,589 7,993 7,864 8,739

Total commitments outstanding 17,936 14,050 31,986 32,093 31,757

B N P


In France, 80.6% of loans were

committed to real estate

development, 16.4% to financing

for brokers and 3.0% to financing of

real estate proprietary investments.

On balance sheet outstandings are

analyzed according to region and

type of asset financed in the table

below:

Millions of French francs, 1997 1996 1995

at 31 December Amount % Amount Amount

Paris metropolitan area 9,730 77.6 9,336 9,488

Rest of France 2,802 22.4 3,515 3,634

Commercial and industrial real estate 6,052 48.3 6,056 5,695

Residential real estate 4,271 34.1 4,542 4,940

Multiuse real estate and other (a) 2,209 17.6 2,253 2,487

(a) Financing for retail stores and urban development programs is included under “Other”.

Risk coverage on loans to REPs is shown in the table below:

Millions of French francs,

at 31 December 1997 1996 1995

Troubled or doubtful loans 9,820 10,963 10,795

Allowances for troubled or doubtful loans 5,971 6,440 6,305

Coverage by specific allowances for troubled or doubtful loans 60.8% 58.7% 58.4%

Allowance for nonspecific real estate risks — 307 490

CREDIT EXPOSURE

TO ASIA

As a result of the recent

developments in Asia, characterized

by a depreciation of local currencies

and a sharp drop in the regional

stock markets, BNP has reassessed

all of its risks in the region. The crisis

focuses on five countries (South

Korea, Indonesia, Thailand, the

Philippines, and Malaysia), which

are affected to varying degrees.

BNP’s on and off balance sheet

credit exposures identified in these

five countries comprise short to long

term credit facilities, including short

term and trade financing, and

securities portfolios including

trading securities, and are

denominated in both local and

foreign currencies. They include all

above described transactions with

sovereign, banking and corporate

counterparties excluding subsidiaries

of multinational companies

headquartered outside the region.

The portion of the above described

credit facilities guarantied outside

of the region by government or

international agencies (such as

Coface) or by formally pledged

cash collateral are also excluded.

Direct risks on At 31 December 1997 At 31 January 1998

resident borrowers, Net exposures

millions of French francs considered as Other Total net

sensitive or subject net Total exposures

to country risk exposures exposures (unaudited figures)

South Korea 7,884 2,403 10,287 10,077

Indonesia 2,441 3,730 6,171 6,062

Thailand 3,355 2,775 6,130 5,617

Malaysia — 3,764 3,764 3,744

Philippines 697 2,879 3,576 2,889

Total exposure 14,377 15,551 29,928 28,389

Commitments given to customers 5,540 9,973 15,513 15,365

Commitments given to banks 8,837 5,578 14,415 13,024

Total exposure 14,377 15,551 29,928 28,389

G R O U P

109

ONE HUNDRED

NINE


110

ONE HUNDRED

TEN

“Other net exposures” are

identified and monitored in the

same way as “Net exposures

considered sensitive or subject to

country risk” but do not require

allowances based on BNP’s

assessment of their nature. More

than 70% of these commitments

are commercial facilities with an

initial maturity of less than

18 months.

BNP recorded two types of

allowances for a total amount of

FRF 3,020 million in relation to

its above described credit

exposure in the five sensitive

countries:

• specific reserves in a total

amount of FRF 592 million with

respect to individually identified

impaired assets;

• a FRF 2,428 million general

prudential reserve; this reserve

was determined based on a

multicriteria analysis designed to

assess the impact on BNP credit

portfolio of further degradation

of the economic and financial

situation in the above listed

countries.

B N P


NOTE 8 - INVESTMENTS IN

COMPANIES CARRIED UNDER

EQUITY METHOD

Millions of French Francs, BNP Group’s

at 31 December 1997 BNP share of net Net book

Group’s income for most value of shares

ownership recent financial Total in companies

interest period (a) investments of the Group

Financial institutions:

Financière du Régent (Belgium) 149 95 244 74

Banque du Caire et de Paris (Egypt) 111 4 115 154

Merone et Cita 105 8 113 133

BICI (Côte d’Ivoire) 105 1 106 47

BICI (Gabon) 83 15 98 17

Béarnaise de Participations 77 (21) 56 56

BNP Dresdner Bank (Bulgaria) AD 37 2 39 37

IBSA (South Africa) 29 3 32 29

BICI (Senegal) 11 12 23 15

BICI A (Burkina Faso) 22 — 22 8

DGC Participations 20 2 22 15

Others 305 18 323 433

Total financial institutions

Nonfinancial companies:

Insurance companies:

1,054 139 1,193 1,018

Natio-Vie 2 962 33 2 995 1 983

BNP Ré Luxembourg 677 177 854 45

Total insurance companies

Real estate companies:

3,639 210 3,849 2,028

Meunier Promotion 217 10 227 254

Cimoxi 81 (1) 80 20

Société Française de développement

Immobilier (1) (10) (11) —

Total real estate companies

Other:

Société Française

297 (1) 296 274

du Chèque de Voyage 20 (2) 18 21

Total other companies

Total nonfinancial

20 (2) 18 21

companies

Total investments in companies

3,956 207 4,163 2,323

carried under equity method 5,010 346 5,356 3,341

(a) BNP Group’s share in undistributed income.

G R O U P

111

ONE HUNDRED

ELEVEN


112

ONE HUNDRED

TWELVE

NOTE 9 - LONG-TERM

INVESTMENTS

Millions of French francs Gross amount Acquisitions Redemptions Transfers

at and and other

1 January disposals adjustments (a)

1997

Debt securities held for investment (Note 5) 86,892 95,528 (25,801) 2,228

Other stock investments (Note 6) 24,618 11,154 (16,834) (5,628)

Equity securities held for investment (Note 6) 8,591 1,809 (3,842) 6,142

Investment in companies carried

under equity method (Note 8) 4,550 25 — 781

Total long-term investments 124,651 108,516 (46,477) 3,523

(a)“Transfers and other adjustments” cover accumulated translation difference and transfers among the various portfolio categories.Transfers

NOTE 10 - TANGIBLE AND

INTANGIBLE ASSETS

Millions of French francs, 1997 1996 1995

at 31 December Depreciation,

amortization,

Gross and provisions Net Net Net

Intangible assets:

Computer software 1,895 1,198 697 661 ..

Other intangible assets 1,283 534 749 776 ..

Total intangible assets 3,178 1,732 1,446 1,437 1,398

Tangible assets:

Land and buildings 12,611 5,192 7,419 10,631 10,688

Equipment, furniture, and fixtures 14,679 10,186 4,493 4,661 4,927

Fixed assets in progress 525 — 525 439 378

Total tangible assets 27,815 15,378 12,437 15,731 15,993

Total tangible

and intangible assets 30,993 17,110 13,883 17,168 17,391

B N P


Gross amount Allowance Additions Deductions Other Total Net amount

at at to allowance from adjustments allowance at at

31 December 1 January in allowance 31 December 31 December

1997 1997 1997 in 1997 1997 1997

158,847 126 2 (53) (4) 71 158,776

13,310 5,302 321 (3,193) (418) 2,012 11,298

12,700 1,972 277 (503) 556 2,302 10,398

5,356 — — — — — 5,356

190,213 7,400 600 (3,749) 134 4,385 185,828

between the “Other stock investments” and “Equity securities held for investment” portfolios are discussed in Note 6.

Operating Assets

In 1991 and 1992, as allowed by

French regulations, BNP transferred

its main operating real estate

holdings to its subsidiary

Compagnie Immobilière de France.

The book value of the assets was

increased by FRF 7,583 million and

the corresponding capital gain was

posted to consolidated stockholders’

equity under “capital gains on

restructuring”, net of the related

income tax effect (see Note 21).

In order to reflect what now appears

to be a lasting decline in the real

G R O U P

estate market, the BNP Group

wrote down the book value of the

above described real estate assets by

FRF 3,374 million. The adjustment,

net of the related income tax effect,

was recorded in the consolidated

balance sheet under “Capital gains

on restructuring”, consistently with

the initial adjustment (see Note 21).

Consequently, this adjustment had

no impact on consolidated net

income.

Nonoperating Assets

Nonoperating land and buildings

amounted to FRF 193 million at

31 December 1997 (FRF 135

million at 31 December 1996 and

FRF 188 million at 31 December

1995).

Depreciation, Amortization,

and Provisions

The charge for depreciation,

amortization, and provisions totaled

FRF 2,102 million in 1997,

compared with FRF 2,061 million

in 1996 and FRF 1,950 million in

1995.

113

ONE HUNDRED

THIRTEEN


114

ONE HUNDRED

FOURTEEN

NOTE 11 - ACCRUALS

AND

OTHER ASSETS

Millions of French francs,

at 31 December 1997 1996 1995

Accruals:

Valuation adjustment account (a) 44,642 35,980 31,689

Accrued income 20,340 21,188 16,374

Collection account 11,331 11,801 11,563

Other accruals (b) 37,916 21,423 20,653

Total accruals 114,229 90,392 80,279

Other assets:

Premiums on purchased options (c) 44,854 28,621 18,831

Investments in Codevi 15,823 16,051 15,984

“industrial development” securities

Deferred income tax assets 3,520 2,248 2,113

Other 28,556 13,068 8,295

Total other assets 92,753 59,988 45,223

(a) Gains arising from marking transactions (foreign exchange instruments and forward instruments) to market.

(b) Includes prepaid interest for customers and financial institutions accounts and prepaid expenses.

(c) The development of the “Worldwide Options” line of business led to a significant increase in this caption.

NOTE 12 - GOODWILL

Millions of French francs 1997 1996 1995

Net amount at 1 January 178 172 233

Goodwill on acquisitions

during the year 428 87 43

Translation difference 22 7 (14)

Amortization of goodwill (110) (88) (90)

Unamortized goodwill at 31 December 518 178 172

The net amortization of the

portion of goodwill not allocated to

specific assets or liabilities totalled

FRF 103 million in 1997 after the

deduction of FRF 7 million of

negative goodwill (FRF 88 million

in 1996, and FRF 84 million in 1995

after the deduction of FRF 6

million of negative goodwill).

B N P


NOTE 13 - INTERBANK AND

MONEY MARKET ITEMS

AND SECURITIES

Millions of French francs,

at 31 December 1997 1996 1995

Interbank and money market items:

Due to central banks, credit institutions, and post office banks:

Due to central banks and post office banks 23,850 12,700 ..

Due to credit institutions 20,909 22,371 ..

Related payables 263 168 ..

Total due to central banks, credit institutions,

and post office banks 45,022 35,239 26,416

Time deposits and borrowings:

Central banks 24,904 21,466 ..

Other credit institutions 337,873 380,533 ..

Related payables 10,868 9,641 ..

Total time deposits and borrowings 373,645 411,640 377,295

Securities and bills sold firm or under repurchase agreements:

Securities given under repurchase agreements 213,181 126,832 59,172

Bills sold firm or under repurchase agreements:

Central banks 11,566 1,837 ..

Other credit institutions 24,825 47,830 ..

Total bills sold firm or under repurchase agreements 36,391 49,667 47,914

Total securities and bills sold firm or under repurchase agreements 249,572 176,499 107,086

Total interbank and money market items 668,239 623,378 510,797

Bonds and negotiable short-term debt instruments:

Interbank market securities 1,753 2,224 3,220

Total interbank items and money market securities

Including: accrued interest on interbank items and money

669,992 625,602 514,017

market securities 12,081 10,427 10,822

Interbank demand deposits amounted to FRF 20,909 million at 31 December 1997, compared with

FRF 22,371 million at 31 December 1996 and FRF 20,854 million at 31 December 1995.

G R O U P

115

ONE HUNDRED

FIVETEEN


116

ONE HUNDRED

SIXTEEN

NOTE 14 - CUSTOMER

DEPOSITS, RETAIL CERTIFICATES

OF DEPOSIT, AND NEGOTIABLE

CERTIFICATES OF DEPOSIT

Millions of French francs,

at 31 December

Customer deposits:

1997 1996 1995

Demand deposits 198,979 182,417 180,676

Time deposits 261,619 248,715 237,789

Regulated savings deposits

Securities and bills sold firm or under repurchase agreements:

209,152 191,686 157,503

Securities given under repurchase agreements 47,967 15,204 2,065

Bills sold firm or under repurchase agreements 24 27 29

Total securities and bills sold firm or under repurchase agreements 47,991 15,231 2,094

Total customer deposits

Bonds and negotiable short-term debt instruments:

717,741 638,049 578,062

Negotiable certificates of deposit 169,208 176,854 183,378

Retail certificates of deposit 17,647 17,164 17,766

Total bonds and negotiable short-term debt instruments

Total customer deposits, retail certificates of deposit,

186,855 194,018 201,144

and negotiable certificates of deposit 904,596 832,067 779,206

Including: accrued interest on customer deposits, retail certificates

of deposit, and negotiable certificates of deposit 5,378 5,387 6,985

Regulated demand savings deposits,

including unallocated savings

deposits, amounted to FRF 69,333

million at 31 December 1997,

compared with FRF 55,841 million

at 31 December 1996 and

FRF 59,546 million at 31 December

1995. Other customer demand

deposits totaled FRF 201,035

million at 31 December 1997

(FRF 184,142 million at

31 December 1996 and

FRF 180,761 million at

31 December 1995).

Customer deposits, excluding negotiable certificates of deposit, may be analyzed according to customer

category as follows:

Millions of French francs,

at 31 December 1997 1996

Financial customers

Nonfinancial customers:

66,234 54,789

Companies 228,330 190,881

Individuals 352,996 321,656

Sole proprietors 34,458 31,124

Government administrations 11,071 11,082

Other nonfinancial customers 42,299 45,681

Total nonfinancial customers 669,154 600,424

B N P


NOTE 15 - BOND ISSUES

The main bond issues for which principal outstanding exceeds 2% of total bond debt are listed below:

Millions of French francs Principal outstanding

at 31 December

Issue Matures Coupon 1997 1996 1995

Debt issued by BNP SA:

Issue of FRF 3.60 billion 1995 2006 8.50% 3,600 3,600 3,600

Issue of FRF 3.13 billion 1991 2000 9.00% 3,131 3,131 3,131

Issue of FRF 2.92 billion 1994 2006 8.50% 2,920 2,920 2,920

Issue of FRF 2.80 billion 1988 2000 9.00% 2,800 2,800 2,800

Issue of FRF 2.50 billion 1992 1997 8.625% - 2,500 2,500

Issue of FRF 2.35 billion 1988 2000 9.00% 2,355 2,355 2,355

Issue of FRF 2.10 billion 1992 1999 9.00% 2,100 2,100 2,100

Issue of FRF 1.70 billion 1989 2000 9.00% 1,700 1,700 1,700

Issue of GBP 0.20 billion 1994 1999 6.25% 1,983 1,780 1,520

Issue of FRF 1.50 billion 1991 1996 9.375% - - 1,500

Issue of FRF 1.50 billion 1992 2002 9.00% 1,500 1,500 1,500

Issue of FRF 1.50 billion 1993 2003 6.50% 1,500 1,500 1,500

Issue of FRF 1.20 billion 1989 2000 9.00% 1,200 1,200 1,200

Issue of FRF 1.20 billion 1993 2000 9.00% 1,200 1,200 1,200

Issue of FRF 1.30 billion 1989 2001 8.70% 1,300 1,300 1,300

Other issues 21,321 26,227 29,712

Total bonds issued by BNP SA 48,610 55,813 60,538

Bonds issued by consolidated subsidiaries

BNP Group bonds held by consolidated

3,363 3,918 4,451

subsidiaries (1,893) (2,957) (1,071)

BNP Group bonds outstanding 50,080 56,774 63,918

Accrued interest 801 1,380 1,665

Total bond issues 50,881 58,154 65,583

Unamortized premiums on the various BNP Group bond issues outstanding, representing the difference

between the proceeds of the issues and their redemption price, totaled FRF 327 million at 31 December

1997, compared with FRF 348 million at 31 December 1996 and FRF 408 million at 31 December 1995.

G R O U P

117

ONE HUNDRED

SEVENTEEN


118

ONE HUNDRED

EIGHTEEN

NOTE 16 - ACCRUALS

AND OTHER LIABILITIES

Millions of French francs,

at 31 December 1997 1996 1995

Accruals:

Valuation adjustment account (a) 46,511 34,769 30,650

Accrued liabilities 19,947 13,281 17,703

Funds pending collection 2,452 2,507 345

Other accruals 18,435 21,414 19,024

Total accruals

Other liabilities:

87,345 71,971 67,722

Liabilities related to securities transactions 89,377 92,569 26,530

Deferred income tax liabilities 4,598 4,365 4,222

Other payables and liabilities (b) 90,319 55,843 28,256

Total other liabilities 184,294 152,777 59,008

(a) Losses arising from marking transactions (foreign exchange instruments and forward instruments) to market.

(b) Includes premiums received on written options.

NOTE 17 - ALLOWANCE FOR

LIABILITIES AND CHARGES

Millions of French francs,

at 31 December 1997 1996 1995

Allowance for off-balance sheet commitments (Note 7) 2,553 2,108 2,041

Allowance for pension commitments and

other employee benefits (Note 19) 4,522 4,331 4,066

Allowance for other credit risks (Note 7) 2,545 2,851 3,418

Other allowances 4,269 3,178 2,043

Total allowance for liabilities and charges 13,889 12,468 11,568

Off-balance sheet commitments

covered by allowances amounted to

FRF 6,922 million at 31 December

1997, compared with FRF 5,276

million at 31 December 1996 and

FRF 5,290 million at 31 December

1995.

The allowance for other credit risks

includes allowances made for

miscellaneous risks and an allowance

set up in 1994 for unforeseeable

sectorial risks in those industries

believed to be the most heavily

exposed to a worsening of market

conditions. The allowance for

unforseeable sectorial risk was

originally set up with an allocation

of FRF 2,600 million in 1994,

followed by an addition of

FRF 1,788 million in 1996.

FRF 2,958 million was

deducted in 1996 from the

allowance to provide for specific

reserves for counterparty risks

(FRF 1,400 million) and to cover

the decrease in value of BNP’s

equity investments (FRF 1,558

million) in UAP (see Note 21) and

Pechiney. The balance of the

allowance, FRF 1,430 million, is

unallocated and intended to cover

unforeseeable sectoral risks.

B N P


NOTE 18 - SUBORDINATED

DEBT

Millions of French francs,

at 31 December 1997 1996 1995

Subordinated medium- and long-term debt outstanding

Undated subordinated debt:

41,099 34,960 29,929

Undated participating subordinated notes

Undated floating-rate subordinated notes:

2,306 2,310 2,310

French franc denominated 2,000 2,000 2,000

Foreign currency denominated 2,994 2,619 2,450

Total undated floating-rate subordinated notes 4,994 4,619 4,450

Undated floating-rate subordinated notes with call options 3,918 1,152 -

Total undated subordinated debt 11,218 8,081 6,760

Subordinated debt issued by BNP Group 52,317 43 041 36 689

Intercompany eliminations — — (140)

Total subordinated debt outstanding 52,317 43,041 36,549

Accrued interest due 156 79 73

Total 52,473 43,120 36,622

At 31 December 1995, BNP Group companies held undated subordinated debt issued by the BNP Group

with a book value of FRF 140 million and an issue value of FRF 154 million.

Subordinated Medium- and Long-Term Debt

Subordinated debt included under this heading consists of medium- and long-term debentures issued in French

francs and foreign currencies, equivalent to debt ranking last before participating debt and securities and capital

stock. The main subordinated debt issues for which principal outstanding exceeds 5% of total subordinated

liabilities are listed below:

Millions of French francs Principal outstanding

at 31 December

Issue Matures Coupon 1997 1996 1995

Debt issued by BNP SA:

Issue of FRF 3.75 billion 1990 2002 10.60% 3,750 3,750 3,750

Issue of FRF 2.50 billion 1991 2004 9.35% 2,500 2,500 2,500

Issue of FRF 2.27 billion 1988 2000 9.30% 2,270 2,270 2,270

Issue of FRF 1.50 billion 1988 1998 9.60% 1,500 1,500 1,500

Issue of FRF 1.50 billion 1988 2000 floating-rate 1,500 1,500 1,500

Issue of FRF 1.50 billion 1991 2003 9.55% 1,500 1,500 1,500

Other issues in France

Debt issued by foreign branches and other issues:

23,626 19,735 14,622

Issue of USD 350 million 1997 2007 7.20% 2,096 - -

Other 1,600 1,426 1,364

Total BNP borrowings 40,342 34,181 29,006

Total borrowings by consolidated subsidiaries 757 779 923

Subordinated medium- and long-term debt

outstanding 41,099 34,960 29,929

G R O U P

119

ONE HUNDRED

NINETEEN


120

ONE HUNDRED

TWENTY

Subordinated medium- and longterm

debt issued by the BNP Group

generally contains a call provision

authorizing BNP to buy back its

securities directly in the market or

through tender offers, or in the case

of private placements, over the

counter.

