2012 Registration document and annual financial report - BNP Paribas

RISKS AND CAPITAL ADEQUACYCredit risk5APPROACHES USED TO CALCULATE RISK-WEIGHTED ASSETSBNP Paribas has opted for the most advanced approaches allowed underBasel II. In accordance with the EU Directive and its transposition intoFrench law, in 2007 the French banking supervisor (Autorité de ContrôlePrudentiel) allowed the Group to use internal models to calculate capitalrequirements starting on 1 January 2008. The use of these methods issubject to conditions regarding progress and deployment. The Groupcommitted itself to comply with those conditions under the supervisionof the French supervisor. Prior to its acquisition, the Fortis Group had beenauthorised by Belgian banking and insurance supervisor, the NationalBank of Belgium, to use the most advanced approach to assess itsregulatory capital requirement. The internal rating policies and systemsof the BNP Paribas Fortis and BGL BNP Paribas subgroups on the one handand BNP Paribas on the other are set to converge to a single methodologyused uniformly across the entire Group. The review being conducted forthis purpose has shown the compatibility of the concepts developed ineach of the two perimeters and allowed a harmonisation of the ratings ofthe key counterparties. Model convergence is nevertheless not y et fullycompleted . Several applications for approval of common methodologieshave been submitted to the Autorité de Contrôle Prudentiel. An approachbased on methods that have been approved by the French, Belgian orLuxembourg supervisors for each of the non-convergent perimeters isimplemented at 31 December 2012.For credit risk (excluding other non credit-obligation assets), the shareof exposures under the IRB approach represents 68% at 31 December2012, compared with 69% at 31 December 2011. This significant scopeincludes in particular Corporate and Investment Banking (CIB), FrenchRetail Banking (FRB), a part of the BNP Paribas Personal Finance business(Cetelem), BNP Paribas Securities Services (BP2S) and the entities of thesubgroups BNP Paribas Fortis and BGL BNP Paribas. BNL’s transition toIRBA is currently undergoing the approval process by the Bank of Italy.However, some entities, such as BancWest, are temporarily excludedfrom the IRBA scope. Other smaller entities, such as the subsidiaries inemerging countries, will use the Group’s advanced methods only at alater stage.➤ FIGURE 3: CREDIT RISK EXPOSURE BY APPROACH (*)at 31 December 2012 at 31 December 201168%Internal ratingsbased approach(IRBA)69%Internal ratingsbased approach(IRBA)532%Standardised approach31%Standardised approachTotal: EUR 1,163 billionTotal: EUR 1,224 billion(*) Excluding other non credit-obligation assets and securitization.CREDIT RISK MANAGEMENT POLICY [Audited]GENERAL CREDIT POLICY, AND CONTROLAND PROVISIONING PROCEDURESThe Bank’s lending activities are governed by the Global Credit Policyapproved by the Risk Committee, chaired by the Chief Executive Officer.The policy is underpinned by core principles related to compliance withthe Group’s ethical standards, clear definition of responsibilities, theexistence and implementation of procedures and thorough analysis ofrisks. It is rolled down in the form of specific policies tailored to eachtype of business or counterparty.DECISION-MAKING PROCEDURES- CORPORATESA system of discretionary lending limits has been established, underwhich all lending decisions must be approved by a formally designatedmember of GRM. Approvals are systematically evidenced in writing,either by means of a signed approval form or in the minutes of formalmeetings of a Credit Committee. Discretionary lending limits correspondto aggregate commitments by business Group and vary according tointernal credit ratings and the specific nature of the business concerned.Certain types of lending commitments, such as loans to banks, sovereignloans and loans to customers operating in certain industries are subject tospecific authorisation procedures and require the sign-off of an industryexpert or designated specialist. In retail banking, simplified proceduresare applied, based on statistical decision-making aids.2012 Registration document and annual financial report - BNP PARIBAS 247