2012 Registration document and annual financial report - BNP Paribas

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5RISKSAND CAPITAL ADEQUACYAnnual risk survey5Notwithstanding the Bank’s risk management policies, procedures andmethods, it could still be exposed to unidentified or unanticipated risks,which could lead to material losses.The Bank has devoted significant resources to developing its riskmanagement policies, procedures and assessment methods andintends to continue to do so in the future. Nonetheless, the Bank’s riskmanagement techniques and strategies may not be fully effective inmitigating its risk exposure in all economic and market environments oragainst all types of risk, particularly risks that the Bank may have failedto identify or anticipate. The Bank’s ability to assess the creditworthinessof its customers or to estimate the values of its assets may be impaired if,as a result of market turmoil such as that experienced in recent years, themodels and approaches it uses become less predictive of future behavior,valuations, assumptions or estimates. Some of the Bank’s qualitativetools and metrics for managing risk are based on its use of observedhistorical market behavior. The Bank applies statistical and other tools tothese observations to arrive at quantifications of its risk exposures. Theprocess the Bank uses to estimate losses inherent in its credit exposureor estimate the value of certain assets requires difficult, subjective, andcomplex judgments, including forecasts of economic conditions and howthese economic predictions might impair the ability of its borrowers torepay their loans or impact the value of assets, which may, during periodsof market disruption, be incapable of accurate estimation and, in turn,impact the reliability of the process. These tools and metrics may failto predict future risk exposures, e.g., if the Bank does not anticipate orcorrectly evaluate certain factors in its statistical models, or upon theoccurrence of an event deemed extremely unlikely by the tools andmetrics. This would limit the Bank’s ability to manage its risks. TheBank’s losses could therefore be significantly greater than the historicalmeasures indicate. In addition, the Bank’s quantified modeling does nottake all risks into account. Its more qualitative approach to managingcertain risks could prove insufficient, exposing it to material unanticipatedlosses.The Bank’s hedging strategies may not prevent losses.If any of the variety of instruments and strategies that the Bank usesto hedge its exposure to various types of risk in its businesses is noteffective, the Bank may incur losses. Many of its strategies are basedon historical trading patterns and correlations. For example, if the Bankholds a long position in an asset, it may hedge that position by taking ashort position in another asset where the short position has historicallymoved in a direction that would offset a change in the value of the longposition. However, the hedge may only be partial, or the strategies usedmay not protect against all future risks or may not be fully effectivein mitigating the Bank’s risk exposure in all market environments oragainst all types of risk in the future. Unexpected market developmentsmay also reduce the effectiveness of the Bank’s hedging strategies. Inaddition, the manner in which gains and losses resulting from certainineffective hedges are recorded may result in additional volatility in theBank’s reported earnings.The Bank may experience difficulties integrating acquired companiesand may be unable to realize the benefits expected from its acquisitions.The Bank has in the past and may in the future acquire other companies.Integrating acquired businesses is a long and complex process. Successfulintegration and the realization of synergies require, among otherthings, proper coordination of business development and marketingefforts, retention of key members of management, policies for effectiverecruitment and training as well as the ability to adapt information andcomputer systems. Any difficulties encountered in combining operationscould result in higher integration costs and lower savings or revenuesthan expected. There will accordingly be uncertainty as to the extentto which anticipated synergies will be achieved and the timing of theirrealization. Moreover, the integration of the Bank’s existing operationswith those of the acquired operations could interfere with the respectivebusinesses and divert management’s attention from other aspects of theBank’s business, which could have a negative impact on the businessand results of the Bank. In some cases, moreover, disputes relating toacquisitions may have an adverse impact on the integration process orhave other adverse consequences, including financial ones.Although the Bank undertakes an in-depth analysis of the companies itplans to acquire, such analyses often cannot be complete or exhaustive.As a result, the Bank may increase its exposure to doubtful or troubledassets and incur greater risks as a result of its acquisitions, particularlyin cases in which it was unable to conduct comprehensive due diligenceprior to the acquisition.Intense competition, especially in France where it has the largestsingle concentration of its businesses, could adversely affect the Bank’srevenues and profitability.Competition is intense in all of the Bank’s primary business areas inFrance and the other countries in which it conducts a substantial portionof its business, including other European countries and the United States.Competition in the Bank’s industry could intensify as a result of theongoing consolidation of financial services that accelerated during