Borrowings in international markets

by BNP SA or foreign subsidiaries of

the BNP Group may be subject to

early repayment of principal and the

early payment of interest due at

maturity in the event that changes

in applicable tax laws obligate the

BNP Group issuer to compensate

debtholders for the consequences of

such changes. The debt securities

may be called on 30 to 60 days’

notice on condition that bank

supervisory authorities have notified

their approval.

UNDATED SUBORDINATED

NOTES

Pursuant to the French Law of

3 January 1983, BNP issued a first

block of 1,800,000 undated

participating subordinated notes (titres

participatifs) with a par value of

FRF 1,000, for a total of FRF 1,800

million, in July 1984. Subscription

rights to new undated participating

subordinated notes were attached to

each of these notes. In respect of rights

exercised between 1 July and 30 July

1985, 1986, 1987, and 1988 BNP

issued a total of 412,761 new undated

participating subordinated notes with

a face value of FRF 1,000 and

received an issue premium of

FRF 23 million. These notes are

redeemable only in the event of

liquidation of BNP, but may be

redeemed in accordance with the

terms of the Law.

In October 1985, BNP issued FRF

2,000 million of undated floatingrate

subordinated notes (titres

subordonnés à durée indéterminée, or

TSDI). These notes are redeemable

only in the event of liquidation.

They are subordinated to all other

company debts but senior to the

undated participating subordinated

notes issued by BNP. The Board of

Directors is entitled to postpone the

interest payments on these securities

if the stockholders’ meeting

approving the financial statements

declares that there is no income

available for distribution. In

September 1986 BNP raised a

further USD 500 million by issuing

new undated floating-rate

subordinated notes with

characteristics similar to those of the

French franc notes issued in 1985.

In 1996 and 1997 BNP SA issued

undated floating-rate subordinated

notes with call options, which may

be exercised at the issuer’s discretion,

starting from a date specified in the

issuing agreement and contingent

upon the consent of the

Commission Bancaire.

Undated participating subordinated

notes and undated floating-rate

subordinated notes qualify as Tier

2 capital under French regulations

and international guidelines on

capital adequacy.

Millions of French francs, Issued Call Coupon Outstanding

at 31 December 1997 option principal

Securities issued by BNP SA:

Undated floating-rate subordinated notes:

Issue of FRF 2 billion 1985 TMO 2,000

Issue of USD 500 million 1986 floating-rate 2,994

Undated floating-rate subordinated notes with call options:

Issue of USD 20 million 1996 2006 floating-rate 120

Issue of USD 200 million 1996 2006 floating-rate 1,198

Issue of USD 50 million 1997 2007 floating-rate 299

Issue of USD 25 million 1997 2002 floating-rate 150

Issue of FRF 1.25 billion 1997 2007 (b) 1,250

Issue of USD 50 million 1997 2007 floating-rate 299

Issue of USD 50 million 1997 2006 floating-rate 299

Issue of NLG 20 million 1997 2007 (b) 60

Issue of BEF 1.5 billion 1997 2002 floating-rate 243

Undated participating subordinated notes:

Issued by BNP SA:

Issue of FRF 1,800 million 1984 floating-rate (a) 1,800

Issue of FRF 413 million 1985/1988 floating-rate (a) 413

Issued by consolidated subsidiaries

Issue of FRF 100 million 1985 floating-rate 93

Total undated subordinated notes 11,218

(a) The minimum interest rate is equal to 85% of average TMO (average corporate bond yield).

(b) Fixed rate, switching to floating rate after the call option date.

B N P


NOTE 19 - PENSION AND

POSTEMPLOYMENT BENEFITS

• Pension Benefits

In France and in most of the

countries where BNP Group

companies operate, pensions are

financed by regular contributions

to independent pension institutions

that manage the payment of

benefits.

Since 1 January 1994, pursuant to

a new industry-wide agreement on

pensions presented in Note 1, BNP

has been making contributions to

two nationwide complementary

pension organizations in France.

BNP’s pension fund pays additional

benefits, relative to services rendered

prior to 31 December 1993. BNP

computes the actuarial value of such

pension obligations based on the

1993 mortality table recommended

by the French Insurance Code.

The difference between the

discount and inflation rates used

at 31 December 1997 is roughly

3.5%, corresponding to the constant

differential between long-term

interest rates and inflation over a

thirty-year period.

Funding is provided by transfers

from the pension funds’ existing

reserves and reserves that will

steadily become eligible for

allocation (about FRF 700 million

at 31 December 1997), and by

G R O U P

BNP SA’s annual employer

contributions, which are limited to

4% of payroll costs.

In 1993 BNP set up a guarantee

fund to cover its future employer

contributions. This fund is included

under the reserve for general

banking risks.

Aside from these arrangements,

BNP has no other pension

obligations in France that concern

all of its employees.

In addition, in 1997 BNP SA

signed an agreement establishing

a funded pension system financed

by employer and employee

contributions. Upon retirement,

BNP SA employees receive

additional benefits in addition to

those they receive from the

nationwide organizations.

• Seniority and Postemployment

Benefits

Employees of the various BNP

Group companies are entitled to

collective or contractual seniority

and postemployment benefits

such as retirement and seniority

bonuses. In France, BNP is

encouraging voluntary departures

and early retirement among

employees who meet certain

eligibility criteria.

As a general rule, actuarial

valuations of these obligations are

made using a method that takes

into account projected end-of-career

salaries in order to determine the

aggregate charge corresponding to

benefits remaining to be paid to

early retirees, retirees (if applicable),

as well as vested benefits for

employees.

Hypotheses concerning mortality,

employee turnover, and future

salaries, as well as discounting rates

(long-term market rates) and

inflation, take into account

economic conditions specific to

each country or Group company.

In France, the 1988-90 mortality

table adapted to the banking

industry is used.

As of 31 December 1997, the

discounting rate used for France

and the estimated inflation rate are

consistent with those used to assess

the risks related to additional bank

pension benefits.

BNP sets up an allowance to cover

the charges related to the voluntary

departure (Employment Adjustment

Plan) or early retirement by staff

members, once the voluntary

departure or early retirement plan

concerned has been approved or

submitted for collective approval.

121

ONE HUNDRED

TWENTY-ONE


122

ONE HUNDRED

TWENTY-TWO

Allowances set up to cover these obligations are analyzed below:

At 31 December 1997 Early retirement

and retirement

Working staff equivalent staff Total

Retirement bonuses 2,493 — 2,493

Early retirement and postemployment 215 469 684

Seniority bonuses 599 — 599

Employment Adjustment Plan 310 — 310

Other obligations to employees 261 175 436

Total (Note 17) 3,878 644 4,522

For the purpose of determining the amount of such allowances, the fair value of the assets invested within

entities responsible for their management is deducted from the gross amount of such obligation.

Gross Net

obligations Assets obligations

At 1 January 1997 4,537 206 4,331

Net charge for year:

Vesting 604 — —

Discounting 262 — —

Yield on funds and related — 78 —

Benefit payments (597) — —

At 31 December 1997 4,806 284 4,522

NOTE 20 - RESERVE FOR

GENERAL

BANKING RISKS

The reserve for general banking risks

amounted to FRF 10,761 million

at 1 January 1994. FRF 2,600

million was removed from the

reserve in 1994 and another FRF

1,788 million in 1996 (see Note

33), which was simultaneously

provided to the allowance for

unforeseeable sectorial risks (see

Note 17). At 31 December 1997,

the reserve for general banking

risks amounts to FRF 6,718

million.

This reserve includes general risk

reserves previously carried under

the “Allowance for liabilities and

charges” and a significant amount

provided to cover the general risk

related to the expected imbalance

between BNP’s active and retired

staff members.

B N P


NOTE 21 - STOCKHOLDERS’

EQUITY AFTER APPROPRIATION

OF INCOME

Millions of French francs Parent Retained

company’s earnings,

retained capital gain

earnings and resulting

Capital Statutory Group’s share from real

gain on and in retained estate Stockholders’

restructuring additional earnings restructuring, equity

Ordinary and amortization Accumulated of and attributable to

Capital capital revaluation of translation consolidated revaluation BNP Minority

stock surplus surplus investments difference subsidiaries surplus Group interest Total

Balance at 31 December 1994 4,689 17,024 5,898 479 (2,040) 22,110 26,447 48,160 2,297 50,457

Consolidated net income in 1995 1,784 1,784 1,784 141 1,925

Cash dividend (716) (716) (716) (63) (779)

Operations affecting capital stock in 1995 53 423 476 476

Transfers to reserve for general banking risks

Net effect of change in shareholding interest

(90) (90) (90) (90)

in UAP 25 25 25 25

Effect of exchange rate fluctuations in 1995 (856) (856) (856) (63) (919)

Other (57) (84) (141) (141) (100) (241)

Balance at 31 December 1995 4,742 17,447 5,841 479 (2,896) 23,029 26,453 48,642 2,212 50,854

Consolidated net income in 1996 3,856 3,856 3,856 273 4,129

Cash dividend

Operations affecting capital stock in 1996:

(1,120) (1,120) (1,120) (77) (1,197)

Stock-for-stock public tender offers 323 2,052 2,375 (805) 1,570

Other

Effect of ceasing to carry UAP under

58 354 412 412

equity method 63 329 584 913 976 976

Effect of exchange rate fluctuations in 1996 669 669 669 (16) 653

Effect of new preferred share issue 393 393

Other (205) (53) (258) (258) (98) (356)

Balance at 31 December 1996 5,186 19,853 5,636 479 (1,898) 26,296 30,513 55,552 1,882 57,434

Consolidated net income in 1997 5,962 5,962 5,962 257 6,219

Cash dividend

Operations affecting capital stock in 1997:

(1,493) (1,493) (1,493) (110) (1,603)

Stock-for-stock public tender offers 33 196 229 (229)

Other

Effect of exchange rate fluctuations in 1997:

112 828 940 940

On securities in the process of being sold 561 (420) 141 141 141

During 1997

Adjustment of capital gain on real

557 557 557 113 670

estate contribution (2,758) (2,758) (2,758) (2,758)

Effect of new preferred share issue 2,922 2,922

Other (54) (36) (90) (90) 49 (41)

Balance at 31 December 1997 5,331 20,877 2,824 479 (780) 30,309 32,832 59,040 4,884 63,924

G R O U P

123

ONE HUNDRED

TWENTY-THREE


124

ONE HUNDRED

TWENTY-FOUR

OPERATIONS

INVOLVING CAPITAL

STOCK IN 1995, 1996,

AND 1997

BNP’s capital stock at 1 January

1995, before the elimination of the

impact of reciprocal shareholding,

consisted of 190,046,159 common

shares (FRF 25 par value).

CAPITAL INCREASES

IN 1995 AND 1996

BNP’s capital was increased by the

creation of 2,137,779 shares in 1995

to pay stockholders who exercised

the option to receive their dividend

in the form of shares.

Pursuant to a resolution of the

Stockholders’ Meeting of 23 May

1995, the Board of Directors of

BNP decided on 28 June 1995 to

launch a stock-for-stock public

tender offer for BNP España SA and

on 21 May 1996 to launch a stockfor-stock

public tender offer for

Compagnie d’Investissements de

Paris. Consequently, BNP issued

720,280 new common shares

(FRF 25 par value) with rights from

1 January 1995 in remuneration for

the shares of BNP España it received,

and 12,202,336 new common shares

(FRF 25 par value) with rights from

1 January 1996 in remuneration for

the shares of Compagnie

d’Investissements de Paris it received.

In accordance with Section 180 V

of the 1966 French Companies Act,

the Stockholders’ Meeting of 21 May

1996 approved the proposal of the

Board of Directors, pursuant to its

meeting on 13 March 1996, to issue

shares reserved for subscribers to the

company savings plan via the mutual

fund BNP Actionnariat. This mutual

fund subscribed 652,444 new

common shares (FRF 25 par value)

for this purpose.

BNP’s capital was also increased by

the creation of 1,675,995 shares to

pay stockholders who exercised the

option to receive their dividend in

the form of shares.

CAPITAL INCREASES IN 1997

Pursuant to a resolution of the

Stockholders’ Meeting of 23 May

1995, the Board of Directors of

BNP decided on 5 May 1997 to

launch a stock-for-stock public

tender offer for BNP

Intercontinentale. Consequently,

BNP issued 1,315,122 new

common shares (FRF 25 par

value) with rights from 1 January

1997 in remuneration for the

shares of BNP Intercontinentale it

received.

In accordance with Section

180 V of the 1966 French

Companies Act and pursuant to

delegations received from the

Stockholders’ Meeting of

21 May 1996, the Board of

Directors decided on 6 March

1997, to issue shares reserved for

subscribers to the company

savings plan via the mutual fund

BNP Actionnariat. This mutual

fund subscribed 920,000

common shares (FRF 25 par

value) for this purpose.

BNP’s capital was also increased

by the creation of 3,574,073

shares to pay stockholders who

exercised the option to receive

their dividend in the form of

shares.

At 31 December 1997 BNP’s capital

stock consisted of 213,244,188

fully paid-up common shares

(FRF 25 par value).

During the course of 1997,

BNP employees subscribed

1,400 shares with rights from

1 January 1997 under the stock

option plan. The corresponding

capital increase took effect on

29 January 1998.

ANALYSIS OF

ADDITIONAL PAID-IN

CAPITAL IN EXCESS OF

PAR, PREMIUMS ON

ACQUISITION, AND

CAPITAL GAIN ON REAL

ESTATE RESTRUCTURING

The item “Additional paid-in capital

in excess of par” was increased in

1995 by the issue premium

(FRF 423 million in 1995) resulting

from the exercise of the option by

some stockholders for payment of

their dividend in the form of shares.

This item was increased in 1996

by the additional paid-in capital

in excess of par resulting from the

stock-for-stock public tender offers

for BNP España and Compagnie

d’Investissements de Paris, as well

as the issue premiums resulting

from the exercise of the option by

some stockholders for payment of

their dividend in the form of shares

and from the placement of shares

reserved for subscribers to the

company savings plan. These issue

premiums amounted to FRF 92

million and 1,960 million,

respectively, after charging goodwill

against additional paid-in capital in

excess of par, on the stock-for-stock

public tender offers, and FRF 354

million on the new share issues

concerning the payment of the

dividend and the shares placed with

staff members.

The item “Capital gain on real

estate restructuring” (FRF 2,755

million) relates to a restructuring

operation whereby BNP

transferred its real estate holdings

to its subsidiary Compagnie

Immobilière de France “CIF” in

1991 and 1992. The resulting

capital gain is recognized to the

consolidated income statement in

proportion to the additional

depreciation charge taken by

“CIF”. This item was written

down by FRF 2,758 million at

31 December 1997 (see Notes 1

B N P


and 10) to reflect a decline in the

real estate market that is now

considered to be lasting.

PREFERRED SHARES

In April 1996, the BNP Group

floated USD 75 million of

preferred shares through its

holding company subsidiary

BancWest Corporation. These

shares pay a contractual dividend

of 7%.

In December 1997 BNP US

Funding LLC, a wholly-owned

subsidiary of the BNP Group,

made a new USD 500 million

issue of noncumulative preferred

shares, which do not dilute

earnings per ordinary share. They

will pay a contractual dividend of

7.738% for a period of ten years.

At the end of that period, the

issuer may redeem the shares at

par at the end of any calendar

quarter. Until they are redeemed,

the shares will pay a dividend

indexed to Libor.

The proceeds of these two issues are

included in stockholders’ equity

G R O U P

under “Minority interest” and the

corresponding remuneration is

treated as a distribution to minority

stockholders.

EFFECT OF CEASING TO

CARRY UAP UNDER THE

EQUITY METHOD

In 1990 BNP and UAP conducted

a share swap which initially gave

BNP an ownership interest of 20%

of UAP at 31 December 1990.

Following a number of capital

increases by UAP, BNP’s ownership

interest decreased to 16.04% at 30

June 1996.

The UAP group was carried under

the equity method by Financière

BNP until 30 June 1996, and the

impact on the BNP Group’s financial

statements of holding its own stock

via reciprocal shareholding was

eliminated in BNP’s consolidated

stockholders’ equity.

Axa’s public tender offer for UAP,

to be paid for in shares of Axa and

price guarantee vouchers, was open

for the period from 21 November to

18 December 1996. At the close

of the operation, BNP’s

ownership interest in Axa was

7.22%, and the investment in the

new entity was no longer

sufficient for the BNP Group to

claim that it exercised significant

influence, which is a prerequisite

for carrying the entity under the

equity method according to

generally accepted accounting

principles. Accordingly, BNP

ceased to carry Compagnie UAP

under the equity method in its

financial statements in 1996 in

order to reflect the existence of a

new majority stockholder of

Compagnie UAP at 31 December

1996.

Due to the fact that the BNP

Gr oup ceased carrying

Compagnie UAP under the

equity method, the shares were

transferred to “Other stock

investments” and a provision was

recorded accordingly on the basis

of their fair market value, taking

into account Axa’s agreement to

guarantee their value as part of

the stock-for-stock public tender

offer it made for Compagnie

UAP.

125

ONE HUNDRED

TWENTY-FIVE


126

ONE HUNDRED

TWENTY-SIX

NOTE 22 - MATURITY

SCHEDULE OF LOANS,

DEPOSITS, AND INTEREST RATE

INSTRUMENTS

Millions of French francs, Maturing Maturing

at 31 December 1997 Maturing after three after one Maturing

Demand within months but but after

and three within one within five five

overnight months year years years Total

Loans (gross):

Interbank and money market

items (Note 3):

Cash and due from central banks

and post office banks 11,882 - - - - 11,882

Treasury bills and money market instruments — 144,604 9,977 48,919 45,037 248,537

Due from credit institutions 24,737 402,158 57,425 10,845 3,438 498,603

Customer items (Note 4):

Due from customers 121,656 408,852 71,100 160,296 110,170 872,074

Leasing receivables

Bonds and other fixed-income

instruments (Note 5)

— 8,294 8,765 27,092 13,297 57,448

(a)

Trading account assets — 46,186 — — — 46,186

Investment securities held for sale — 14,206 2,556 4,617 8,999 30,378

Debt securities held for investment

Deposits:

Interbank and money market

items and securities (Note 13):

— 1,623 3,307 14,480 16,535 35,945

Total interbank and money market items 95,448 483,129 71,122 11,543 6,997 668,239

Interbank market securities

Customer deposits, retail certificates

of deposit, and negotiable certificates

of deposit (Note 14):

— 820 522 411 — 1,753

Total customer deposits

Total bonds and negotiable short-term

272,331 323,300 51,534 47,855 22,721 717,741

debt instruments 2,540 93,027 51,143 24,703 15,442 186,855

BNP Group bonds outstanding (Note 15) — 1,519 2,931 32,872 12,758 50,080

Subordinated medium- and long-term

debt outstanding (Note 18) — 240 3,639 14,466 22,754 41,099

(a) Excluding related receivables, which amount to FRF 3,071 million.

The BNP Group manages its

liquidity within gap limits, all

currencies combined, that are

determined by the General

Management Committee:

• The maximum mismatch on

weighted balance sheet and offbalance

sheet commitments

maturing in more than one year

(attributing maturities to

commitments with no contractual

maturity) is set at 25% of funds

maturing in more than one year.

• The maximum mismatch on

commitments with no contractual

maturity, to which a maturity of

more than one year has been

attributed, is set at 150% of stable

funds with no contractual

maturity (customer demand

deposits and savings deposits net

of overdrafts, stockholders’ equity

net of long-term investments).

Throughout 1997, BNP continually

complied with regulatory guidelines

with respect to its short-term (onemonth)

liquidity ratio and its ratio

of stockholders’ equity to long-term

funding (funds maturing in more

than five years).

B N P


MATURITY SCHEDULE OF FORWARD AND OPTIONS COMMITMENTS

AT 31 DECEMBER 1997

Millions of French francs Maturing

after three Maturing Maturing

Maturing months but after one but after

within three within one within five five

months year years years Total

Interest-rate contracts:

On organized exchanges 4,226,560 278,510 48,989 — 4,554,059

Over the counter 1,306,218 1,248,279 1,078,166 460,521 4,093,184

Total interest-rate contracts 5,532,778 1,526,789 1,127,155 460,521 8,647,243

Foreign exchange contracts:

On organized exchanges 304,295 303,729 15,963 — 623,987

Over the counter 1,983,908 2,277,596 205,532 61,527 4,528,563

Total foreign exchange contracts 2,288,203 2,581,325 221,495 61,527 5,152,550

Other contracts:

On organized exchanges 109,853 108,744 12,916 — 231,513

Over the counter

Total other contracts

52,766

162,619

159,183 195,626

267,927 208,542

51,263 458,838

51,263 690,351 127

ONE HUNDRED

TWENTY-SEVEN

G R O U P


128

ONE HUNDRED

TWENTY-EIGHT

NOTE 23 - OFF-BALANCE SHEET

COMMITMENTS

Millions of French francs, at 31 December 1997 1996 1995

Financing commitments given:

To credit institutions

On behalf of customers:

Confirmed letters of credit:

22,378 25,319 23,125

Documentary credits 25,837 20,398 ..

