2012 Registration document and annual financial report - BNP Paribas

RISKS AND CAPITAL ADEQUACYAnnual risk survey5CREDIT CONCENTRATION RISKThis risk is mainly assessed through the monitoring of:a. Large single name concentrations■In 2012, no identified Corporate or Financial Institution concentrationis above the Risk profile thresholds defined for these types ofcounterparties. BNP Paribas is also well below the concentrationthresholds laid down by the EU directive on Large Exposures.■ Top sovereign risks disclosed in section 5.8, are mainly stemmingfrom the portfolio held by the ALM department as part of itsAsset and Liquidity Management and structural interest-rate riskmanagement policy. They have experienced a significant decrease ofEUR -15 billion, primarily on euro zone securities (EUR -14 billion).b. Industrial sectors concentrations■ Industry sectors are monitored in terms of industry risks, grossexposure and RWA. The Group remains diversified as no sectorrepresents more than 11% of the total corporate exposure andmore than 5% of the total credit exposure in 2012 (see table 12,section 5.4). The most sensitive sectors are regularly reviewed indedicated committees.c. Country risk concentrations■■In terms of exposure, the Group is mainly focused in its domesticmarkets, as well as in the US (see table 11, section 5.4).On top of the country envelope process in place to ensure adequategeographical diversification of its assets, the Group brought specificattention in 2012 to i) peripheral countries , ii) geopolitical risks incertain countries. As a result, such countries were more frequentlyreviewed in order to closely monitor the evolving political andeconomic situations and proactively manage our exposure.OPERATIONAL RISKDue to the amount and complexity of data the Bank manages, processfailures, typically arising from execution or transaction processing errorsand external fraud represent the two main operational loss events ingeneral for the Bank, including in 2012.INSURANCE RISKBNP Paribas Cardif is exposed mainly to underwriting, credit & marketrisks. It monitors closely its exposure and profitability for these riskstogether with its capital adequacy which remained, in 2012 and as before,above the regulatory threshold.REPUTATION AND IMAGE RISKSReputation and image risks, which are hardly quantifiable by nature,remain a general key concern of the Bank. The Bank is seeking to minimizethem as much as possible by adequate management and controlprocedures, and to actively promote, within the Bank, managementprinciples based on risk awareness.STRESS TESTINGBNP Paribas regularly performs stress tests in various risk areas (credit,market, liquidity, countries, etc.) as a regular risk management tool andto assess the vulnerability of the Group to adverse scenarios. Their resultsshow that the Group holds sufficient capital to withstand adverse stressscenarios and to meet the regulatory capitalis ation standards in force.5MARKET AND COUNTERPARTY RISKSMarket and counterparty risks are analysed by measuring the portfoliosensitivity to market parameters. The results of this sensitivity analysisare compiled at various aggregate position levels and compared withlimits.Over the year 2012, the Group has managed its capital market activitieswith a view to contain both market and counterparty risk exposures.Market Risk VaR remained at historically low levels (EUR ~40 million , seesection 5.7)Potential losses generated by the 8 global macro-risk scenarios runmonthly for market risk stress tests also remained at low levels dueto structural risk reduction and defensive strategies implementedsince 2011.2012 Registration document and annual financial report - BNP PARIBAS 221