2012 Registration document and annual financial report - BNP Paribas

CONSOLIDATED FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2012Notes to the financial statements4➤ ASSETS AND LIABILITIES, IN CONTRIBUTION TO THE CONSOLIDATED ACCOUNTS, BY GEOGRAPHIC AREAIn millions of euros 31 December 2012 31 December 2011Domestic Markets 1,364,031 1,397,581France 1,000,682 972,274Belgium 190,673 252,086Italy 134,926 136,392Luxembourg 37,750 36,829Other European countries 217,397 244,747Africa and Mediterranean 31,758 31,573Americas 201,805 201,184Asia and Pacific 92,299 90,198TOTAL 1,907,290 1,965,283Note 4EXPOSURE TO SOVEREIGN RISK4As part of its liquidity management, the Group seeks to maximise therefinancing available so that it can meet unexpected liquidity needs. Inparticular, this strategy is predicated on holding securities eligible ascollateral for refinancing from central banks and includes a substantialproportion of highly rated debt securities issued by governmentsrepresenting a low level of risk. As part of its Asset and LiabilityManagement (ALM) and structural interest-rate risk management policy,the Group also holds a portfolio of assets that includes sovereign debtinstruments, with interest-rate characteristics that contribute to itshedging strategies. In addition, the Group is a market maker in sovereigndebt securities in a number of countries, which leads it to take temporarylong and short trading positions, some of which are hedged by derivatives.These portfolios are presented in the chapter 5 of the Annual Report .Accounting treatment of debt securities issued byGreece, Ireland and PortugalThree European countries, namely Greece, Ireland and Portugal, haveexperienced a marked deterioration in their public finances againstthe backdrop of the economic and financial crisis, which progressivelyprompted the markets to shun public-sector debt securities issued bythese countries, leaving them unable to raise the funding they need torun their public deficits.The European solidarity policy defined in such circumstances by theeuro zone member countries prompted them, in conjunction with theInternational Monetary Fund (IMF), to put in place support arrangements,leading to the formulation and implementation of several plans forGreece, then for Ireland and Portugal.1. Reclassification of securities at 30 June 2011The lack of liquidity seen during the first half of 2011 in the markets forthe public debt instruments issued by Greece, Ireland and Portugal, plusin Greece’s case, the commitment given by French banks at the requestof the authorities not to sell their position, prompted BNP Paribas toconsider that these securities could no longer be classified as availablefor-saleassets.As permitted in paragraph 50E of IAS 39 in such exceptional circumstances,and given the period that the bank believes to be necessary for thesethree countries to restore the state of their finances, BNP Paribas Groupreclassified – with effect from 30 June 2011 – public debt securitiesfrom these three countries from the “Available-for-sale financial assets”category to “Loans and receivables”.Greek sovereign debt instruments due to mature prior to 31 December2020 were covered by provisions under the second support plan forGreece, which was initiated in June 2011 and finalised on 21 July 2011,reflecting the banks’ commitment to provide support. This plan hasseveral options, including a voluntary exchange at par for 30-year debtsecurities with their principal collateralised by AAA-rated zero couponbonds, with terms leading to recognition of an initial discount of 21%.2012 Registration document and annual financial report - BNP PARIBAS 133