Other confirmed letters of credit 251,878 192,843 ..

Other commitments given on behalf of customers 96,951 85,970 ..

Total on behalf of customers 374,666 299,211 282,016

Total financing commitments given

Financing commitments received:

Roll-over agreements (standby commitments)

397,044 324,530 305,141

received from credit institutions

Roll-over agreements (standby commitments)

7,323 8,330 12,008

received on behalf of customers 2,586 1,080 162

Total financing commitments received

Guaranties and endorsements given:

To credit institutions:

9,909 9,410 12,170

Confirmed documentary credits 4,976 5,148 ..

Other 9,342 10,696 ..

Total to credit institutions

On behalf of customers:

Guaranties and endorsements:

14,318 15,844 8,180

Real estate guaranties 3,912 3,406 ..

Administrative and tax guaranties 23,878 22,803 ..

Other 41,805 33,280 ..

Other guaranties on behalf of customers 105,403 99,308 ..

Total on behalf of customers 174,998 158,797 118,570

Total guaranties and endorsements given

Guaranties and endorsements received:

189,316 174,641 126,750

From credit institutions

On behalf of customers:

41,097 27,352 32,492

Guaranties received from government administrations and related 37,277 32,111 ..

Guaranties received from financial institutions 4,509 3,261 ..

Other guaranties received 75,876 55,560 ..

Total on behalf of customers 117,662 90,932 84,209

Total guaranties and endorsements received

Commitments given and received on securities:

Securities to be received:

158,759 118,284 116,701

Securities to be received 63,593 55,533 19,756

Securities sold under repurchase agreements to be received (a) — 10 366

Total securities to be received 63,593 55,543 20,122

Total securities to be delivered 52,172 55,856 21,320

(a) Receipt of these securities is contingent upon exercise of the repurchase option.

B N P


NOTE 24 - FORWARD AND

OPTIONS

CONTRACTS

The following transactions were entered into on different markets for micro or global hedging of assets and

liabilities and for position management.

Millions of French francs, 1997 1996

at 31 December Hedging Position Hedging Position

transactions management Total transactions management Total

Forward contracts:

On organized exchanges:

Interest rate contracts 202,124 3,878,533 4,080,657 330,630 1,998,986 2,329,616

Foreign exchange contracts 177 279 456 — 2,711 2,711

Financial assets contracts — 34,324 34,324 122 49,101 49,223

Total on organized exchanges

Over the counter:

202,301 3,913,136 4,115,437 330,752 2,050,798 2,381,550

Forward rate agreements (FRAs) 126,136 253,217 379,353 135,430 244,352 379,782

Interest rate swap contracts 278,829 3,036,522 3,315,351 160,132 1,824,929 1,985,061

Currency swap contracts 2,322,231 39,977 2,362,208 1,756,821 35,948 1,792,769

Foreign exchange forward swaps 1,406,024 673,905 2,079,929 1,282,958 765,818 2,048,776

Other forward contracts 363 35,502 35,865 1,028 23,267 24,295

Total over the counter 4,133,583 4,039,123 8,172,706 3,336,369 2,894,314 6,230,683

Total forward contracts

Options contracts:

On organized exchanges:

Interest rate options:

4,335,884 7,952,259 12,288,143 3,667,121 4,945,112 8,612,233

Bought 176 201,966 202,142 506 683,045 683,551

Sold 176 271,084 271,260 20 577,069 577,089

Total interest rate options

Foreign exchange options:

352 473,050 473,402 526 1,260,114 1,260,640

Bought — 301,989 301,989 27 389,967 389,994

Sold — 321,542 321,542 27 421,226 421,253

Total foreign exchange options

Other options:

— 623,531 623,531 54 811,193 811,247

Bought — 95,693 95,693 — 93,402 93,402

Sold 978 100,518 101,496 999 73,433 74,432

Total other options 978 196,211 197,189 999 166,835 167,834

Total on organized exchanges

Over the counter:

Caps and floors:

1,330 1,292,792 1,294,122 1,579 2,238,142 2,239,721

Bought 7,039 178,689 185,728 4,061 174,288 178,349

Sold 7,658 196,040 203,698 6,037 191,302 197,339

Total caps and floors

Swaptions and options (interest

rate, foreign exchange, and other):

14,697 374,729 389,426 10,098 365,590 375,688

Bought 30,571 244,774 275,345 19,643 118,386 138,029

Sold

Total swaptions and options

(interest rate, foreign

24,834 218,275 243,109 20,219 130,500 150,719

exchange, and other) 55,405 463,049 518,454 39,862 248,886 288,748

Total over the counter 70,102 837,778 907,880 49,960 614,476 664,436

Total options contracts 71,432 2,130,570 2,202,002 51,539 2,852,618 2,904,157

Total forward and

options contracts 4,407,316 10,082,829 14,490,145 3,718,660 7,797,730 11,516,390

G R O U P

129

ONE HUNDRED

TWENTY-NINE


130

ONE HUNDRED

THIRTY

The notional amounts of the

contracts presented above should

be construed as indicators of the

BNP Group’s activity on the

financial instruments markets and

not as indicators of the market

risks attached to these

instruments. Gains and losses on

these transactions are presented

in Note 25—Net Banking

Income and in Notes 11 and 16

to the balance sheet.

ASSESSMENT OF

THE BNP GROUP’S

COUNTERPARTY RISK

EXPOSURE

The BNP Group’s exposure to

counterparty risk on forward and

options contracts is assessed according

to European Union and international

ratios calculation methodology

applicable at 31 December 1997 and,

accordingly, takes into account signed

netting agreements. Close-out netting

is used to attenuate counterparty risk

on derivatives transactions. The Bank

primarily uses the portfolio approach,

which enables it to close all positions

and mark them to market upon

default, summing all positive and

negative payments between the two

parties to arrive at the net close-out

amount payable to or receivable from

the counterparty. The net close-out

amount may be collateralized by

requiring that the counterparty post

cash, securities, or deposits as

collateral.

The Bank also uses bilateral payment

flow netting to attenuate

counterparty risk on foreign currency

payments. In this case, streams of

payment orders in a given currency

are replaced by a cumulative balance

due to or from each party,

representing the single sum, in each

currency, remaining to be settled on

a given day between the Bank and

the counterparty.

The transactions concerned are

executed according to the terms of

bilateral or multilateral master

agreement that comply with the

general provisions of national or

international master agreements. The

main bilateral agreement models used

are those of the Association Française

des Banques (AFB), or those of the

International Swaps and Derivatives

Association (ISDA) for international

agreements. BNP also participates in

EchoNetting, enabling it to use

multilateral netting for transactions

involving other participants.

CREDIT RISK ON FORWARD FINANCIAL INSTRUMENTS

Millions of French francs, 1997 1996

at 31 December Positive Weighted Positive Weighted

replacement risk replacement risk

cost equivalent cost equivalent

Sovereign exposures 492 — 854 —

Bank headquartered in zone A (a) Bank headquatered in zone B

94,565 28,422 60,766 18,511

and nonbanking counterparties (a) 17,648 13,706 11,204 9,140

Total, before impact of netting agreements

Including exposures related to:

112,705 42,128 72,824 27,651

interest rate instruments 50,772 15,956 43,066 13,055

foreign exchange and other instruments 61,933 26,172 29,758 14,596

Netting agrements effect (29,415) (8,963) — —

Total, after impact of netting agreements 83,290 33,165 72,824 27,651

(a) Zone A consists of the member states of the European Union (EU), other member states of the Organization for Economic Cooperation

and Development (OECD) provided that they have not rescheduled any external sovereign debt within the previous five years, and

countries that have negotiated special borrowing agreements with the International Monetary Fund (IMF) within the framework of

the IMF’s General Agreements to Borrow (GAB). Zone B consists of all other countries.

B N P


Weighted risk equivalent determined on over-the-counter contracts (except for sold options) represented

0.38% of the sum of the notional amounts for over-the-counter transactions alone of the BNP Group at

31 December 1997, compared with 0.42% at 31 December 1996.

Counterparty risk exposure on investments traded over the counter can also be analyzed based on counterparty

credit rating (Standard & Poor’s), as follows:

Face value, maturing

Analysis according after one

to credit rating at within one but within after five

31 December 1997 year five years years Total

AAA,AA 41.7% 15.0% 6.6% 63.3%

A 17.3% 5.2% 1.7% 24.2%

BBB 2.3% 1.4% 0.6% 4.3%

BB or lower 5.6% 2.0% 0.6% 8.2%

Total 66.9% 23.6% 9.5% 100.0%

Weighted risk equivalent

Analysis according after one

to credit rating at within one but within after five

31 December 1997 year five years years Total

AAA,AA 28.4% 19.1% 11.6% 59.1%

A 11.5% 4.4% 2.9% 18.8%

BBB 4.1% 2.1% 1.5% 7.7%

BB or lower 7.0% 6.0% 1.4% 14.4%

Total 51.0% 31.6% 17.4% 100.0%

BNP’S MARKET RISK

EXPOSURE ON

FINANCIAL

INSTRUMENTS AT

31 DECEMBER 1997

The BNP Group manages its

market risk exposure on operational

positions using a system to assess

and monitor risks that primarily

focus on interest rate, foreign

exchange, and equity markets. These

risks are assessed in terms of value

at risk (or sensitivity to notional

risks) obtained using a limited set

of risk coefficients that make it

possible to assess the maximum loss

incurred in 95% of movements

observed in the past, over a holding

period of five days.

Sensitivity to notional risks of

fluctuations in interest rates on

G R O U P

all interest-rate related financial

instruments is determined by

simulating a ±1% change in

interest rates on open positions

maturing in less than a year and

a ±0.5% change in interest rates

on open positions maturing in

more than a year. The

hypothetical fluctuation chosen

for positions resulting from

arbitrage (or related) operations

is limited to ±0.25%. For options

positions, the sensitivity to

notional risks of fluctuations in

interest rates is considered to be

equal to the highest possible

absolute value that would result

from the combination of interest

rate fluctuations of 0.25% to 1%

and volatility fluctuations

determined on the basis of

historical analyses.

Sensitivity to notional risks of

fluctuations in exchange rates on all

exchange-rate related financial

instruments (excluding options) is

determined by simulating a ±3%

change in the BNP Group’s

cumulative net foreign exchange

position, which is calculated by

adding the absolute values of the

net positions for each currency. This

variation is limited to ±1.5% for

strongly correlated EMS currencies

(DEM, BEF, and NLG) and for the

ECU. For options positions, the

sensitivity to notional risks of

fluctuations in exchange rates is

considered to be equal to the

highest possible absolute value

that would result from the

combination of exchange rate

fluctuations of 1.5% to 3% and

volatility fluctuations determined

131

ONE HUNDRED

THIRTY-ONE


132

ONE HUNDRED

THIRTY-TWO

on the basis of historical analyses,

particularly as a function of option

expiration dates.

Higher coefficients determined

on the basis of historical analyses

are used for countries with a

government-regulated currency

for both interest-rate and foreign

exchange instruments.

Sensitivity to notional risks of

fluctuations in prices of listed

equity securities is determined by

simulating a change in prices of

between ±9% and ±11.2%,

adjusted as a function of the stock

market. This simulation applies

to open positions in trading and

investment securities held for sale

portfolios, as well as to

outstanding commitments to

subscribe to share issues. The

hypothetical fluctuation chosen

for positions resulting from

arbitrage operations varies

between 0.25% and 1.25%,

depending on the nature of the

positions. Options’ sensitivity to

notional risks is determined

taking into account the highest

possible absolute value that would

result from the combination of

fluctuations between 2% and

11.2% in the price of the

underlying security or index and

The BNP Group has the following notional risk exposure:

volatility fluctuations determined

on the basis of historical analyses.

Sensitivity to notional risks is

determined per currency, per

portfolio, and per entity. The

absolute value of all individual

risks added together (see table,

below) gives an estimate of

theoretical maximum losses far

exceeding the risks actually

incurred, as offsetting positions

taken in the same currency or

market by different entities are

not taken into account, nor does

notional risk take into account

correlations between price

movements on some markets.

Millions of French francs, 1997 1996

at 31 December Including Including

BNP BNP

BNP Group France BNP Group France

Interest-rate risk exposure:

On French franc and foreign currency money

market instruments and bonds .. 119 .. 84

On derivatives .. 779 .. 543

Total interest-rate risk exposure

Currency risk exposure:

1,735 898 1,417 626

On foreign exchange forward instruments .. 18 .. 2

On foreign exchange options .. 24 .. 32

Total currency risk exposure 66 42 45 34

Stock price risk exposure 485 76 429 67

Notional risk exposure may be broken down according to worldwide line of business, as shown below:

Millions of French francs, 1997 1996

at 31 December Including Including

worldwide worldwide

BNP Including options line BNP Including options line

Group BNP France of business Group BNP France of business

Money market and foreign

exchange 621 248 24 492 201 32

Bonds 488 — — 377 — —

Swaps and derivatives 692 692 85 456 456 47

Equities 409 — 345 421 52 360

Other 76 76 — 147 19 —

B N P


NOTE 25 - NET BANKING

INCOME

Millions of French francs, Interest and related income (expense)

year ended 31 December 1997 1996 1995

Net banking revenues:

Net interest and assimilated income

on interbank items (Note 26)

Net interest and assimilated income

(64) (1,096) (240)

on customer items (Note 27)

Net interest and assimilated income

26,124 28,577 30,845

on lease transactions

Interest expense on debt issued by BNP Group:

4,196 4,326 4,471

Interbank market securities (491) (640) (896)

Negotiable certificates of deposit (8,878) (9,191) (10,619)

Bonds (4,493) (4,927) (5,322)

Subordinated debt and undated participating subordinated notes (3,616) (3,246) (3,118)

Retail certificates of deposit and term savings certificates (943) (1,000) (1,096)

Other (191) (254) (371)

Total interest expense on debt issued by BNP Group :

Interest income on bonds and

(18,612) (19,258) (21,422)

other fixed-income instruments (Note 28)

Income on equities and other

11,605 11,263 8,905

non-fixed-income instruments (Note 28)

Gains (losses) on financial operations:

902 1,028 934

On trading account assets 8,084 3,309 4,264

On investment securities held for sale 623 691 27

On foreign exchange transactions (218) 467 657

Net gains on financial operations 8,489 4,467 4,948

Net commissions (Note 29) 9,969 8,863 7,567

Total net banking revenues 42,069 38,170 36,008

Other net income from banking operations 1,457 1,332 1,700

Net banking income 44,066 39,502 37,708

Gains and losses on financial

operations include:

• gains and losses on trading

transactions, such as those

recorded when trading account

assets or borrowed securities

(recorded under liabilities) are

marked to market or sold

• gains and losses on investment

securities held for sale, representing

capital gains and losses on disposals

G R O U P

as well as movements affecting

allowances covering the investment

securities held for sale portfolio;

interest and dividends from this

portfolio are recorded under

“Interest income on bonds and

other fixed-income instruments”

and “Income on equities and other

non-fixed-income instruments” (see

Note 28)

• foreign exchange and arbitrage

gains and losses resulting from

purchases and sales of foreign

currencies, the mark-to-market

at the balance sheet date of

foreign exchange and precious

metals spot positions and

foreign exchange forwards

• gains and losses on interest rate

and foreign exchange futures

and options, with the exception

of interest rate futures entered

into for hedging purposes; gains

and losses on such operations

133

ONE HUNDRED

THIRTY-THREE


134

ONE HUNDRED

THIRTY-FOUR

are included with gains and

losses on the hedged

instruments.

The cost of funding of the various

securities portfolios is recorded

under the interest rate expense

corresponding to the liability item

used for refinancing.

The item “Net income from

banking operations” primarily

reflects fee income from computer

services and from remote banking

services, underwriting fees,

provisions for losses and expenses,

and BNP’s share in income from

operations conducted jointly with

other companies; it also includes

The analysis of net banking income by business line is shown below:

charges invoiced back to

customers and other income.

Allowances on interest arrears

related to financial credits are

deducted from “Net banking

income”.

Millions of French francs, year ended 31 December 1997 1996

Domestic Banking 24,611 24,047

International Banking and Finance 18,071 13,950

Other 1,384 1,505

Net banking income 44,066 39,502

NOTE 26 - NET INTEREST

AND ASSIMILATED INCOME ON

INTERBANK ITEMS

Expense Income Millions of French francs, Net

1997 1996 1995 1997 1996 1995 year ended 31 December 1997 1996 1995

Interest on interbank demand

(40,982) (33,729) (30,215) 39,966 32,066 29,407 deposits, loans, and borrowings (1,016) (1,663) (808)

Interest on securities held or given

(5,552) (4,744) (4,518) 5,859 4,848 4,688 under repurchase agreements 307 104 170

- - - 35 81

Interest on subordinated

14 term loans

Income from off-balance sheet

35 81 14

(63) (94) (33) 673 476 417 transactions 610 382 384

Net interest and assimilated

(46,597) (38,567) (34,766) 46,533 37,471 34,526 income on interbank items (64) (1,096) (240)

“Income from off-balance sheet transactions” reflects income and expense on refinancing agreements and on

guaranties and endorsements given and received. Gains and losses on foreign exchange transactions and on

forward financial instruments are reflected under “Net gains (losses) on financial operations” (see Note 25).

B N P


NOTE 27 - NET INTEREST

AND ASSIMILATED INCOME ON

CUSTOMER ITEMS

Expense Income Millions of French francs, Net

1997 1996 1995 1997 1996 1995 year ended 31 December 1997 1996 1995

Interest on customer loans

(24,395) (19,806) (23,761) 49,602 47,152 53,763 and deposits 25,207 27,346 30,002

Interest on securities held or given

(1,435) (736) (778) 1,038 657 287 under repurchase agreements (397) (79) (491)

Interest on subordinated

- - - 42 80 162 term loans 42 80 162

G R O U P

Income from off-balance sheet

transactions:

Income on commitments

(11) (1) (4) 878 887 882 to lend 867 886 878

Income on guaranties and

(16) (1) (19) 421 345 313 endorsements 405 344 294

Total income from off-balance

(27) (2) (23) 1,299 1,232 1,195 sheet transactions 1,272 1,230 1,172

Net interest and assimilated

(25,857) (20,544) (24,562) 51,981 49,121 55,407 income on customer items 26,124 28,577 30,845

135

ONE HUNDRED

THIRTY-FIVE


136

ONE HUNDRED

THIRTY-SIX

NOTE 28 - NET INCOME FROM

SECURITIES PORTFOLIO

Millions of French francs, year ended 31 December 1997 1996 1995

Interest on bonds and other fixed-income instruments:

From investment securities held for sale 3,257 3,282 2,752

From debt securities held for investment 6,291 4,916 4,405

From Codevi “industrial development” securities 1,337 1,334 1,038

From hedging of interest rate instruments and other 720 1,731 710

Total interest on bonds and other fixed-income instruments 11,605 11,263 8,905

Income on equities and other non-fixed-income instruments:

From investment securities held for sale 31 69 95

From equity securities held for investment 241 327 348

From other stock investments 630 632 491

Total income on equities and non-fixed-income instruments 902 1,028 934

Gains (losses) on transactions related to securities portfolio:

Gains on trading account (a) 8,094 6,668 4,640

Gains (losses) on investment securities held for sale:

Capital gains (losses) on disposals of investment securities held for sale:

Capital gains 746 703 143

Capital losses (113) (132) (119)

Net capital gains on disposals of investment securities held for sale 633 571 24

(Additions to) deductions from allowance on securities:

Additions to allowance on securities (120) (50) (180)

Deductions from allowance on securities 110 170 183

Net (addition to) deduction from allowance on securities (10) 120 3

Net gains (losses) on investment securities held for sale 623 691 27

Net gains on transactions related to securities portfolio 8,717 7,359 4,667

Gains (losses) on disposals of long-term investments,

net of provisions (Note 32):

Capital gains (losses) on disposals of long-term investments:

Capital gains 2,555 1,270 951

Capital losses (3,324) (422) (835)

Net capital gains on disposals of long-term investments (769) 848 116

(Additions to) deductions from allowance on long-term investments:

Additions to allowance on long-term investments (601) (3,573) (1,037)

Deductions from allowance on long-term investments 3,750 2,021 929

Net (addition to) deduction from allowance on long-term investments 3,149 (1,552) (108)

Total gains (losses) on disposals of long-term investments, net of provisions 2,380 (704) 8

Net income from securities portfolio 23,604 18,946 14,514

(a) Gains on trading account are grouped together with gains and losses on financial instruments in the consolidated income statement

presentation in order to reflect the association of these various categories of instruments in the management of positions taken.

Capital losses on disposals of long-term investments include a FRF 2,447 million capital loss on UAP shares

following Axa’s public tender offer, which was completed in January 1997. This capital loss was offset by a

deduction of the same amount from the allowance set up at 31 December 1996 to cover the decrease in

value of BNP’s equity investment in UAP.

