2012 Registration document and annual financial report - BNP Paribas

RISKS AND CAPITAL ADEQUACYCredit risk5Stress test scenario definitionTo be more relevant, consistent, and to rely on more thoroughly preparedscenarii, the analyses use a small number of global scenarii consideredas relevant (one central scenario and one or sometimes two alternativescenarii).The starting point of the analysis is a “global central economic scenario”,which describes the future state of the economy over a horizon of up to 2years in addition to the current year. In 2012, a global scenario combinedseveral consistent regional scenarii, covering the United States, France,Italy and Belgium. Each regional scenario is captured by economic orfinancial variables (1) plus the price of oil and the EUR/USD exchange rate,which are common to all regional scenarii. Projections are made on aquarterly basis. The Group Economic Research Department, in connectionwith ALM and the Equity Derivatives business line, elaborate the centralscenario, on the basis of which GRM designs the stress scenario(s).It is important to note that these economic and financial variables arealso used to build the Group’s budget scenario (over a 1-year horizononly). This set of variables is key to ensuring the convergence of two majorprocesses of the Group, i.e. risk management and financial management.The b udget scenarii are validated by the General Management.The scenarii are then used to calculate expected losses (or P&L impact inthe case of market risks) over the year for all Group portfolios:■ for portfolios exposed to credit or counterparty risk and for the equityportfolio of the banking book: this calculation measures the impact ofthe scenario on cost of risk due to events of default or adverse equityprice moves;■ for market portfolios: the changes in value and their P&L impact arecalculated by simulating a one-time shock, which is consistent withthe overall scenario.The above calculations and related methodologies for stress tests oncredit and market risks are coordinated centrally at Group level by GRMteams. They also involve in their implementation and design variousteams of experts at Group and territory ’s levels.5.4 Credit risk5EXPOSURE TO CREDIT RISK [Audited]The following table shows all of BNP Paribas Group’s financial assets,including fixed-income securities, which are exposed to credit risk. Creditrisk exposure does not include collateral and other security taken by theGroup in its lending business or purchases of credit protection. It is basedon the carrying value of financial assets before re-evaluation recognisedon the balance sheet.(1) The economic and financial variables are GDP and its components (consumer spending, investment, etc.), prices indices, unemployment rates, three-month interest rates, and 10-yeargovernment bond yields.2012 Registration document and annual financial report - BNP PARIBAS 245