therecent financial crisis. If the Bank is unable to respond to the competitiveenvironment in France or in its other major markets by offering attractiveand profitable product and service solutions, it may lose market sharein key areas of its business or incur losses on some or all of its activities.In addition, downturns in the economies of its principal markets couldadd to the competitive pressure, through, for example, increased pricepressure and lower business volumes for the Bank and its competitors.In addition, new lower-cost competitors may enter the market, whichmay not be subject to the same capital or regulatory requirements ormay have other inherent regulatory advantages and, therefore, may beable to offer their products and services on more favorable terms. Itis also possible that the increased presence in the global marketplaceof nationalized financial institutions, or financial institutions benefitingfrom State guarantees or other similar advantages, following therecent financial crisis or the imposition of more stringent requirements(particularly capital requirements and activity restrictions) on larger orsystematically significant financial institutions could lead to distortionsin competition in a manner adverse to large private-sector institutionssuch as the Bank.2262012 Registration document and annual financial report - BNP PARIBAS
RISKS AND CAPITAL ADEQUACYCapital management and capital adequacy55.2 Capital management and capital adequacySCOPE OF APPLICATIONThe prudential scope of application defined in the French Decreeof 20 February 2007 on capital requirements is not the same as theaccounting scope of consolidation whose composition concerns theapplication of IFRS standards.PRUDENTIAL SCOPEIn accordance with French banking regulation (1) , BNP Paribas Group hasdefined a prudential scope to monitor capital adequacy ratios calculatedon consolidated data.The prudential scope is described in note 8.b to the Financial Statements.It will be noted in particular that:■ insurance companies are consolidated using the equity method andare subject to a deduction from Tier 1 capital according to Frenchregulation CRBF 90-02 modified by the Decree of 20 February 2007;■ asset disposals and risk transfers are assessed with regard to thenature of the risk transfer that results; thus, securitisation vehicles areexcluded from the prudential scope if the securitisation transaction isdeemed effective, that is, providing a significant risk transfer;The consolidation principles and the scope of consolidation in accordancewith the accounting consolidation method used are described respectivelyin notes 1.b and 8.b to the Financial Statements.5(1) CRBF Regulation 2000-03 of 6 September 2000.2012 Registration document and annual financial report - BNP PARIBAS 227
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2012REGISTRATION DOCUMENTAND ANNUAL
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2012 Registration documentand annua
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1GROUP PRESENTATION1.1 Group presen
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GROUP PRESENTATIONPresentation of a
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1GROUPPRESENTATIONBNP Paribas and i
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1GROUPPRESENTATION1282012 Registrat
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2CORPORATEGOVERNANCEBoard of Direct
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2CORPORATEGOVERNANCEExecutive Commi
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32012REVIEW OF OPERATIONSBNP Pariba
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32012REVIEW OF OPERATIONSOutlook3.6
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32012REVIEW OF OPERATIONSLiquidity
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4CONSOLIDATEDFINANCIAL STATEMENTS -
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5RISKSAND CAPITAL ADEQUACYCounterpa
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5RISKSAND CAPITAL ADEQUACYSovereign
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5RISKSAND CAPITAL ADEQUACYSovereign
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5RISKSAND CAPITAL ADEQUACYLiquidity
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5RISKSAND CAPITAL ADEQUACYOperation
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5RISKSAND CAPITAL ADEQUACYComplianc
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5RISKSAND CAPITAL ADEQUACYInsurance
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5RISKSAND CAPITAL ADEQUACYInsurance
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5RISKSAND CAPITAL ADEQUACYAppendice
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5RISKSAND CAPITAL ADEQUACYAppendix
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6INFORMATIONON THE PARENT COMPANY F
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7ARESPONSIBLE BANK: INFORMATION ON
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8GENERALINFORMATIONDocuments on dis
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8GENERALINFORMATIONFounding documen
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8GENERALINFORMATIONStatutory Audito
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8GENERALINFORMATIONStatutory Audito
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9STATUTORYAUDITORSStatutory Auditor
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10PERSON RESPONSIBLE FOR THE REGIST
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11TABLE OF CONCORDANCEHeadings as l
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HEAD OFFICE16, boulevard des Italie
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