B N P


NOTE 29 - NET COMMISSIONS

Expense Income Millions of French francs, Net

1997 1996 1995 1997 1996 1995 year ended 31 December 1997 1996 1995

Commissions on interbank and

(253) (320) (339) 321 324 243 money market transactions 68 4 (96)

Commissions on customer

(316) (158) (57) 3,174 2,426 2,109 transactions 2,858 2,268 2,052

Commissions on securities

(972) (672) (541) 347 238 165 transactions (625) (434) (376)

Commissions on foreign exchange

(36) (25) (24) 59 49 57 and arbitrage transactions 23 24 33

Commissions on securities

(1,047) (1,155) (225) 1,493 1,826 569 commitments 446 671 344

Commissions on forward financial

(985) (420) (196) 573 486 88 instruments (411) 66 (108)

- - - 557 499 441

Commissions on securities-related

services rendered:

On securities managed or on deposit:

Custody fees

Management of customers’

557 499 441

- - - 281 196 340 securities portfolios 281 196 340

- - - 1,315 1,103 1,140 Mutual fund management 1,315 1,103 1,140

- - - 57 55 61

Other commissions on securities

managed or on deposit

Total commissions on securities

57 55 61

- - - 2,210 1,853 1,982 managed or on deposit 2,210 1,853 1,982

Commissions on securities

transactions on behalf of customers:

For purchases and sales

- - - 1,147 787 546 of securities

For purchases and sales

1,147 787 546

- - - 380 268 99 of mutual fund shares 380 268 99

Other commissions on securities

transactions on behalf of

- - - 313 232 180 customers 313 232 180

Total commissions on securities

transactions on behalf of

- - - 1,840 1,287 825 customers 1,840 1,287 825

Commissions on customer

- - - 532 345 241 assistance and advisory services 532 345 241

- - - 2,093 1,961 1,869

Commissions on payment

systems

Commissions on other financial

2,093 1,961 1,869

- - - 936 818 801 services 936 818 801

Total commissions on securities-

- - - 7,611 6,264 5,718 related services rendered 7,611 6,264 5,718

(3,609) (2,750) (1,382) 13,578 11,613 8,949 Net commissions 9,969 8,863 7,567

G R O U P

137

ONE HUNDRED

THIRTY-SEVEN


138

ONE HUNDRED

THIRTY-EIGHT

The aggregate of “Net commissions” calculated according to the regulatory definition, commissions reflected

as interest and assimilated income (expense) and commissions recorded under “Other net income from

banking operations” offers an economic measure of the relative contribution of commissions to net banking

income.

Millions of French francs, year ended 31 December 1997 1996 1995

Net commissions

Commission-related income:

Included under value added to capital:

9,969 8,863 7,567

On commitments 1,882 1,612 1,557

On foreign exchange transactions

Included under “Other net income from banking operations”:

1,362 1,109 917

On charges invoiced back to customers 548 567 542

On other income 724 542 502

On income from other banking transactions 278 312 418

Total commissions and commission-related income 14,763 13,005 11,503

In 1997 commissions and commission-related income accounted for 33.5% of net banking income, compared

with 32.9% in 1996 and 30.5% in 1995.

NOTE 30 - SALARIES AND

EMPLOYEE BENEFITS, INCLUDING

PROFIT SHARING

Millions of French francs, year ended 31 December 1997 1996 1995

Salaries

Termination benefits and social security taxes

12,433 11,452 11,057

Retirement bonuses and retirement expenses 1,088 1,553 1,513

Social security taxes 3,698 3,526 4,096

Total termination benefits and social security taxes

Incentive plans and profit sharing

4,786 5,079 5,609

Incentive plans 260 168 76

Profit sharing 427 202 (28)

Total incentive plans and profit sharing 687 370 48

Payroll taxes 1,085 1,019 926

Total salaries and employee benefits,

including profit sharing 18,991 17,920 17,640

Total remuneration paid to members of the board of directors and of the office of the chairman for positions

they held in 1997 at the parent company and consolidated subsidiaries amounted to FRF 37.8 million in

1997 (FRF 34.1 million in 1996 and FRF 33.0 million in 1995). The amount of directors’ fees totaled

FRF 2 million.

B N P


NOTE 31 - STOCK

OPTION

PLANS

Between 1990 and 1997 the Stockholders Meeting of BNP SA authorized the Board of Directors to grant

stock options to purchase and to subscribe shares issued by BNP SA under different plans whose characteristics

are listed below:

Stock option plans 1990 Plan 1992 Plan 1994 Plan 1995 Plan 1996 Plan 1997 Plan

Date of Special Stockholders

Meeting authorizing stock

option plan 25 May 1989 25 May 1989 14 Dec. 1993 14 Dec. 1993 14 Dec.1993 14 Dec.1993

Date of Board of Directors

meeting setting conditions

for stock option plan 14 Nov. 1990 21 Jul. 1992 23 Mar. 1994 22 Mar. 1995 21 May 1996 22 May 1997

Total number of shares that

may be purchased or subscribed

under plan

Including shares that

may be purchased or subscribed

by members of General Management

64,067 97,508 803,000 215,500 1,031,000 238,000

Committee at 31 December 1997 7,418 3,919 304,000 2,000 525,000 105,000

Number of beneficiaries

Date from which stock options may

72 125 135 128 140 64

be exercised 1 Jul. 1993 21 Jul. 1995 24 Mar. 1996 (a) 23 Mar.1997 (a) 22 May 1998 (a) 23 May 2002

Expiration date 13 Nov.1995 20 Jul. 1997 23 Mar. 2001 22 Mar. 2002 21 May 2003 22 May 2007

Purchase or subscription price

Number of shares purchased or

FRF 116.35 FRF 162.76 FRF 212.00 FRF 218.00 FRF 195.00 FRF 242.00

subscribed at 31 December 1997 63,087 94,870 0 1,400 N/A N/A

(a) Half of the options may only be exercised starting one year after the date from which the stock options may be exercised.

G R O U P

139

ONE HUNDRED

THIRTY-NINE


140

ONE HUNDRED

FORTY

NOTE 32 - GAINS (LOSSES)

ON DISPOSALS OF LONG-TERM

INVESTMENTS, NET OF

PROVISIONS

Millions of French francs, year ended 31 December 1997 1996 1995

Debt securities held for investment:

Capital gains (losses) on disposal (42) 26 (3)

(Additions to) deductions from allowances 51 33 (23)

Total debt securities held for investment, net of provisions 9 59 (26)

Equity securities held for investment:

Capital gains (losses) on disposal 1,316 223 20

(Additions to) deductions from allowances 226 (140) (75)

Total equity securities held for investment, net of provisions 1,542 83 (55)

Other stock investments:

Capital gains (losses) on disposal (2,043) 600 99

(Additions to) deductions from allowances 2,872 (1,446) (10)

Total other stock investments held for investment, net of provisions 829 (846) 89

Gains (losses) on disposals of long-term

net of provisions 2,380 (704) 8

B N P


NOTE 33 - NONRECURRING

ITEMS

Millions of French francs, year ended 31 December 1997 1996 1995

(Addition) to allowance for employee benefits (611) (311) —

(Addition) to allowance for upcoming

disposal of equity investment (141)

(Addition) to allowance for unforeseeable

sectoral risks (Notes 18 and 20) — (1,788) —

(Addition) to allowance for nonrecurring

charges related to introduction of

single European currency (285) (600) —

(Addition) to allowance for restructured or

discontinued operations (85) (68) (203)

Other nonrecurring income (expense) (269) (650) (497)

Nonrecurring items (1,391) (3,417) (700)

Nonrecurring items reflect the

impact on the financial statements

of events that are infrequent and

unusual in nature for the BNP

Group’s various lines of business. If

these items were included under

other income statement headings,

the comparability of current year

operations during the year with

those of the reference years would

be impaired.

Pursuant to its decision to

restructure or discontinue some

of the operations of Banque Arabe

Internationale d’Investissements

“BAII”, BNP made a FRF 203

million provision in 1995 in

relation, in particular, to the

liquidation of Banque d’Arbitrage

et de Crédit, a shareholding of

BAII. Restructuring costs have

been assessed in accordance with

G R O U P

rules applicable to discontinued

operations and operations that

have been or are in the process of

being sold.

In recognition of the level of real

interest rates in France, BNP

decided to update the provisioned

charges resulting from employee

benefits in France using a market

interest rate that is compatible with

expected yields on long-term

investments, in conformity with

the practice among pension and

life insurance funds of calculating

employee life insurance provisions

to cover companies’ commitments.

BNP made an additional provision

of FRF 311 million in 1996.

BNP made a FRF 481 million

provision in 1997 to cover the

nonrecurring charge corresponding

to staff reductions resulting from

computer investments made to

adapt its computer systems to the

single European currency and from

the reorganization of its operational

support centers and customer

service activities within the

domestic branch network in fiscal

years 1998 and 1999. BNP also

made a FRF 130 million provision

to adjust employee pension and

post employment liabilities of the

international entities to the level

required by Group’s accounting

policies.

BNP has estimated the cost of

adapting to the introduction of the

single European currency and to

the Year 2000 to be about FRF 1.7

billion over the period 1996-2002.

France’s accounting authorities

have reiterated a series of guidelines

141

ONE HUNDRED

FORTY-ONE


142

ONE HUNDRED

FORTY-TWO

governing the provisioning of

charges made probable by events

that have been completed or are

in progress, in cases where the

nature of such charges is clearly

identifiable. In application of those

guidelines, BNP set up a FRF 600

million allowance at 31 December

1996, increased by FRF 285

million at 31 December 1997, to

cover the cost of outside assistance

to prepare for the direct

consequences of switching over to

the single European currency, which

is a nonrecurring event. That

assistance cannot be capitalized.

Provisioned charges cover the

adaptation of information systems

and the contribution to interbank

systems (FRF 574 million), as well

as the cost of Euro-related

customer relations and corporate

communication (FRF 311

million). More than half of these

costs, which have been determined

according to BNP’s commonly used

project assessment methods, will be

incurred prior to 1 January 1999, in

addition to recurrent expenses.

As BNP is considering selling its

investment in U.B.A. (Lagos), a

FRF 141 million provision was

recorded in 1997 to recognize the

impact of the continuing

depreciation of Nigeria’s currency

(the naira), now considered

irreversible, on retained earnings

accumulated over the consolidation

period of this entity.

Provisions and charges in relation to

tax audits are reflected under “Other

nonrecurring income (expense)”.

BNP was subject to a tax audit in

France for the years 1988-90 and

1992-94. It has made provisions as

needed to cover adjustments by the

French tax authorities which it may

choose not to contest, including late

payment interest.

B N P


NOTE 34 - GEOGRAPHIC

DISTRIBUTION

OF OPERATIONS

In 1997 nearly 82% of the BNP Group’s worldwide banking income came from the member states of the

European Union, compared with 85% in 1996 and 86% in 1995.

Millions of french francs, The

year ended 31 December 1997 Americas

Other EU and Other

France countries Asia countries Total

Interest and related income 16,900 2,210 4,047 994 24,151

Commissions 7,838 813 1,219 99 9,969

Gains on financial transactions 5,785 1,179 1,424 101 8,489

Other operating revenues (expense) 1,232 51 136 38 1,457

Net banking income 31,755 4,253 6,826 1,232 44,066

Gross operating income 8,244 1,458 3,109 624 13,435

Analysis of business according to region:

Millions of French francs, The

year ended 31 December 1997 Americas

Other EU and Other

France countries Asia countries Total

Loans:

Total interbank and money

market items 516,502 89,872 132,140 13,750 752,264

Customer items 542,485 116,214 213,320 16,064 888,083

Total loans 1,058,987 206,086 345,460 29,814 1,640,347

Deposits:

Total interbank and money

market items 352,374 188,254 112,287 15,324 668,239

Customer deposits 459,784 108,985 128,617 20,355 717,741

Total deposits 812,158 297,239 240,904 35,679 1,385,980

G R O U P

143

ONE HUNDRED

FORTY-THREE


144

ONE HUNDRED

FORTY FOUR

NOTE 35 - INCOME TAXES

Millions of French francs, year ended 31 December 1997 1996 1995

Income taxes for period, currently payable 2,097 981 906

Deferred income taxes recognized during period (100) 2 268

Income tax expense 1,997 983 1,174

From recurring items 2,492 1,359 ..

From nonrecurring items (495) (376) ..

Income tax expense 1,997 983 1,174

In accordance with international

accounting principles, the BNP

Group now records deferred tax

benefits based on the probability of

their utilization, regardless of the

amount of offsetting deferred tax

liabilities. The impact of this change

in the application of accounting

method amounted to FRF 238

million for the year ended

31 December 1997.

Analysis of effective tax rate:

Income taxes amounted to FRF

1,997 million for 1997 and include

the impact of the new tax measures

outlined in Note 1 for FRF 140

million (FRF 115 million for current

income taxes and FRF 25 million for

deferred taxes). Under the liability

method, the BNP Group has

adjusted the amount of deferred taxes

for the 10% surtax on corporate

income imposed by the French

government in 1995 for an

unspecified period of time, and the

15% surtax on corporate income

imposed in 1997 for fiscal years 1997

and 1998, which will be lowered to

10% for fiscal year 1999.

The 1997 tax savings resulting from

the use of tax losses carried forward

and reversal of timing differences

amounted to FRF 678 million.

(%) 1997 1996 1995

Common tax rate in France 33.3 33.3 33.3

Effect of lower income tax rate on long-term capital gains in France (5.1) (2.9) (0.9)

Share of earnings of companies carried under equity method (3.3) (3.5) (0.4)

Income non taxable and expenses non deductible according to French law (2.3) (6.2) (0.1)

Effect of tax rate differential applicable to foreign entities (4.8) (6.2) (9.9)

Separate effect of negative items 3.5 4.5 13.9

Other 3.0 0.2 2.0

Effective tax rate 24.3 19.2 37.9

Deferred taxes have been reflected in the balance sheet as shown below:

Millions of French francs, 1997 1996 1995

at 31 December Companies

included in

consolidated

tax return Other

(Note 2) companies Total Total Total

Deferred tax assets (Note 11) 2,880 640 3,520 2,248 2,113

Deferred tax liabilities (Note 16) 3,247 1,351 4,598 4,365 4,222

Net deferred tax liability 367 711 1,078 2,117 2,109

At 31 December, 1997, the deferred tax liabilities resulting from the capital gain realized upon the transfer by BNP

to its subsidiary Compagnie Immobilière de France of its buildings and leasing rights amounted to

FRF 804 million. This amount includes a FRF 615 million write-back recorded in 1997 as a result of the writedown

of the corresponding assets.

B N P


NOTE 36 - AVERAGE

EMPLOYMENT

Average employment of BNP and fully consolidated subsidiaries may be analyzed as follows:

G R O U P

1997 1996 1995

Average Including Average Including Average Including

employment ofiicers employment ofiicers employment ofiicers

BNP France 35,575 7,563 36,568 7,434 37,772 7,378

Branches outside France 4,644 1,331 4,318 1,203 3,917 981

French subsidiaries 3,163 1,159 2,909 1,026 2,861 1,003

Foreign subsidiaries 9,320 1,311 9,440 1,201 9,670 1,142

BNP Group total 52,702 11,364 53,235 10,864 54,220 10,504

France 38,738 8,722 39,477 8,460 40,663 8,381

Other countries 13,964 2,642 13,758 2,404 13,587 2,123

BNP Group total 52,702 11,364 53,235 10,864 54,220 10,504

145

ONE HUNDRED

FORTY-FIVE


146

ONE HUNDRED

FORTY-SIX

NOTE 37 - CONSOLIDATED

PROFIT AND LOSS ACCOUNT

(CRB 91-02 PRESENTATION)

Thousands of French francs 1997 1996 1995

INCOME AND CHARGES ARISING FROM BANKING OPERATIONS

Interest receivable and similar income:

Interest receivable and similar income on

124,723,139 111,912,877 112,957,903

transactions with credit institutions

Interest receivable and similar income on

46,532,927 37,470,727 34,525,429

transactions with customers

Interest receivable and similar income on

51,980,091 49,121,184 55,407,016

debt securities and other fixed-income securities

Income receivable arising from leasing and

11,604,095 11,262,390 8,903,643

similar operations 14,605,258 14,057,797 14,120,189

Other interest receivable and similar income 768 779 1,626

Interest payable and similar charges:

Interest payable and similar charges arising

(101,474,319) (88,100,391) (90,398,293)

from transactions with credit institutions

Interest payable and similar charges arising

(46,597,484) (38,566,935) (34,765,329)

from transactions with customers

Interest payable and similar charges arising

(25,856,368) (20,544,077) (24,561,660)

from debt securities and other fixed-income securities

Charges payable arising from leasing and

(18,611,656) (19,257,455) (21,422,304)

similar operations (10,408,811) (9,731,924) (9,649,000)

Income from variable yield securities 905,522 1,027,681 933,948

Commissions receivable 13,599,574 11,619,557 8,949,118

Commissions payable (3,630,089) (2,756,245) (1,382,542)

Net profit on financial operations: 8,717,267 7,826,329 5,324,039

Net profit on transactions in trading securities 8,094,402 6,668,305 4,639,862

Net profit on transactions in securities held for sale 622,865 690,702 26,643

Net profit on exchange transactions - 467,322 657,534

Net loss on financial operations: (228,997) (3,359,156) (376,373)

Net loss on transactions in securities held for sale (217,845) - -

Net loss on transactions in financial instruments (11,152) (3,359,156) (376,373)

OTHER ORDINARY INCOME AND CHARGES

Other operating income: 4,498,923 3,926,279 3,472,726

Other income from banking operations 3,023,701 3,197,939 2,811,706

Other income from nonbanking operations 1,475,222 728,340 661,020

General operating charges: (28,528,972) (26,596,551) (26,257,984)

Staff costs (18,990,631) (17,920,868) (17,640,146)

Other administrative expenses

Depreciation expenses and provisions for

(9,538,341) (8,675,683) (8,617,838)

depreciation of intangible and tangible assets (2,101,837) (2,061,359) (1,949,661)

Other operating charges: (3,153,871) (2,716,869) (1,885,916)

Other charges arising from banking operations (2,229,230) (2,413,212) (1,614,678)

Other charges arising from nonbanking operations (924 ,641) (303,657) (271,238)

B N P


Thousands of French francs 1997 1996 1995

Net loss on value adjustments in respect

of loans and advances and off-balance sheet items (6,784,810) (3,793,082) (5,533,583

Net loss on value adjustments in respect

of financial fixed assets - (704,081) -

Net profit on value adjustments in respect

of financial fixed assets 2,380,028 - 8,079

Surplus of allocation for over write-back

of funds for general banking risks (126,148) - (98,769)

Surplus of write-back of over allocations

for funds for general banking risks - 1,766,597 -

ORDINARY PRETAX PROFIT

Extraordinary income and charges

8,792,410 7,991,586 3,762,692

Extraordinary pretax income (1,391,724) (3,417,077) (699,708)

Extraordinary income 296,725 274,554 29 247

Extraordinary charges (1,688,449) (3,691,631) (728,955)

Tax on income (1,997,105) (982,439) (1,174,157)

Share of profit or loss of companies carried

under equity method 815,148 536,849 36,197

Nonfinancial 576,716 342,500 (65,589)

Financial 238,432 194,349 101,786

PROFIT FOR THE FINANCIAL YEAR 6,218,729 4,128 919 1,925 024

Group share 5,961,769 3,856,327 1,783,869

Minority interests 256,960 272,592 141,155

The consolidated profit and loss

account (CRB 91-02 presentation)

differs in the following respects from

the consolidated income statement

presented following the balance

sheet:

• Additions to, and deductions

from the allowance for

miscellaneous risks are reflected

G R O U P

under “Other operating charges”

in the CRB 91-02 presentation

(FRF 9 million in 1997,

FRF 34 million in 1996 and

FRF 29 million in 1995), whereas

they are reflected under “Net

(addition to) deduction from

reserve from general banking risks

and other risks” in the consolidated

income statement.

• The amortization charge for

goodwill is reflected under “Other

operating charges “ in the CRB 91-

02 presentation, whereas it is

reflected under “Amortization of

goodwill” in the consolidated

income statement (FRF 103

million in 1997, FRF 88 million

in 1996, and FRF 84 million in

1995).

147

ONE HUNDRED

FORTY-SEVEN


THE BNP GROUP AT 31 DECEMBER 1997

148

ONE HUNDRED

FORTY-EIGHT

FABC

10.49

SFA

100.00

SFA

1.00

100.00

FABC

10.00

T HE AMERICAS

90.00 BNP COOPER

NEFF

UNITED STATES

EUROPE

BANK OF THE WEST

UNITED STATES

FABC

UNITED STATES

100.00

BNP

URUGUAY

ASIA

PACIFIC

BNP FINANCE

HONG KONG LTD

BNP ARBITRAGE

HONG KONG

BNP IFS

HONG KONG LTD

100.00

BNP IFS

SINGAPOUR LTD

SINGAPORE

50.00

INTERNATIONAL BANK

OF PARIS & SHANGHAI

CHINA

BNP PACIFIC LTD

AUSTRALIA

89.51

100.00

BNP

SECURITIES INC.

