2012 Registration document and annual financial report - BNP Paribas

5RISKSAND CAPITAL ADEQUACYCredit riskIn the CIB division, each collateral is evaluated using appropriatetechniques, and the mitigating effect is evaluated individually for eachcase.As part of its role of optimising credit risk management for CorporateInvestment Banking (CIB), Resource & Portfolio Management sets uphedges using credit derivatives, and mainly credit default swaps (CDS).These CDS are used as part of an active management policy, the mainaim being to hedge migration and concentration risks and manage majorexposures. The underlying assets are loans made to large corporates byCIB Corporate Banking, and occasionally those made by Retail Banking.CDS hedges are treated as guarantees and fall within the IRBA approach.Provided they are eligible, they have the effect of decreasing theestimated Loss Given Default (or enhancing the Global Recovery Rate)for the underlying asset and, therefore, reducing its consumption in termsof risk-weighted assets.In the Retail Banking business, the presence or absence of a particulartype of collateral may, depending on the coverage ratio, lead to assigningthe exposure to particular LGD class on a statistical basis.Guarantees are granted by the obligor’s parent company or by otherentities such as financial institutions. Other examples of guarantees arecredit derivatives, guarantees from public or private insurers.A guarantee cannot be eligible to improve the risk parameters of atransaction unless the guarantor is rated better than the counterparty,and the guarantor is subject to same requirements as the primary debtorin terms of prior credit analysis.In accordance with general rating policy, collateral and guarantees aretaken into account at their economic value and are only accepted as theprincipal source of repayment by exception. In the context of commoditiesfinancing, for example, the repayment capacity of the obligor must beassessed on the basis of its operating cash flow.The economic value of the collateralised assets must be assessed withgreat objectivity and the Bank has to document it. It may be a marketvalue, a value appraised by an expert, a book value. The economic value isthe current value at the date of appraisal and not a value on default date.Lastly, Group procedures require a re-evaluation of collaterals at leastannually for the CIB perimeter.➤ TABLE 22: IRB APPROACH – CORPORATE PORTFOLIOThe following table gives for the Corporate portfolio the breakdown by Basel asset class of the risk mitigation resulting from collateral and guaranteesrelating to the portfolio of loans and credit commitments for all the Group’s business lines using the advanced IRB Approach.5In millions of eurosTotalexposureGuaranteesand creditderivativesCollateral31 December 2012 31 December 2011 (*)Risk mitigationTotalguaranteesandcollateralsTotalexposureGuaranteesand creditderivativesCollateralRisk mitigationTotalguaranteesandcollateralsCentral governmentsand central banks 177,612 4,695 240 4,935 155,605 5,427 393 5,820Corporates 360,242 60,875 55,744 116,619 406,617 73,904 68,470 142,374Institutions 61,814 4,021 899 4,920 80,575 6,161 3,102 9,263TOTAL 599,668 69,591 56,883 126,474 642,797 85,492 71,965 157,457(*) Adjusted amounts compared with pillar 3 published at 31 December 2011.2682012 Registration document and annual financial report - BNP PARIBAS