UNITED STATES

100.00

BNP

GUADELOUPE

100.00

BNP US

FUNDING LLC

UNITED STATES

BANCO BNP

BRASIL SA

BRAZIL

99.00

100.00

100.00

100.00

BNPI

11.10

BNP

MEXICO

HOLDING

100.00

BNPI

38.87

BNP CANADA

BNP

MEXICO

BNP

PANAMA

3.00

BNP GUYANE

FRENCH GUIANA

3

80.00

BNP

MARTINIQUE

50.00

INVERSIONES

DRESDNER BNP

CHILE

BNP EQUITIES

AUSTRALIA LTD

88.90

52.93

94.00

100.00

100.00

BNP PRIVATE

BANK AND TRUST

CO. BAHAMAS

80.00

99.98

BNP

NOUVELLE-CALEDONIE

NEW CALEDONIA

70.00

PT BNP LIPPO INDONESIA

INDONESIA

PT BNP

LIPPO UTAMA LEASING

INDONESIA

Sté BRIDOISE DE PARTICIPATIONS 3.54

BNPI

0.02

BNP BANK NV

NETHERLANDS

BNP LEASING SPA

ITALY

BNP ESPAÑA

SPAIN

BNP FACTOR

PORTUGAL

BNP KB NORGE

NORWAY

A FRICA

76.00

BANQUE DU CAIRE

ET DE PARIS

EGYPT

FRANCE

BNP BAIL

BNP BAIL GROUP

• NATIOCREDIBAIL

• NATIOCREDIMURS

CREDIT

UNIVERSEL GROUP

BNP FACTOR FRANCE

99.97

COMPAGNIE

IMMOBILIERE

DE FRANCE CIF

CIP

19.90

BNP FINANCE

DU BOUZET SA

100.00

100.00

99.05

95.00

100.00

0.01

100.00

100.00

95.97

100.00

BANQUE ARABE

ET INTERNATIONALE

D'INVESTISSEMENT

BAII GROUP

SFA

5.96

BNPI

20.00

SFA

17.00

SFOM

81.60

SFOM

43.84

NATIO

CREDIT

100.00

NATIO

CREDIT

100.00

NATIO

CREDIT

80.09

0.03

0.25

60.10

BNP SUISSE

SWITZERLAND

33.00

BNP DRESDNER BANK

Z.A.O. RUSSIA

50.00

BNP DRESDNER

BANK RT. HUNGARY

50.00

BNP DRESDNER

BANK CR. PRAGUE

(CZECH REPUBLIC)

50.00

BNP DRESDNER

BANK (POLSKA) SA

POLAND

40.00

BNP DRESDNER

BANK (BULGARIA) AD

INTERNATIONAL BANK

OF SOUTHERN AFRICA

SOUTH AFRICA

THE COMMERCIAL BANK

OF NAMIBIA LTD

BNP

INTERCONTINENTALE

BANQUE

DE BRETAGNE

SFA

BANEXI

BNP IMMOBILIER

FINANCIERE BNP

SAPEG

NATIOBAIL

BNP GESTIONS

81.91

100.00

100.00

100.00

100.00

100.00

99.75

100.00

NATIO

INFORMATIQUE

11.56

BNP BAIL

71.59

B N P


BNPI

45.50

BNPI

14.00

100.00

8.89

BNP UK HOLDINGS LTD

UNITED KINGDOM

BNP RE LUXEMBOURG

BNP LUXEMBOURG

UEB HOLDING SUISSE

SWITZERLAND

16.00

BNP AK DRESDNER

BANK AS

TURKEY

100.00

BNP AK DRESDNER BANK

FINANSAL KIRALAMA

TURKEY

BMCI MOROCCO

BNP

ARBITRAGE

MEUNIER

PROMOTION

PROMOPART BNP

100.00

80.00

54,50

50.00

9.90

99.95

BANQUE DE LA CITE

11.11

100.00

BNP

PLC LONDRES

UNITED KINGDOM

BNP IRELAND LTD

IRELAND

BNP CAPITAL FINANCE

LTD IRELAND

UEB GENEVE

SWITZERLAND

SFOM

SWITZERLAND

BICI

SENEGAL

54.76 80.00

45.24

BNP

DEVELOPPEMENT SA

0.10

IMMO INVESTISSEMENTS

BNP

EUROPCAR LEASE

100.00

48.36

27.71 24.75

22.29

UBCI TUNISIA

50.00

UOB TRUST

BAHAMAS

UEB MONACO

UEB LUXEMBOURG

BICI GABON

BTCI

TOGO

BCI

MER ROUGE

DJIBOUTI

NATIO-VIE

23.78

65.00

NATIO INFORMATIQUE

23.80 18.50

50.00 50.00 51.00 37.50

90.10

49.09

100.00

50.91 99.88

G R O U P

100.00

0.02

100.00

100.00

100.00

22.87 22.50

35.00

NATIO LOCATION

20.00

18.14

BICI A

BURKINA FASO

28.00

BICI

COTE-D'IVOIRE

BMOI

MADAGASCAR

21.00

FULLY CONSOLIDATED

SUBSIDIARIES

PROPORTIONALLY

CONSOLIDATED

SUBSIDIARIES

AFFILITES CARRIED

UNDER THE EQUITY

METHOD

AFFILIATES HELD

JOINTLY WITH

DRESDNER BANK

WHOLLY-OWNED SUBSIDIARIES

OF BNP GROUP

(DIRECTLY AND / OR INDIRECTLY)

149

ONE HUNDRED

FORTY-NINE


150

ONE HUNDRED

FIFTY

BNP GROUP OFFICES OUTSIDE FRANCE AT 31 DECEMBER 1997

This list includes the 500 offices of BNP’s fully consolidated subsidiaries, as well as those of affiliates carried

under the equity method, associated banks, and representative offices.

EUROPE

BELGIUM 3

BULGARIA 1

CYPRUS 1

CROATIA 1

CZECH REPUBLIC 3

GERMANY 4

GREECE 7

HUNGARY 2

IRELAND 3

ITALY 7

JERSEY 2

LUXEMBOURG 3

NETHERLANDS 7

NORWAY 2

POLAND 4

PORTUGAL 5

ROMANIA 1

RUSSIA 3

SPAIN 80

SWITZERLAND 12

TURKEY 4

UKRAINE 1

UNITED KINGDOM 5

TOTAL 161

THE AMERICAS

ARGENTINA 6

BAHAMAS 1

BRAZIL 2

CANADA 5

CAYMAN ISLANDS 2

CHILE 2

COLOMBIA 1

COSTA RICA 1

MEXICO 2

PANAMA 3

PERU 1

UNITED STATES 114

URUGUAY 1

VENEZUELA 2

TOTAL 143

ASIA

CHINA 11

HONG KONG 12

INDIA 7

INDONESIA 4

JAPAN 3

MACAO 3

MALAYSIA 2

MYANMAR 1

PHILIPPINES 1

SINGAPORE 1

SOUTH KOREA 1

TAIWAN 4

THAILAND 2

VIETNAM 2

TOTAL 54

PACIFIC

AUSTRALIA 7

NEW ZEALAND 1

TOTAL 8

AFRICA

ALGERIA 1

BURKINA FASO 11

BURUNDI 8

COMOROS 2

CONGO 14

COTE D'IVOIRE 41

DJIBOUTI 7

GABON 10

GUINEA 12

MADAGASCAR 7

MAURITIUS 8

MOROCCO 85

NAMIBIA 6

NIGERIA 1

RWANDA 5

SENEGAL 15

SOUTH AFRICA 2

TOGO 7

TUNISIA 40

ZIMBABWE 2

TOTAL 284

MIDDLE EAST

BAHRAIN 2

EGYPT 5

IRAN 1

ISRAEL 1

LEBANON 5

UNITED ARAB EMIRATES 1

TOTAL 15

FRENCH OVERSEAS AREAS

FRENCH GUIANA 5

GUADELOUPE 12

MARTINIQUE 12

NEW CALEDONIA 9

REUNION 11

WALLIS AND FUTUNA 1

TOTAL 50

B N P


JOINT STATUTORY

AUDITORS’ REPORT

ON THE CONSOLIDATED FINANCIAL

STATEMENTS FOR THE YEAR

ENDED DECEMBER 31, 1997

To the shareholders of Banque

Nationale de Paris

As statutory auditors appointed by

the Shareholders’ Meeting we have

audited the accompanying

consolidated financial statements

of the BNP Group for the year

ended December 31, 1997.

These consolidated financial

statements are the responsability of

the Company’s Board of Directors.

Our responsability is to express an

opinion on these consolidated

financial statements based on our

audit.

We conducted our audit in

accordance with French auditing

standards. Those standards require

BARBIER

FRINAULT & AUTRES

Christian Chiarasini,

Radwan Hoteit

G R O U P

that we perform appropriate

procedures to obtain reasonable

assurance about whether the

consolidated financial statements

are free of material misstatement.

An audit includes examining, on a

test basis, evidence supporting the

amounts and disclosures in the

consolidated financial statements.

An audit also includes assessing the

accounting principles used and

significant estimates made by

management, as well as evaluating

the overall consolidated financial

statements presentation. We believe

that our audit provides a reasonable

basis for our opinion.

In our opinion, the consolidated

financial statements present fairly,

in all material respects, the financial

Neuilly-sur-Seine and Paris, April 10, 1998

The statutory auditors

BEFEC-PRICE

WATERHOUSE

Etienne Boris

position of the BNP Group at

December 31, 1997 and the results

of its operations for the year then

ended.

We have also carried out the

specific verifications required

by law on the information

given in the Board of Directors’

management report of the BNP

Group. We have no observation to

make on its fairness and conformity

with the consolidated financial

statements.

SALUSTRO REYDEL

Edouard Salustro,

Michel Savioz

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C O N T E N T S

PARENT COMPANY FINANCIAL STATEMENTS [EXCERPTS (a) ]

Parent Company Balance Sheet 154

Parent Company Income Statement 156

Accounting Policies 157

Profit and Loss Account (CRB 91-01 Presentation) 163

Five-Year Parent Company Financial Summary 165

Information on Subsidiaries and Associated Companies of BNP 166

Main Changes in the Equity Investment Portfolio of BNP SA in 1997 169

Statutory Auditors’ Special Report on Regulated Transactions and Agreements 170

(a) The complete parent company financial statements, including the notes to the financial statements, are available upon request from BNP.

153

ONE HUNDRED

FIFTY-THREE


154

ONE HUNDRED

FIFTY-FOUR

BALANCE SHEET BNP SA

ASSETS

Millions of French francs at 31 December 1997 1996 1995

Interbank and money market items:

Cash and due from central banks and post office banks 6,717 10,219 4,041

Treasury bills and money market instruments 124,239 67,571 48,705

Due from credit institutions 510,602 552,811 517,308

Total interbank and money market items 641,558 630,601 570,054

Customer items:

Due from customers 683,014 615,020 585,705

Leasing receivables 1,605 960 1,021

Total customer items 684,619 615,980 586,726

Bonds and other fixed-income instruments 77,886 83,868 62,267

Equities and other non-fixed-income instruments 5,583 9,823 4,028

Equity securities held for investment

and other stock investments:

Equity securities held for investment 4,713 1,808 1,895

Other stock investments 34,577 34,974 33,376

Total equity securities held for investment

and other stock investments 39,290 36,782 35,271

Tangible and intangible assets 14,302 14,525 14,780

Accrued income 105,685 74,473 77,165

Other assets 76,269 44,903 34,948

Total assets 1,645,192 1,510,955 1,385,239

Commitments given:

Financing commitments given 355,004 294,886 270,279

Guaranties and endorsements given 220,917 206,841 160,228

Commitments given on securities 6,770 5,211 3,112

Commitments incurred on forward and options contracts 14,573,349 11,467,660 8,938,014

B N P


LIABILITIES AND STOCKHOLDERS’ EQUITY

Millions of French francs at 31 December 1997 1997 (a) 1996 1995

Before appropriation After appropriation

of income of income

Interbank and money market items:

Due to central banks and post office banks 23,731 23,731 12,503 4 853

Due to credit institutions 567,276 567,276 545,887 492 506

Total interbank and money market items 591,007 591,007 558,390 497 359

Customer deposits 560,436 560,436 510,739 471 459

Bonds and negotiable debt instruments:

Retail certificates of deposit 5,595 5,595 7,081 9,437

Interbank market securities 768 768 655 631

Negotiable certificates of deposit 148,325 148,325 157,594 164,804

Bonds, including short-term portion 49,271 49,271 57,083 62,015

Other debt instruments 20 20 130 88

Total bonds and negotiable debt instruments 203,979 203,979 222,543 236,975

Accrued expense 92,794 92,794 63,970 63,622

Other liabilities 80,376 81,869 56,650 26,563

Allowance for liabilities and charges 16,019 16,019 10,805 10,154

Subordinated debt 51,553 51,553 42,180 35,683

Reserve for general banking risks 6,013 6,013 6,026 7,791

Stockholders’ equity:

Capital stock 5,331 5,331 5,186 4,805

Capital surplus 20,970 20,970 19,885 17,447

Retained earnings 14,614 15,221 14,581 13,381

Total stockholders' equity 40,915 41,522 39,652 35,633

Net income 2,100 — — —

Total liabilities and stockholders’ equity 1,645,192 1,645,192 1,510,955 1,385,239

Commitments received:

Financing commitments received - 9,893 9,931 13,444

Guaranties and endorsements received - 153,820 119,812 110,823

Commitments received on securities - 6,420 5,825 3,994

(a) Based on proposed appropriation of income of BNP.

S A

155

ONE HUNDRED

FIFTY-FIVE


156

ONE HUNDRED

FIFTY-SIX

INCOME STATEMENT

BNP SA

Millions of French francs,

year ended 31 December 1997 1996 1995

Net interest and assimilated income:

Net interest and assimilated income on interbank items 2,119 2,310 2,219

Net interest and assimilated income on customer items 23,332 24,190 27,192

Interest expense on bonds and negotiable debt instruments (16,614) (17,170) (18,949)

Interest income on bonds and other fixed-income instruments 8,508 8,396 7,176

Income on equities and other non-fixed-income instruments 3,505 2,025 2,044

Net interest and assimilated income 20,850 19,751 19,682

Net commissions 8,188 7,587 6,403

Net gains (losses) on financial operations 4,107 1,956 2,622

Other net income from banking operations 1,003 1,052 1,589

Net banking income 34,148 30,346 30, 296

Operating expense:

Salaries and employee benefits, including profit sharing (15,129) (14,531) (14,533)

Other expense (7,416) (6,912) (6,823)

Total operating expense (22,545) (21,443) (21,356)

Depreciation, amortization, and provisions

on tangible and intangible assets (1,648) (1,589) (1,579)

Gross operating income 9,955 7,314 7,361

Net addition to allowance for credit risks and country risks (5,506) (2,008) (3,154)

Net operating income 4,449 5,306 4,207

Gains (losses) on disposals of long-term investments, net of provisions 1,687 (1,533) (1,192)

Net (addition to) deduction from reserve

for general banking risks and miscellaneous risks 31 1,708 (52)

Nonrecurring items (4,398) (3,427) (1,024)

Income taxes (benefits) 331 321 (162)

Net income 2,100 2,375 1,777

B N P


ACCOUNTING POLICIES

BASIS OF PRESENTATION

Accounting policies applied in

preparing the balance sheet and

income statement comply with the

accounting principles established

for the French banking industry.

The financial statements of foreign

branches, prepared in accordance

with accounting policies applied in

their respective countries, have

been restated to conform to BNP’s

accounting policies.

BASIS FOR COMPARISON

BETWEEN THE FINANCIAL

STATEMENTS

Accounting policies were applied

on a consistent basis with those of

the preceding three years.

INCOME AND EXPENSE

RECOGNITION

Interest income and related

commissions are recognized on an

accrual basis. Fees for services (not

interest-related) are recorded when

the services are rendered.

FOREIGN CURRENCY

TRANSACTIONS

Foreign exchange positions are

generally valued at official year-end

exchange rates. Currency gains and

losses on ordinary transactions

denominated in a foreign currency

are recorded in income and expense.

Exchange differences calculated on

S A

the basis of year-end exchange rates

for assets denominated in foreign

currencies and held on a long-term

basis, including debt securities held

for investment, equity securities

held for investment, the equity base

of branches, and other stock

investments in foreign units are

posted to equity.

FOREIGN CURRENCY

TRANSLATIONS

Foreign currency denominated

assets, liabilities, and off-balance

sheet commitments of foreign

branches have been translated into

French francs at official year-end

exchange rates, except

nonmonetary assets and liabilities

of the branch in Argentina, which

were translated at historical rates

to correct for high inflation in that

country. Income statements have

been translated at average

exchange rates for the year for

foreign branches, except in

Argentina (a country with high

inflation), for which the year-end

exchange rate was used.

Translation adjustments regarding

the equity base of BNP branches

outside France are included in

“Accrued income and other assets”

and “Accrued expense ”.

BOND ISSUES

Issue costs are prorated over the

term of the bond.

SECURITIES

The term “securities” covers

interbank market securities (mainly

promissory notes and mortgage

notes); Treasury and other

negotiable debt instruments; bonds

and other fixed-income instruments

(whether fixed- or floating-rate); and

equities and other non-fixed-income

instruments.

Securities are classified as “Trading

account assets”, “Investment securities

held for sale”, “Debt securities held

for investment”, “Equity securities

held for investment”, and “Other

stock investments”.

• Trading Account Assets

Securities held for up to three

months are recorded under

“Trading account assets” and

valued individually at market.

Changes in market values are

posted to income.

• Investment Securities Held

for Sale

This category includes securities

held for at least three months, but

which BNP SA does not intend

to hold on a long-term basis.

Bonds and other fixed-income

instruments are valued at the lower

of cost (excluding accrued interest)

or their probable market value,

which is generally determined on

the basis of market prices. Accrued

interest is posted to income under

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158

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FIFTY-EIGHT

“Interest income on bonds and

other fixed-income instruments”.

Stocks are valued at the lower of

cost (excluding accrued interest)

or their probable market value,

which is generally determined on

the basis of stock market prices,

for listed stocks, or BNP SA’s

share in net assets calculated on

the basis of the most recent

financial statements available, for

unlisted stocks. Dividends

received are posted to income

under “Income on equities and

other non-fixed-income

instruments” at the time of their

payment.

The cost of sale of investment

securities held for sale is

determined on a first in, first out

(FIFO) basis. Capital gains on

disposal are reflected in the income

statement under “Net gains

(losses) on financial operations”,

as are provisions for market value

write-downs or recoveries.

• Debt securities held for

investment

Fixed-income securities (mainly

bonds, interbank market securities,

Treasury securities, and other

negotiable debt securities) are

recorded under “Debt securities

held for investment” to reflect

BNP's intention of holding them

on a long-term basis. Bonds

classified under this heading are

financed by matching funds or

hedged against interest rate exposure

to maturity.

The difference between cost and

the redemption price of these

securities is prorated over the life

of the securities and posted to

“Interest on bonds and other

fixed-income instruments” in the

income statement. In the balance

sheet, their carrying value is

amortized on a straight-line basis

to their redemption value.

Interest on debt securities held for

investment is posted to income

under “Interest on bonds and other

fixed-income instruments”.

A provision is made when a

decline in the credit standing of

an issuer jeopardizes redemption

at maturity.

• Equity securities held for

investment

This category includes shares

and related instruments that

BNP intends to hold on a longterm

basis, without taking an

active part in the management

of the issuing companies.

“Equity securities held for

investment” are recorded individually

at the lower of cost or fair

market value. Fair market value

is determined as follows: according

to the average market price

over the previous two fiscal years

for listed securities or according

to a more recent market price

when a decrease in value of the

underlying security is likely to

endure, and according to net

asset value per share (consolidated,

if applicable) for unlisted

securities.

Dividends received are posted to

income under “Income on equities

and other non-fixed-income

instruments” at the time of their

payment.

• Other Stock Investments

This category includes affiliates

in which the BNP Group exercises

significant influence over

management, as well as those

affiliates that are considered strategic

to the Group’s business

development. Significant

influence is deemed to exist

when the Group holds an ownership

interest of at least 10%.

Other stock investments are

recorded individually at the

lower of cost or fair market

value. Fair market value is determined

as follows: according to

the average market price over

the previous two fiscal years for

listed securities or according to a

more recent market price when a

decrease in value of the underlying

security is likely to endure,

and according to net asset value

per share (consolidated, if applicable)

for unlisted securities.

Capital gains or losses on disposals

are recorded as “Gains

(losses) on disposals of longterm

investments, net of provisions”

in the income statement.

Dividends on other stock investments

are posted to income

when the stockholders of those

companies have voted to distribute

the dividends during the

year. They are posted to

“Income on equities and other

non-fixed-income instruments”.

FINANCIAL FUTURES

BNP SA operates in the interest

rate and currency futures and

B N P


options markets, both on organized

exchanges and in over-thecounter

transactions. It engages

in interest rate and currency

swaps to manage its interest rate

and exchange rate risk exposure,

as well as for the purposes of

arbitrage and trading.

• Interest Rate Futures

Interest rate futures and options

contracts traded on organized

exchanges are valued at market at

the balance sheet date. Realized and

unrealized gains and losses are taken

to income under “Net gains (losses)

on financial operations”.

Gains and losses on certain

contracts, which are traded over

the counter on narrow markets or

which are isolated open positions,

are taken to income either when

the contracts are unwound or on a

pro rata temporis basis, depending

on the nature of the instruments.

Provisions for risks are made to

cover unrealized losses.

Gains and losses on settled interest

rate contracts designated as hedging

operations are recognized similarly

to the underlying instrument.

• Currency Futures

Options contracts are marked to

market and valuation differences are

posted to income. Identical

treatment is used for forward

exchange contracts bought and sold

for trading purposes. As a general

rule, when these transactions are

hedged, the hedging contracts are

valued at the cash price prevailing at

the end of the period. Premiums and

discounts on contracts designated as

a hedge are recognized on an accrual

S A

basis and posted to the income

statement over the life of the

underlying transaction.

• Equity and Equity Index

Derivatives

BNP buys and sells equity and

equity index options for trading

and hedging purposes. In the case

of trading operations, unrealized

gains and losses on contracts that

have not been unwound by the

balance sheet date are carried

directly to income. Gains and losses

on settled equity and equity index

contracts designated as hedging

operations are recognized similarly

to the underlying instrument.

CUSTOMER LOANS

“Customer loans” cover credits to

entities other than credit

institutions and are broken down

into commercial and industrial

loans, customer overdrafts, and

other credits. Customer loans are

carried in the balance sheet at

principal amount plus accrued

interest.

Whenever management

determines that borrowers may not

be able to repay their loans, a

provision for credit risk is charged

to income. Provisions are calculated

on a case-by-case basis, taking into

account guaranties held by the

bank, except in the case of small

receivables, on which the risk is

calculated statistically, taking into

account the bank's loan loss

experience on this category of

receivables.

In the case of real estate

professionals, potential losses are

computed on the basis of the fair

market value of the assets financed,

guaranties, and losses on unfinished

developments (reflecting income

and expenses pending). The fair

market value of assets financed

takes into account rental values,

prices of recent transactions

involving comparable operations,

and any possible capital losses.

Expenses pending take into

account all interest expense that

will be due until complete disposal

of the building program,

construction costs, fees for

professional services pending, and

operating expenses.

Allowances for credit risks on items

carried under assets in the balance

sheet are deducted from the

corresponding asset items.

Allowances reported under liabilities

consist of allowances for guaranties

and endorsements, allowances for

losses on real estate developments in

which equity investments have been

made, allowances for legal

proceedings pending, allowances for

risks not specifically identified, and

allowances for unforeseeable sectoral

risks.

Additions to and deductions from

allowances, loan losses, and

recoveries of loans written off are

all carried under “Net addition to

allowance for credit risks and

country risks” in the income

statement.

Additions to allowances for

unforeseeable sectoral risks made

by means of transfers from the

reserve for general banking risks are

recorded as nonrecurring expenses.

These allowances are utilized to

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ONE HUNDRED

SIXTY

cover substantial risks identified by

the income statement heading

under which the corresponding

allowance was recorded.

COUNTRY RISK

PROVISIONS

BNP determines its country risk

coverage on the basis of the future

solvency of each of the countries at

risk and the nature of the loans

outstanding to those countries.

Country risk provisions and writebacks

are reflected in the income

statement under “Net addition to

allowance for credit risks and

country risks”.

RESERVE FOR GENERAL

BANKING RISKS

For reasons of conservatism, BNP

SA has set up a reserve for general

banking risks. Specific additions

to, and deductions from, this

reserve are reflected in the

consolidated income statement

under “Net (addition to)

deduction from reserve for general

banking risks and other risks”.

This reserve was originally set up

through transfers from other

reserves.

PROVISIONS FOR OTHER

RISKS

BNP SA makes provisions for

other risks to cover specific risks

that are uncertain and not

quantifiable. These provisions

may be written back in the case

of individual risks which become

certain and quantifiable and

which are covered by specific

provisions.

LEASE FINANCING

Assets leased to others are carried

in the balance sheet under

“Customer items—Leasing

receivables” net of accumulated

depreciation.

FIXED ASSETS

In 1991 and 1992, as allowed by

French regulations, BNP

transferred its main operating real

estate holdings to its subsidiary

Compagnie Immobilière de

France “CIF”. This transaction

covered wholly owned buildings

and buildings leased to BNP SA

(the parent company) by

specialized subsidiaries. BNP

intends to hold these buildings

on a long-term basis.

In order to reflect the decline in

the real estate market, which is

now considered to be durable, the

BNP Group in 1997 readjusted

the value of the assets concerned

by the above real estate

restructuring. It wrote down the

value of the Group’s tangible assets

for the amount net of the related

income tax effect, in the

consolidated balance sheet under

“Capital gains on restructuring”,

in the same way as it recorded the

initial adjustment. Consequently,

this readjustment had no impact

on consolidated net income.

The revaluation arising from this

transaction has been posted to

stockholders’ equity net of the

related deferred tax effect. A

deferred tax allowance has been

provided for.

Other premises and equipment

are stated at cost or valued in

accordance with France’s

appropriation laws of 1977 and

1978 or, for certain foreign

branches, in accordance with local

rules (see below).

The restructured real estate

portfolio is depreciated over a

fifty-year period starting from the

date of transfer using the straightline

method. Depreciation of

other fixed assets is computed on

the straight-line method over their

estimated useful lives in

accordance with rules applicable

in France and the countries where

BNP’s foreign branches operate.

The difference between tax

depreciation (accelerated

methods) and book depreciation

(generally straight-line methods)

is recorded under “Regulated

deductions—Accelerated

depreciation” in liabilities. No

deferred income tax is calculated

on the difference between book

and tax depreciation.

Intangible assets essentially

comprise software, which is

amortized over a three-year period.

STATUTORY

REVALUATION

In 1978, in accordance with

applicable tax laws, BNP revalued

land and buildings owned at

31 December 1976 and still

carried in its balance sheet at the

date of revaluation. The revalued

amounts, computed at

31 December 1976, were

established by independent

appraisers.

B N P


At the same time, investments in

consolidated subsidiaries and

equity-method companies were

also revalued either at

31 December 1976 market values

for companies listed on the Paris

Stock Exchange, or on the basis

of their net asset value as taken

from the 31 December 1976

balance sheet after appropriation

of income.

BNP has included within stockholders’

equity the portion of

the revaluation surplus relating

to nondepreciable assets arising

from this transaction.

INCOME TAXES

In France, the standard income

tax rate is 33.33%. Long-term

capital gains are taxed at a rate

of 19%. Capital gains and losses

on securities in the various

portfolios losses are taxed at the

standard income tax rate of

33.33%, with the exception of

“Other stock investments”,

which are subject to long-term

capital gains taxation.

Dividends received from

companies in which the BNP

Group has an ownership

interest of more than 10% or

more than FRF 150 million are

nontaxable.

In 1995 the French government

imposed a 10% surtax on corporate

income for an unspecified period

of time, and in 1997 it imposed a

15% surtax on corporate income,

which will be lowered to 10% for

fiscal year 1999 and expire at yearend

1999. BNP has taken these

S A

surtaxes into account to

determine income taxes for each

subsequent period that are

currently payable, and it has used

the liability method to adjust the

amount of deferred taxes for cases

where they would be subject to

the surtax when the timing

differences reverse themselves at

any time in the future, as

reiterated in the opinion issued

by the Conseil National de la

Comptabilité on 15 September

1997.

A charge for income taxes is taken

in the year in which the respective

taxable income and expense are

booked, regardless of the time

when the tax is actually paid. As a

result, BNP SA books deferred

taxes calculated on the basis of

timing differences between profit

and loss items for accounting and

tax purposes, under the liability

method.

In accordance with internationally

accepted acounting principles, the

BNP Group now records deferred

tax benefits taking into account

the probability that they will be

utilized, for amounts that may

exceed deferred tax liabilities.

PROFIT-SHARING PLAN

As required by French law, BNP

provides for profit sharing in the year

in which the profit arises, and reports

the provision under salaries in

“Operating expense” in the income

statement. The provision is

subsequently reversed and recorded

as “Profit sharing” in the following

year, after approval of the financial

statements by the stockholders.

RETIREMENT AND

PENSIONS FOR FORMER

EMPLOYEES

Upon retirement, BNP employees

receive pensions according to the

laws and customs prevailing in

the countries where BNP

operates.

Outside France, BNP and

its employees contribute to

mandatory pension plans

managed by independent

organizations.

Retired employees of BNP in

France are entitled to the

following pension system starting

1 January 1994, pursuant to a

new industry-wide agreement on

pensions:

• Retirees receive pension benefits

from the social security system

and two nationwide organizations,

which are financed by

contributions received from

employers and employees.

• Retirees receive additional

benefits from the pension fund

of BNP SA and its French

subsidiaries relative to services

rendered prior to 31 December

1993. Funding for these

additional benefits is provided

by transfers from the pension

funds’ existing reserves and by

employer contributions, which

are limited to a percentage of

payroll costs. The amount of

such additional benefits is

adjusted to reflect the funding

level of the pension funds and

may consequently be reduced

in due proportion.

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The working capital contributions

made to the two nationwide

pension organizations in 1994 are

treated as prepaid expenses and

amortized over the average

number of years left to retirement

of BNP’s affiliated employees,

which is currently twenty years.

EMPLOYEE BENEFITS

Under various agreements, BNP

SA is committed to pay early

retirement and seniority bonuses.

Each year, BNP estimates the

net current value of these

commitments and adjusts

the related allowance. The

net current value of these

commitments is determined on

the basis of a market rate that

corresponds to expected yields on

funds invested for the long term.

B N P


PROFIT AND LOSS

ACCOUNT OF BNP SA

(CRB 91-01 PRESENTATION)

Thousands of French francs, year ended 31 December 1997 1996 1995

INCOME AND CHARGES ARISING FROM BANKING OPERATIONS

Interest receivable and similar income: 97,106,735 85,003,297 87,453,380

Interest receivable and similar income on transactions with credit institutions 45,110,063 36,708,352 33,846,225

Interest receivable and similar income on transactions with customers

Interest receivable and similar income on debt securities

43,488,663 39,898,883 46,431,611

and other fixed-income securities 8,508,009 8,396,062 7,175,544

Other interest receivable and similar income - - -

Interest payable and similar charges: (79,866,238) (67,345,810) (69,882,752)

Interest payable and similar charges arising from transactions

with credit institutions (42,991,297) (34,398,763) (31,627,708)

Interest payable and similar charges arising from transactions with customers (20,260,985) (15,777,078) (19,305,684)

Interest payable and similar charges arising from debt securities

and other fixed-income securities (16,613,956) (17,169,969) (18,949,360)

Income from leasing operations 119,875 89,988 96,943

Charges arising from leasing operations (15,287) (22,117) (30,557)

Income from rental operations 20,826 12,863 -

Charges arising from rental operations (18,023) (9,037) -

Income from variable-yield securities 3,505,522 2,025,024 2,044,278

Commissions receivable 10,586,711 9,637,076 7,316,458

Commissions payable (2,398,867) (2,049,494) (913,021)

Net profit on financial operations: 4,700,716 2,935,898 3,013,632

Net profit on transactions in trading securities 1,709,963 2,604,457 2,591,851

Net profit on transactions in securities held for sale 35,269 124,977 -

Net profit on exchange transactions - 206,464 421,781

Net profit on transactions in financial instruments 2,955,484 - -

Net loss on financial operations: (593,685) (979,499) (391,710)

Net loss on transactions in trading securities - - -

Net loss on transactions in securities held for sale - - (150)

Net loss on foreign exchange transactions (593,685) - -

Net loss on transactions in financial instruments - (979,499) (391,560)

S A

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Thousands of French francs, year ended 31 December 1997 1996 1995

OTHER ORDINARY INCOME AND CHARGES

Other operating income: 3 258 570 3 414 412 3 192 018

Other income from banking operations 2,530,060 2,709,355 2,417,951

Other income 2,530,060 2,709,355 2,417,951

Other income from nonbanking operations 728,510 705,057 774,067

General operating charges: (22,544,618) (21,443,636) (21,355,667)

Staff costs (15,128,752) (14,530,952) (14,533,225)

Other administrative expenses

Depreciation expenses and provisions for depreciation

(7,415,866) (6,912,684) (6,822,442)

of intangible and tangible assets (1,648,478) (1,589,038) (1,578,754)

Other operating charges: (2,265,807) (2,422,045) (1,610,651)

Other charges arising from banking operations (1,996,545) (2,113,926) (1,300,484)

Other charges arising from nonbanking operations

Net loss on value adjustments in respect of loans

(269,262) (308,119) (310,167)

and advances and off-balance sheet items

Net loss on value adjustments in respect

(5 505 800) (2 008 569) (3 154 291)

of financial fixed assets

Net gain on value adjustments in respect

- (1,532,670) (1,192,007)

of financial fixed assets

Surplus of allocation for over write-back

1,687,333 - -

of funds for general banking risks - - (43,983)

Surplus of write-back of over allocation for funds

or funds for general banking risks 37,788 1,763,541 -

ORDINARY PRETAX PROFIT 6,167,273 5,480,184 2,963,316

EXTRAORDINARY INCOME AND CHARGES

Extraordinary pretax loss: (4,398,019) (3,426,599) (1,023,551)

Extraordinary income 230,368 26,809 1

Extraordinary charges (4,628,387) (3,453,408) (1,023,552)

Tax on income 330,619 321,442 (162,464)

PROFIT FOR THE FINANCIAL YEAR 2,099,873 2,375,027 1,777,301

The profit and loss account (CRB

91-01 presentation) differs in the

following respects from the income

statement presented following the

balance sheet: additions to, and

deductions from, the allowance for

miscellaneous risks are reflected

under “Other operating charges”

in the CRB 91-01 presentation

(FRF 7 million in 1997,

FRF 56 million in 1996, and

FRF 9 million in 1995), whereas

they are reflected under “Net

(addition to) deduction from

reserve for general banking risks

and other risks” in the income

statement.

B N P


FIVE-YEAR PARENT COMPANY

FINANCIAL SUMMARY BNP SA

French francs, except share

data and employment 1997 1996 1995 1994 1993

Capital at year-end

Capital stock 5,331,104,700 (a) 5,185,874,825 (b) 4,804,598,450 (c) 4,751,153,975 (d) 4,600,213,900 (f)

Common and nonvoting shares issued 213,244,188 (a) 207,434,993 (b) 192,183,938 (c) 190,046,159 (d,e) 184,008,556 (f,g)

Registered beneficiary shares

(parts bénéficiaires) outstanding

- Former BNCI — — 22,100 44,202 66,304

- Former CNEP — — 16,840 33,682 50,524

Results of operations for the year

Total revenues, excluding VAT

Income before tax, nonrecurring

nonoperating items, profit sharing,

118,564,568,666 102,036,211,395 102,628,056,297 94,891,304,883 117,842,996,720

depreciation, and provisions 13,243,961,291 9,237,139,910 8,672,714,814 9,837,997,523 10,903,429,397

Income taxes (benefits) (330,618,810) (321,442,607) 162,465,361 318,927,280 (144,272,494)

Profit sharing for year 375,000,000 (h) Income after tax, nonrecurring

nonoperating items, profit sharing,

164,380,906 — 81,324,354 —

depreciation, and provisions 2,099,873,373 2,375,026,870 1,777,301,169 1,320,036,417 57,664,442

Earnings distributed 1,492,719,116 1,120,148,962 694,513,727 608,264,800 552,201,308

Earnings per share

Earnings (excluding nonrecurring

nonoperating items) after tax and

profit sharing, but before depreciation

and provisions

Earnings after tax, nonrecurring

nonoperating items, profit sharing,

62.89 46.08 43.86 49.39 60.04

depreciation, and provisions 9.85 11.45 9.25 6.95 0.31

Dividend per share 7.00 (i) 5.40 3.60 (j) 3.20 3.00

Employment

Employment at year-end (k) 40,002 40,705 41,364 42,400 43,811

Total salaries 9,577,822,860 8,955,840,550 8,715,581,128 8,562,568,218 8,647,932,340

Staff benefits (including health care) 3,954,666,310 4,350,229,752 4,947,409,654 4,922,195,162 4,964,648,954

(a) Common stock was increased to FRF 5,331,104,700 from FRF 5,185,874,825 by the FRF 32,878,050 stock-for-stock public tender

offer for BNPI, the FRF 23,000,000 private placement reserved for BNP staff members, and the payment of a stock dividend amounting

to FRF 89,351,825.

(b) Common stock was increased to FRF 5,185,874,825 from FRF 4,804,598,450 by the FRF 18,007,000 stock-for-stock public tender

offer for BNP España, the FRF 305,058,400 stock-for-stock public tender offer for Compagnie d’Investissement de Paris “CIP”, the FRF

16,311,100 private placement reserved for BNP staff members, and the payment of a stock dividend amounting to FRF 41,899,875.

(c) Common stock was increased to FRF 4,804,598,450 from FRF 4,751,153,975 by the payment of the dividend in shares.

(d) Common stock was increased to FRF 4,751,153,975 from FRF 4,600,213,900 following the contribution of FRF 108,800,000 from

Financière Gamma and the payment of a stock dividend amounting to FRF 42,140,075.

(e) Nonvoting shares were converted into common shares.

(f) Common stock was increased to FRF 4,600,213,900 from FRF 3,536,972,150 by the exercise of 23,455,548 rights for common shares

and 19,074,122 warrants for nonvoting shares. In addition, 42,478,145 nonvoting shares were exchanged for common shares, bringing

to 183,212,579 the number of common shares issued and leaving 795,977 nonvoting shares issued.

(g) On 4 October 1993 a two-for-one split lowered the par value of BNP stock to FRF 25.

(h) Provision made during the year.

(i) Paid to 213,245,588 shares, taking into account the 1,400 new shares with rights from 1 January 1997 created pursuant to the 1995

2002 stock option plan and recorded on 29 January 1998.

(j) Paid to 192,904,218 shares, taking into account the 720,280 new shares with rights from 1 January 1995 created on 27 February

1996 following the stock-for-stock public tender offer for BNP España.

(k) For France, part-time employment is prorated according to the length of time worked.

S A

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INFORMATION ON SUBSIDIARIES AND

Financial information on subsidiaries Reserves and Total revenues Net income

and associated companies French retained for last (loss) for last

francs earnings before completed completed

exchange Capital appropriation of fiscal year fiscal year

Currency rate stock (a) income (a) (excl. tax) (a) (a)

INFORMATION ON SUBSIDIARIES AND ASSOCIATED COMPANIES

WHOSE BOOK VALUE EXCEEDS 1% OF BNP’S CAPITAL STOCK

A - Subsidiaries (>50% ownership interest)

FINANCIERE BNP FRF _ 7,596,818 1,027,350 172,358 145,561

BNP INTERCONTINENTALE FRF _ 190,769 1,136,202 1,619,950 280,850

BANEXI FRF _ 598,597 1,671,404 343,841 315,336

BNP FINANCE FRF _ 100,000 475,667 10,549,711 (379,159)

NATIOCREDIT FRF _ 978,681 590,112 124,590 123,113

BANQUE DE BRETAGNE FRF _ 325,667 101,305 673,927 83,996

DU BOUZET SA FRF _ 11,852 136,400 447,386 92,407

SFA FRF _ 36,557 4,594,629 692,890 636,133

NATIOINFORMATIQUE FRF _ 192,096 17,463 119,367 42,180

CIP FRF _ 2,465,647 2,316,567 186,843 734,908

BNP IMMOBILIER FRF _ 1,166,000 (789,964) 8,571 (104,116)

CRISTOLIENNE DE PARTICIPATIONS FV _ 123,000 _ _ (4,990)

BNP GESTIONS FV _ 65,080 16,367 500,013 115,397

BNP SUISSE SA (SWITZERLAND) CHF 4.118400 84,000 174,144 279,759 31,676

BNP CANADA (CANADA) CAD 4.178200 180,637 (46,325) 149,089 10,545

KASSINE HOLDING (IRELAND) GBP 9.917000 2,100 _ _ _

KASSINE HOLDING (IRELAND) ITL 0.003405 15,000,000 _ _ _

BNP UK HOLDING LTD (UNITED KINGDOM) GBP 9.917000 130,000 5,313 3,828 3,125

BNP KB NORGE (NORWAY) NOK 0.815000 52,772 182,605 13,232 12,427

BNP IFS SINGAPOUR LTD (SINGAPORE) SGD 3.559000 27,500 10,959 6,549 1,335

BNP LUXEMBOURG LUF 0.162190 1,300,000 3,816,720 10,796,162 796,375

BNP IRLANDE LTD (IRELAND) IEP 8.565500 15,562 1,248 24,098 11,964

HOLDING BANCWEST (UNITED STATES) USD 5.988100 198,667 194,339 457,662 58,312

BNP MEXICO HOLDING USD 5.988100 22,500 57 _ _

PT BNP LIPPO INDONESIA IDR 0.001130 50,000,000 26,899,056 133,627,871 16,290,554

ACEC UNION MINIERE (BELGIUM) BEF 0.162190 1,746,110 _ _ (14,434)

BNP ESPAÑA (SPAIN) ESP 0.039500 20,956,000 (7,045,000) 24,764,000 71,000

BNP IFS HONG KONG HKD 0.772900 100,022 195,045 89,042 32,594

BANQUE DU CAIRE ET DE PARIS (EGYPT) EGP 1.750700 50,493 20,184 127,363 16,016

BNP PRIME EAST LABUAN (MALAYSIA) USD 5.988100 25,200 0 2,921 804

BNP PRIVATE BANK AND TRUST USD 5.988100 14,000 5 8,354 950

BANCO BNP BRASIL (BRAZIL) BRL 5.365200 62,450 587 19,720 1,121

BNP SECURITIES INC.

(FORMERLY BNP FUTURES INC.) (UNITED STATES) USD 5.988100 21,482 19,901 55,645 1,576

B - Associated companies (10%-50% ownership interest)

SA 3 S CADRES FRF _ 59,841 186,057 N/A 304

CREDIT LOGEMENT DEVELOPPEMENT FRF _ 1,750,000 6,985 154,238 19,536

CAISSE REFINANCEMENT HYPOTHECAIRE FRF _ 500,000 14,255 8,048,727 8,840

NATIOVIE (PARIS) (b) FRF _ 719,950 3,239,971 29,090,873 405,432

BNP DEVELOPPEMENT FRF _ 425,000 27,453 23,973 41,456

INVERSIONES DRESDNER BNP PARIS LTDA (CHILE) CLP 0.01360 22,000,000 0 518,355 543,309

SFOM (GENEVA) CHF 4.11840 39,892 11,626 9,368 5,234

BNP KH DRESDNER BANK RT (HUNGARY) HUF 0.02946 3,500,000 1,418,227 5,154,764 969,128

BNP DRESDNER BK CSFR (CZECH REPUBLIC) CZK 0.17388 1,000,000 249,658 1,172,980 2,086,305

BNP AK DRESDNER BANK (TURKEY) TRL 0.00003 2,750,000,000 445,137,000 4,316,305,000 1,648,658

BNP DRESDNER BK POLOGNE (POLAND) PLN 1.70210 193,400 20,979 41,136 13,769

I.B.P.S. (CHINA) USD 5.98810 63,638 1,601 8,630 104

(a) Thousands of French francs or local currency units.

(b) Figures for Natio-Vie only (figures for Assu-Vie are not available).

B N P


ASSOCIATED COMPANIES OF BNP SA

Dividends Outstanding Guaranties

Book value of shares held BNP received by loans and and

BNP’s ownership BNP advances endorsment

interest Gross Net Including during granted by given by

(%) revaluation surplus year BNP (a) BNP (a)

100.00% 10,746,162 8,769,676 _ _ _ _

81.90% 769,161 769,161 144,447 24,179 1,245,513 106,033

100.00% 1,756,941 1,756,941 39,333 682,396 3,141,006 3,412

100.00% 137,015 137,015 _ 39,999 49,998,190 100,000

66.56% 1,132,449 1,132,449 _ 113,338 _ _

100.00% 465,868 465,868 _ 95,665 272,551 2,426

95.97% 139,383 139,383 _ 71,092 _ 86,380

100.00% 2,361,443 2,361,443 _ 1,061,943 _ _

65.00% 226,756 164,088 _ _ _ _

100.00% 3,922,496 3,922,496 _ 121,529 _ _

100.00% 1,465,999 513,040 _ _ _ _

100.00% 324,761 115,515 _ _ 176,957 _

99.75% 776,945 776,945 84 23,629 _ _

60.14% 453,256 453,256 43,107 28,866 570,225 65,502

88.90% 876,129 710,213 1,244 _ 22,002 3,006,846

100.00% 20,826 20,826 _ 2,668 _ _

100.00% 51,067 51,067 _ 4,033 _ _

100.00% 1,070,068 1,070,068 106,136 _ _ _

100.00% 172,320 172,320 _ _ _ _

100.00% 85,327 85,327 _ _ 608 14,639

54.50% 249,036 249,036 2,236 69,124 12,614,720 1,185,687

100.00% 219,308 162,108 _ 27,500 _ 39,340

100.00% 1,865,621 1,554,537 _ 194,805 62,858 27,922

100.00% 134,732 99,967 _ _ _ _

70.00% 124,972 124,972 _ _ 539,773,216 260,559,351

98.04% 279,985 279,985 _ _ _ _

97.41% 980,561 657,366 _ _ 3,305,075 12,751,779

100.00% 88,864 88,864 _ 11,942 762,531 _

76.00% 153,574 153,574 _ _ _ _

70.00% 135,810 135,810 _ _ 51,632 _

100.00% 185,631 185,631 _ 8,977 _ _

99.00% 331,250 331,250 _ _ 171,584 8,392

100.00% 136,261 136,261 _ _ _ _

30.00% 97,220 97,220 _ _ _ _

10.00% 175,000 175,000 _ 1,858 _ _

16.15% 82,040 82,040 _ 1,393 _ _

20.00% 396,686 396,686 _ 67,207 572,994 _

45.24% 194,068 194,068 _ 5,100 _ 7,000

50.00% 126,602 126,602 _ 2,751 _ _

48.34% 108,184 72,203 27,816 _ 2,657 _

50.00% 74,948 74,948 _ 3,933 8,290,197 _

50.00% 92,392 92,392 _ 6,151 106,438 148,896

16.00% 56,823 56,823 _ 7,228 _ _

50.00% 189,292 189,292 _ _ _ _

50.00% 181,074 181,074 _ _ 27,508 44,323

S A

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INFORMATION ON OTHER SUBSIDIARIES AND ASSOCIATED COMPANIES

I - Subsidiaries not included under (A)

Book value of shares held by BNP

Gross Net Including revaluation

surplus

French companies 1,850,811 865,067 7,265

Foreign companies 696,746 264,493 28,606

II - Subsidiaries not included under (A)

French companies 390,999 112,008 430

Foreign companies 836,647 270,408 103,583

B N P


MAIN CHANGES IN THE EQUITY

INVESTMENT PORTFOLIO OF

BNP SA IN 1997

ACQUISITIONS OF SIGNIFICANT EQUITY INTERESTS

Pursuant to Section 356 of the 1966 French Companies Act, stockholders are hereby informed of acquisitions

during 1997 of equity interests in companies headquartered in France that have brought BNP’s equity

interest in those companies above the following thresholds:

Over 5%: Over 50%:

Cofinoga Medi Europe group

Over 10%: Over 66 2/3%:

E. Comm, Soparsico Snc Lille Centre d’Affaires, Hesdinoise de

Participations, Héricourtaine de Participations,

Over 33 1/3%: Casiband, Gessienne de Participations, Vocation

Natio Retraite Maritime

PRINCIPAL ACQUISITIONS AND DISPOSALS OF EQUITY INTERESTS

IN FRANCE AND ABROAD

IN FRANCE

Acquisitions Disposals

New investments: Total:

Cofinoga, Soparsico, Medi Europe group, Sphère, BDDP, BCEOM, CPR Billets,

Natio Retraite Immobilière du Parvis, Lordex, SDR Picardie,

Sicovam, Téléservice Ile-de-France

Follow-on investments (acquisitions):

Compagnie d’Investissements de Paris, BNPI Partial:

Elf Aquitaine, Lagardère, Péchiney, Renault,

Follow-on investments (subscriptions): Rhône-Poulenc, Compagnie de Suez, Accor,

Sofaris, Lucia, Immobilière et Foncière Laffite, Bouygues Télécom, Caisse de Refinancement

Natio-Vie Hypothécaire

OUTSIDE FRANCE

Acquisitions Disposals

New investments: Total:

CLS Services Ltd (United Kingdom), BNP Dresdner Argentina Private Developement Trust

Croatia (Croatia), BNP PrimeEast Labuan Holding (Argentina), Egyptian Tourism Investment

(Malaysia), BNP Private Bank and Trust Cie Bahamas Co (Egypt), Leasinvest (Portugal), Banco

Ltd (Bahamas), Wah Kwong (Hong Kong) Nacional Brasileiro Metropolitano de

Investimentos (Brazil)

Follow-on investments (acquisitions):

Banque du Caire et de Paris (Egypt) Partial:

Kassine Holding (United Kingdom)

Follow-on investments (subscriptions):

BNP Dresdner Bank Polska (Poland), Banco BNP

Brasil (Brazil), Echo Netting (United Kingdom),

International Bank of Paris and Shanghai (China),

Elf Oil Deutschland (Germany), Dresdner Bank

(Germany), BNP Dresdner Bank Bulgaria (Bulgaria)

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SEVENTY

STATUTORY AUDITORS’

SPECIAL REPORT ON REGULATED

TRANSACTIONS AND

AGREEMENTS FOR THE YEAR

ENDED DECEMBER 31, 1997

To the shareholders of Banque

Nationale de Paris,

In accordance with section 103

of the 1966 French Companies

Act, it is the responsability of the

Statutory Auditors of corporations

to present to the Annual Meeting

of Stockholders a special report

indicating agreements subject to

section 101 of that act which

require previous authorization

from the Board of Directors.

AGREEMENTS

MADE IN 1997

PARTICIPATING LOANS

- BNP Canada.

AGREEMENTS MADE IN

PREVIOUS YEARS WHICH

WERE STILL IN EFFECT IN

1997

BANK DEPOSIT GUARANTIES

In accordance with the industrywide

agreement established by the

Association Française des Banques

in 1980, Banque Nationale de

Paris has been guarantying the

customer deposits of the following

companies of the consolidated

group:

- Banque Nationale de Paris

Intercontinentale “BNPI”,

- Banque pour l’Expansion

Industrielle “Banexi”,

- BNP Guyane,

- BNP Finance,

- Crédit Universel,

- Banque de Bretagne,

- Banque de la Cité,

- Banque Arabe et

Internationale

d’Investissement - BAII,

- BNP Martinique,

- BNP Guadeloupe.

PARTICIPATING LOANS

GRANTED IN PREVIOUS

YEARS

Participating loans granted in

previous years to the following

subsidiaries remained outstanding

in 1997:

- BNP Suisse,

- UEB Genève,

- BNP IFS Hong Kong,

- BNP UK Holding Ltd

London,

- Bank of the West

(United States),

- BNP Dresdner Bank Rt

(Hungary),

- BNP España,

- BNP Dresdner Bank (Polska).

GUARANTIES GIVEN TO

SUBSIDIARIES

Guaranties previously given to

the following companies were

maintained in 1997:

- Natiobail,

- Natiocrédimurs,

- Natioénergie,

- Natiolocation,

- Natiocrédibail,

- Locafinance,

- BNP Bail,

- BNP Plc London,

- BNP IFS Singapore Ltd,

- BNP IFS Hong Kong

(Comfort letter),

- BNP Finance HK (Comfort

letter).


Guaranties given to BNP

Canada and BNP Pacific

(Australia) Ltd concerning the

following operations continued

to have effect in 1997:

- BNP Canada

Issue of, or trading in,

promissory notes up to a limit

of 1.5 billion Canadian dollars.

Issue of commercial paper notes

up to a limit of 750 million US

dollars.

Issue of a 40 million Canadian

dollar debenture loan.

BARBIER

FRINAULT & AUTRES

Christian Chiarasini,

Radwan Hoteit

- BNP Pacific (Australia) Ltd

Issue of a 100 million Australian

dollar debenture loan.

Issue of commercial paper notes

up to a limit of 1.5 billion

Australian dollars.

GUARANTIES

GIVEN TO DIRECTORS

Banque Nationale de Paris

subscribed insurance contracts

with AIG Europe and Chubb to

protect the Directors of its

subsidiaries from their liability in

the normal exercise of their duties.

Neuilly-sur-Seine and Paris, April 10, 1998

The statutory auditors

BEFEC-PRICE

WATERHOUSE

Etienne Boris

This guaranty amounts to 200

million French francs.

Your Board of Directors agreed to

idemnify a member of the Board

of Directors for his liability as a

member of the Board of Directors

of the Eurotunnel Group.

SALUSTRO REYDEL

Edouard Salustro,

Michel Savioz

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LEGAL INFORMATION

CONCERNING

BANQUE NATIONALE DE PARIS

CORPORATE NAME AND

PRINCIPAL OFFICE

Banque Nationale de Paris

16 Boulevard des Italiens

75009 PARIS

The Corporation’s official documents

may be consulted at its principal office.

Trade and Companies

Register, Primary Business

Sector

BNP is registered under the number

B 662 042 449 in the Paris Trade

and Companies Register (Registre

du Commerce et des Sociétés). Its

Primary Business Sector Code (Code

APE) is 651C.

Duration and Fiscal Year

The duration of the Corporation is

99 years from 17 September 1993.

Each fiscal year begins on 1 January

and ends on 31 December.

Legal Form, Regulatory

Framework, and Corporate

Purpose

Banque Nationale de Paris (BNP) is

a French société anonyme registered

as a credit institution and commercial

bank (établissement de crédit, agréé en

qualité de banque) under the 1984

Banking Act (loi n° 84-46 du

24 janvier 1984). It was founded

pursuant to a decree dated 26 May

1966.

BNP is governed by the 1966

French Companies Act (loi modifiée

n° 66-537 du 24 juillet 1966 sur les

sociétés commerciales), its Articles of

Incorporation, and specific

regulations pertaining to its status

as a credit institution. It engages in

the full range of investment and

related services as construed by the

1996 Investment Services Act (loi

n° 96-597 du 2 juillet 1996 ),

banking and related operations, and

all equity investments.

In accordance with regulations

applicable to banks, BNP may also

conduct business in all other areas or

carry out operations other than those

referred to above, particularly all

arbitrage, brokerage, and commission

operations.

Generally speaking, BNP may

conduct for its own account, for

others, or in participation, all

financial, commercial, industrial, or

agricultural activities, as well as all

activities concerning securities and

real estate, that may be directly or

indirectly related to the activities

referred to above or that may facilitate

their execution.

PATENTS, LICENSES,

CONTRACTS

Banque Nationale de Paris is not

dependent upon any patent or

license, nor any contract for

industrial, commercial, or financial

supplies for its conduct of business.

EXTRAORDINARY

EVENTS, LEGAL

PROCEEDINGS PENDING

At present, there are no extraordinary

events nor legal proceedings pending

which would have a material adverse

effect on the financial position, results,

or operations of Banque Nationale

de Paris or the BNP Group.


RESOLUTIONS PRESENTED

TO THE STOCKHOLDERS’

MEETING -13 MAY 1998

ANNUAL MEETING

FIRST

Approving the financial statements

The Annual Meeting of Stockholders,

satisfying quorum and majority rules

for annual meetings of stockholders,

and having heard the Board of

Directors’ and Statutory Auditors’

Reports for the year ended

31 December 1997, approves the

balance sheet at 31 December 1997

and the income statement for the year

then ended, showing net income after

taxes of FRF 2,099,873,372.74.

SECOND

Appropriating income and declaring

the dividend (option for payment

of the dividend in shares)

The Annual Meeting of

Stockholders, satisfying quorum and

majority rules for annual meetings of

stockholders, and pursuant to Article

20 of the Articles of Incorporation,

resolves to appropriate net income

after taxes amounting to FRF

2,099,873,372.74 as follows:

• Appropriation to the legal reserve

of FRF 14,522,987.50, or the

fraction of 5% of net income

needed to bring the legal reserve

up to 10% of the capital stock.

To the net balance of FRF

2,085,350,385.24 shall be added

FRF 1,508,425,777.99 of

unappropriated retained earnings,

forming a total of FRF

3,593,776,163.23 available for

distribution, to be appropriated

as follows:

1. A ppropriation of FRF

740,830,524.50 to the special

reserve for long-term capital

gains, bringing that reserve to

FRF 4,629,921,153.21.

2. Transfer of FRF 33,201,387.70

to other reserves, comprising a

transfer of FRF 32,383,211.00

to the investment reserve upon

the recovery of the investment

reserve for 1991, and a transfer of

FRF 818,176.70 to other reserves,

bringing total other reserves to

FRF 34,110,000,000.00.

3. Distribution of a dividend of

FRF 1,492,719,116.00 to the

stockholders of BNP SA,

corresponding to a net dividend

of FRF 7.00 per FRF 25 par value

share outstanding at 31 December

1997 or with rights to income

earned from 1 January 1997 under

the 1995-2002 Stock Option

Plan, and providing a dividend tax

credit of FRF 3.50 (for a gross

dividend of FRF 10.50). Full

power is given to the Board of

Directors to carry forward as

retained earnings the portion of

the dividend payable to shares of

treasury stock.

In compliance with Section 47 of the

1965 Finance Act (65-566), the Board

of Directors reminds the Annual

Meeting of Stockholders that a net

dividend of FRF 3.20 per common

share (FRF 25 par value) was

R E S O L U T I O N S

distributed for 1994 (gross dividend of

FRF 4.80 including the dividend tax

credit of FRF 1.60), a net dividend

of FRF 3.60 per common share

(FRF 25 par value) was distributed

for 1995 (gross dividend of FRF 5.40

including the dividend tax credit of

FRF 1.80), and a net dividend of

FRF 5.40 per common share

(FRF 25 par value) was distributed

for 1996 (gross dividend of FRF 8.10

including the dividend tax credit of

FRF 2.70).

As proposed by the Board of Directors,

the Annual Meeting of Stockholders

resolves to grant stockholders the

option to receive their dividend in the

form of shares of the Company.

Stockholders exercising this option

must do so for the entire dividend to

which they are entitled under any

given securities account.

The new shares created by this option

shall be issued at a price representing

90% of the average opening share

prices for the period of twenty

consecutive trading days preceding

the date of the Annual Meeting of

Stockholders, less the amount of the

net dividend and rounded up to the

nearest whole franc.

If the dividend amount to which a

stockholder is entitled corresponds to

a fractional number of shares, he may

either receive the lower whole number

of shares plus a cash balance for the

remainder of the dividend due, or

acquire the higher whole number of

shares above his entitlement by paying

the cash difference when he files to

exercise his option.

173

ONE HUNDRED

SEVENTY-THREE


174

ONE HUNDRED

SEVENTY-FOUR

Stockholders shall be able to exercise

their option for payment of the

dividend in shares between 26 May

and 15 June 1998 inclusive. After that

date, dividends shall be payable in cash

only. The dividend shall be paid as of

30 June 1998. Shares thus issued shall

have rights to income earned from

1 January 1998.

The Annual Meeting of

Stockholders grants the Board full

power, including the right to

subdelegate the Chairman, to

execute the above decisions, set

the terms and conditions for their

execution, and amend Article 4

of the Articles of Incorporation

concerning the capital stock and

number of shares it comprises.

4. FRF 1,327,025,135.03 carried

forward as unappropriated

retained earnings.

THIRD

Approving agreements governed

by Sections 101 to 106 of the

1966 French Companies Act

The Annual Meeting of

Stockholders, satisfying quorum

and majority rules for annual

meetings of stockholders, has

considered the Statutory Auditors’

Special Report on transactions

and agreements governed by

Sections 101 to 106 of the 1966

French Companies Act and

approves the transactions and

agreements mentioned therein.

FOURTH

Authorizing the Board of Directors

to purchase and sell BNP SA shares

in the market

Satisfying quorum and majority

rules for annual meetings of

stockholders, and having heard

the Board of Directors’

Report:

• The Annual Meeting of

Stockholders authorizes the

Company to make open-market

purchases and sales of shares for

the purpose of moderating price

fluctuations, under the conditions

provided for in Section 217-2 et

seq. of the 1966 French

Companies Act and within the

following limitations:

- for such time as the price of the

Company’s shares is quoted in

French francs, the maximum

purchase price shall be FRF 550

(five hundred fifty French

francs) and the minimum selling

price FRF 200 (two hundred

French francs) per share,

notwithstanding changes

affecting BNP’s capital stock.

- once the price of the Company’s

shares is quoted in euros, the

maximum purchase price and

minimum selling price shall be

equal to the aforementioned

amounts converted into euros and

rounded off to the nearest cent.

- this authorization is given for a

period that shall expire at the close

of the Annual Meeting of

Stockholders called to approve the

financial statements for the year

ended 31 December 1998.

- the Company may not

hold more than 10% of its shares

as a result of purchases

made pursuant to this

authorization.

- any means may be used to transfer

or sell the shares thus acquired.

• The Annual Meeting of Stockholders

grants the Board of Directors or its

legal representatives full power to issue

trading instructions and to enter into

any agreements for the purpose

of carrying out such declarations

and formalities as may be required

by law.

FIFTH

Authorizing the Board of

Directors to issue bonds

The Annual Meeting of

Stockholders, satisfying quorum

and majority rules for annual

meetings of stockholders, and in

accordance with the proposal

of the Board of Directors,

authorizes the Board of Directors,

upon its own deliberations, to create

and offer bonds up to a maximum

face value of FRF 40 billion or the

equivalent in the single European

currency, the “euro”, once it becomes

legal tender in France, or in any

other currency on the basis of French

franc exchange rates prevailing at

the dates of issue, in one or more

issues in France or abroad, within

the five-year period provided by

law, in such proportions and

forms, at such times, and with

such interest rates as it sees fit, with

or without a redemption premium.

The Annual Meeting of

Stockholders grants the Board of

Directors full power, including

the right to subdelegate others, to

initiate such borrowings and to

carry out all related formalities as

required by law. It specifies, moreover,

that the Board of Directors

shall be free to determine the

characteristics of the bonds to be

issued, including the choice of fixed

or floating rates and fixed or variable

redemption premiums, to be

calculated as it sees fit. If redemption

premiums are provided for, their

amount shall be in addition to the

above FRF 40 billion limitation.

SIXTH

Electing a member of the Board of

Directors

The Annual Meeting of

Stockholders, satisfying quorum

and majority rules for annual

R E S O L U T I O N S


meetings of stockholders, elects

Lindsay Owen-Jones to the Board

of Directors for a six-year term that

shall expire at the close of the

Annual Meeting of Stockholders

called in 2004 to approve the financial

statements for the year ended 31

December 2003.

SEVENTH

Electing a member of the Board of

Directors

The Annual Meeting of

Stockholders, satisfying quorum

and majority rules for annual

meetings of stockholders, elects

Louis Schweitzer to the Board of

Directors for a six-year term that

shall expire at the close of the

Annual Meeting of Stockholders

called in 2004 to approve the

financial statements for the year

ended 31 December 2003.

EIGHTH

Electing a member of the Board of

Directors

The Annual Meeting of

Stockholders, satisfying quorum

and majority rules for annual

meetings of stockholders, elects

David Peake to the Board of

Directors for a six-year term that

shall expire at the close of the

Annual Meeting of Stockholders

called in 2004 to approve the

financial statements for the year

ended 31 December 2003.

SPECIAL MEETING

NINTH

Converting the capital stock into euros

The Special Meeting of

Stockholders, satisfying quorum

and majority rules for special

meetings of stockholders and

having heard the Board of

Directors’ Report:

• delegates full power to the

Board of Directors to convert

BNP’s capital stock into the

single European currency, the

“euro”, by whatever means it

considers most appropriate,

once the euro becomes

legal tender in France, in

accordance with applicable laws

and regulations

• resolves that the Board of

Directors shall have full power,

including the right to subdelegate

the Chairman, in accordance

with applicable laws and

regulations, to implement this

delegation for the purpose of

determining the date and means

of the conversion. Subject to

applicable laws and regulations,

the Board of Directors shall be

authorized to delete the stated

par value of the shares of the

Company and amend the

Articles of Incorporation

accordingly, if applicable.

TENTH

Authorizing the Board of

Directors to increase the

Company’s capital stock during a

public tender offer for the

Company’s shares

The Special Meeting of

Stockholders, satisfying quorum

and majority rules for special

meetings of stockholders

• having recalled that the Special

Meeting of Stockholders of 22

May 1997 granted the Board of

Directors full power, including

the right to subdelegate the

Chairman, in accordance with

Section 180-III of the 1966

French Companies Act:

- to create and offer shares of the

Company and transferable

R E S O L U T I O N S

securities of any nature

whatsoever that are immediately

and/or subsequently convertible

into shares of the Company,

without waiver of preemptive

rights (fourteenth resolution)

- to create and offer shares

of the Company and

transferable securities of

any nature whatsoever that

are immediately and/or

subsequently convertible into

shares of the Company, with

waiver of preemptive rights

(fifteenth resolution).

- to increase the Company’s

capital stock in one or more

operations, by simultaneously

or successively incorporating

into the capital stock all or

part of reserves, net income,

additional paid-in capital in

excess of par, premiums on

merger, or premiums on

acquisition, and/or by

increasing the par value of the

shares (sixteenth resolution).

On condition that the par value

of shares to be issued pursuant

to the above three authorizations

not exceed FRF 1.5 billion

for capital increases, and that

the face value of debt securities

that may be issued pursuant to

the above authorization not

exceed FRF 15 billion or the

equivalent in foreign currencies

or currency-basket account

units.

• having heard the Board of

Directors’ Report, and in

accordance with Section 180-IV

of the 1966 French Companies

Act:

- expressly resolves that the

delegations given to the Board of

Directors by the Special Meeting

of Stockholders of 22 May 1997

in the fourteenth, fifteenth, and

175

ONE HUNDRED

SEVENTY-FIVE


176

ONE HUNDRED

SEVENTY-SIX

sixteenth resolutions, the texts of

which are appended hereto, for

the purpose of increasing the

Company’s capital stock, shall be

maintained during a public tender

offer for the Company’s shares.

The delegations given to the

Board of Directors during a

public tender offer for the

Company’s shares shall remain

valid until the next Special

Meeting of Stockholders called to

approve the financial statements

for the year ended 31 December

1998. If applicable, delegations

may be used following the

conversion of the Company’s

capital stock into euros. The

transferable securities may be

denominated in euros.

ELEVENTH

Maintaining the conditions for

determining the issue price of various

types of transferable securities convertible

into shares whose issue was

authorized by the fifteenth resolution

of the Special Meeting of Stockholders

of 22 May 1997

The Special Meeting of

Stockholders, satisfying quorum

and majority rules for special

meetings of stockholders,

having heard the Board of

Directors’ Report and the

Statutory Auditors’ Special

Report, and pursuant to Section

186-2, of the 1966 French

Companies Act, resolves to

maintain the conditions for

determining the issue price as

stipulated in the fifteenth

resolution of the Special

Meeting of Stockholders of 22

May 1997, the text of which is

appended hereto, authorizing

the Board of Directors,

including the right to subdelegate

the Chairman, to create

and offer transferable securities

convertible into shares of the

Company with waiver of

preemptive rights.

Consequently, the Special

Meeting of Stockholders resolves

that the proceeds of shares issued

pursuant to the aforementioned

delegation, after taking into

account the issue price of any

separately issued rights or

warrants, shall be equal to the

average of the opening stock

market prices of the Company’s

shares for ten consecutive days

chosen from among the twenty

trading days preceding the start

of the issue of the aforementioned

securities, after correction of this

average to take into account the

date from which the shares confer

rights to dividends, if applicable.

TWELFTH

Authorizing the Board of

Directors to increase the

Company’s capital stock by issuing

shares reserved for subscribers

to the Company savings plan

(Plan d’Epargne Entreprise) with

waiver of preemptive rights.

The Special Meeting of

Stockholders, satisfying quorum

and majority rules for special

meetings of stockholders, pursuant

to Section L.443-5 of the

French Labor Code, having heard

the Board of Directors’ Report

and the Statutory Auditors’

Special Report prepared in

accordance with Sections 186

and 186-3 of the 1966 French

Companies Act, authorizes the

Board of Directors, at its

discretion, to increase the

Company’s capital stock, in one

or more operations, by up to a

maximum par value of FRF 300

million, through the issue of

shares placed exclusively with

subscribers to the company

savings plan (Plan d’Epargne

Entreprise) of the Company and

affiliated companies as construed

under Section 208-4 of the 1966

French Companies Act.

The stockholders expressly waive

their preemptive rights in favor of

subscribers to the aforementioned

Company savings plan (Plan

d’Epargne Entreprise).

This authorization shall be valid

for five years starting from the

date of this meeting. If applicable,

the Board of Directors may use

this authorization after the

conversion of BNP’s capital stock

into euros. Shares to be issued

may be denominated in euros.

The price of shares issued to

subscribers of the company

savings plan (Plan d’Epargne

Entreprise) of the Company and

affiliated companies as construed

under Section 208-4 of the 1966

French Companies Act, subscribed

in application of this

authorization, may not be more

than 20% lower than the average

prices of listed shares of the

Company for the period of

twenty consecutive trading days

preceding the date of the Board

of Directors’ decision setting the

date for the opening of the

subscription, nor may it be greater

than that average.

Under the conditions set forth in

Section 180-V of the 1996 French

Companies Act, within the limits

and under the conditions stipulated

above, the Special Meeting of

Stockholders grants the Board of

Directors, including the right to

delegate the Chairman, full power to

determine all terms and conditions

of such operations, and in particular:

- to determine whether

subscribers must subscribe to

increases of capital stock via a

closed-end mutual fund (fonds

commun de placement) whose

portfolio must consist exclusively

of shares of the Company;

R E S O L U T I O N S


- to determine the conditions of

seniority that must be satisfied

by beneficiaries of new shares

issued as a result of increases of

capital stock referred to under

this resolution;

- to set opening and closing dates

for subscriptions;

- to determine the amount of

time allotted to subscribers to

pay for their shares, up to a

maximum of three years;

- to take note of the

implementation of the increase

of capital stock for the amount

of shares actually to be

subscribed;

- to determine the BNP affiliated

companies, as construed under

Section 208-4 of the 1966

French Companies Act, whose

employees may subscribe to

increases of capital stock decided

pursuant to the conditions

indicated above;

- to take all steps to implement

the increase of capital stock, carry

out all formalities ensuing from

these measures, and make the

necessary changes to the Articles

of Incorporation related to such

increases of the capital stock.

THIRTEENTH

Giving authorization to grant stock

options to Company directors and

some staff members

The Special Meeting

of Stockholders, satisfying

quorum and majority rules for

special meetings of stockholders,

and having heard the

Board of Directors’ Report and

the Statutory Auditors’ Special

Report authorizes the Board of

Director to grant Company

executives directors and some

staff members of Banque

Nationale de Paris and related

companies as construed under

Section 208-4 of the 1966

French Companies Act stock

options for new shares of BNP,

in one or more operations, in

accordance with Section 208-1

et seq. of the 1966 French

Companies Act and Sections

174-8 et seq. of order #67-236

of 23 March 1967 concerning

commercial companies.

The Board of Directors may use

this authorization, in one or more

operations, over a period of five

years from the date of this

Stockholders’ Meeting. If applicable,

the Board of Directors may

use this authorization after the

conversion of BNP’s capital stock

into euros. Shares to be issued

may be denominated in euros.

The maximum amount of the

capital increase pursuant to the

exercise of stock options is set

at FRF 300 million.

The exercise period for the stock

options is limited to ten years from

the date they are granted by the

Board of Directors.

The stockholders expressly

waive their preemptive rights to

shares that shall be issued as stock

options are exercised, in favor of

the beneficiaries of the stock

options.

The subscription price of shares

issued in exercise of stock options

shall be set by the Board of Directors

the day the stock options are granted.

Their price may not be lower than

the legal minimum, and no options

may be granted less than twenty

trading days after a dividend is paid

or a subscription right exercised.

This price may not be changed unless

the Company conducts a financial

R E S O L U T I O N S

operation during the period in which

the stock options may be exercised. In

this case, BNP shall adjust the

number of shares and their price in

accordance with the law.

Full power is given to the Board of

Directors, acting under the

conditions described above, to grant

the aforementioned stock options,

set the terms and conditions for their

exercise in accordance with the law

and the Articles of Incorporation,

carry out all the necessary formalities,

and amend Article 4 of the Articles of

Incorporation concerning the

amount of capital stock.

The Board of Directors will

subsequently have to set the

conditions governing this new stock

option plan.

FOURTEENTH

Maintaining authorizations to

create and offer transferable

securities convertible into shares

after conversion of the capital

stock into euros

The Special Meeting of

Stockholders, satisfying quorum

and majority rules for special meetings

of stockholders, having

heard the Board of Directors’

Report and the Statutory

Auditors’ Special Report, and pursuant

to Section 180-III,

Paragraph 3 of the 1966 French

Companies Act, resolves that the

power delegated to the Board of

Directors to create and offer transferable

securities convertible into

shares of the Company, with or

without waiver of preemptive

rights, and by incorporating into

the capital stock all or part of

reserves, net income, additional

paid-in capital in excess of par,

premiums on merger, or premiums

on acquisition, as authorized

by the fourteenth, fifteenth,

and sixteenth resolutions of the

177

ONE HUNDRED

SEVENTY-SEVEN


178

ONE HUNDRED

SEVENTY-EIGHT

Special Meeting of Stockholders

of 22 May 1997, the text of which

is appended hereto, may be used

following the conversion of

BNP’s capital stock into euros, if

applicable. Capital increases

executed under the conditions

stipulated in these resolutions

may be made in euros, in

accordance with applicable laws

and regulations. Subject to the

same conditions, the transferable

securities may be denominated in

euros.

FIFTEENTH

Converting into euros authorizations

given in French francs

The Special Meeting of

Stockholders, satisfying quorum

and majority rules for special

meetings of stockholders and

having heard the Board of

Directors’ Report, resolves that

amounts expressed in French

francs in the fourteenth, fifteenth,

sixteenth, eighteenth, and

nineteenth resolutions adopted

by the Special Meeting of

Stockholders of 22 May 1997,

the text of which is appended

hereto, as well as in the tenth,

eleventh, twelfth, and thirteenth

resolutions submitted to this

Special Meeting of Stockholders,

subject to adoption, may be

expressed in euros.

SIXTEENTH

Power of attorney

The Annual Meeting of

Stockholders declares that

holders of the original, a copy,

or a certified extract of the

minutes of this meeting have

power of attorney for the

purpose of carrying out such

registrations, publications, and

formalities as may be required

by law.

APPENDIX

FOURTEENTH, FIFTEENTH,

SIXTEENTH, EIGTHTEENTH

AND NINETEENTH

RESOLUTIONS OF THE

STOCKHOLDERS’ SPECIAL

MEETING OF 22 MAY 1997

FOURTEENTH

Issuing securities convertible into

shares with preemptive rights

Satisfying quorum and majority

rules for special meetings of

stockholders, having heard the

Board of Directors’ Report and

the Statutory Auditors’ Special

Report, and pursuant to Section

180-III, Paragraph 3 of the 1966

French Companies Act:

1. The Stockholders’ Meeting

grants the Board of Directors

full power to create and offer

shares of the Company

and securities of any nature

whatsoever that are immediately

and/or subsequently convertible

into shares of the Company, in

one or more issues in France

or abroad, in such proportions

and forms, and at such times

as it sees fit.

2. The Stockholders’ Meeting resolves

that the par value of shares to be

issued pursuant to the above

authorization may not exceed FRF

1.5 billion. If additional shares are

to be issued in order to protect the

rights of holders of securities

convertible into shares, in

accordance with the law, their par

value shall be in addition to the

FRF 1.5 billion limitation.

3. The Stockholders’ Meeting

resolves that the face value of

debt securities that may be

issued pursuant to the above

authorization may not exceed

FRF 15 billion.

4. The Stockholders’ Meeting

resolves that stockholders may

exercise their preemptive rights,

under conditions provided

by law, unless their exercise

would result in the

acquisition of a fractional

number of shares. Moreover,

the Board of Directors

may give stockholders the

right to subscribe to a number

of shares that is greater than

the amount to which they

would be entitled in proportion

to the number of subscription

rights they hold, up to and

including the amount of shares

of stock they request.

If an offering is not fully

subscribed after the exercise of

preemptive rights under the

conditions stated above, the Board

may:

• limit the offering to the amount

of subscriptions exercised if

the offering has been at least

three-fourths subscribed,

• allocate all or part of the

securities not subscribed, or

• offer to the public all or part of

the securities not subscribed.

5. The Stockholders’ Meeting

resolves that warrants or

rights to subscribe to shares

of the Company may be

offered by subscription

under the conditions

provided for above, or else

simply granted to existing

stockholders.

6. The stockholders acknowledge

that their waiver of preemptive

rights in this offering could

give holders of the new

convertible securities priority

over existing stockholders

when such securities are

converted.

R E S O L U T I O N S


The Stockholders’ Meeting

resolves to waive the

stockholders’ preemptive right

to shares issued upon the

conversion of bonds or the

exercise of warrants or rights.

7. The Stockholders’ Meeting

resolves that the amount receivable

by the Company for each share

issued under the terms of the

aforementioned authorization

may not be less than the par value

of the shares.

8. The Stockholders’ Meeting

grants the Board of Directors full

power, including the right to

delegate the Chairman as

provided by law, to implement

this authorization. Specifically,

the Board or Chairman may

determine the dates, terms, price,

and quantity of the offering as

well as the form and

characteristics of the securities

to be issued, including ex- or

cum dividend dates (even

retroactive). The Board or

Chairman may set relevant

redemption terms and, if

necessary, may suspend the

exercise of attached rights for up

to three months, while protecting

the legal interests of holders of

convertibles. It may charge costs,

particularly issuance costs, against

additional paid-in capital in

excess of par if appropriate. Full

powers are given to the Board to

take into account the issue price

of new shares, to carry out

all operations consequent to

the increase in capital stock

resulting from implementation

of this authorization, and to

modify the articles of

incorporation accordingly.

In the event that debt securities

are issued, the Stockholders’

Meeting grants the Board of

Directors full power, including

the right to delegate to the

Chairman, as provided by law.

Under this authorization, the

Board may determine whether

the securities are to be

subordinated, set the coupon

and maturity, establish a fixed

or variable redemption price

(with or without premium),

specify the means of redemption

in accordance with market

conditions, and determine the

conditions under which the

securities may be converted into

shares of the Company.

9. The Stockholders’ Meeting

resolves that this authorization

shall invalidate any prior

authorization relating to the

immediate and/or subsequent

issue of shares of the

Company with preemptive

rights.

The authorization thus given to

the Board of Directors shall be

valid starting from the date of this

Stockholders’ Meeting and for

the period stipulated in Section

180-III, Paragraph 3 of the 1966

French Companies Act.

FIFTEENTH

Issuing securities convertible into

shares without preemptive rights

Satisfying quorum and majority

rules for special meetings of

stockholders, having heard the

Board of Directors’ Report and

the Statutory Auditors’ Special

Report, and pursuant to Section

180-III, Paragraph 3 of the 1966

French Companies Act:

1. The Stockholders’ Meeting

grants the Board of Directors

full power to create and offer

shares of the Company and

securities of any nature

whatsoever that are convertible

into shares of the Company, in

one or more issues in France

R E S O L U T I O N S

or abroad, in such proportions

and forms, and at such times

as it sees fit, even if these

securities are issued pursuant

to Section 339-3 of the

aforementioned 1966 French

Companies Act.

2. The Stockholders’ Meeting

resolves that the par value of

shares to be issued pursuant to

the above authorization may

not exceed FRF 1.5 billion. If

additional shares are to be

issued in order to protect the

rights of holders of securities

convertible into shares, in

accordance with the law, their

par value shall be in addition

to the FRF 1.5 billion limitation.

3. The Stockholders’ Meeting

resolves that the face value of

debt securities that may be

issued pursuant to the

above authorization may not

exceed FRF 15 billion or the

equivalent in foreign currencies

or currency-basket account

units.

4. The Stockholders’ Meeting

resolves to waive existing

stockholders’ preemptive rights

regarding the securities to be

issued, on the understanding

that the Board of Directors

may allow priority for existing

stockholders on all or part of

the offering under conditions

to be determined by the Board.

Subscription priority thus

granted shall not be freely

transferable. The Board is

hereby authorized to determine

whether priority in fractional

shares shall be forfeited or shall

allow the holder to purchase a

full share.

5. The Stockholders’ Meeting

resolves that if an offering is

not fully subscribed after the

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exercise of preemptive rights

under the conditions stated

above, the Board may either:

• limit the offering to the amount

of subscriptions exercised if the

offering has been at least threefourths

subscribed, or

• allocate all or part of the securities

not subscribed.

6. The Stockholders’ Meeting

acknowledge that their waiver

of preemptive rights in this

offering could give holders of

the new convertible securities

priority over existing

stockholders when such

securities are converted.

The Stockholders’ Meeting

r esolves to waive the

stockholders’ preemptive right

to shares issued upon the

conversion of bonds or the

exercise of warrants or rights.

7. The Stockholders’ Meeting

resolves that the amount

receivable by the Company for

each share issued under the

terms of the aforementioned

authorization, after deduction

of issuing costs for warrants or

rights, where warrants or rights

alone are issued, may not be

less than the average opening

price of the shares on the Paris

Stock Exchange for ten

consecutive trading days within

the twenty days preceding the

first day of their issue, after

adjustment for the effect of