2012 Registration document and annual financial report - BNP Paribas

5RISKSAND CAPITAL ADEQUACYSecuritisation in the banking bookACCOUNTING METHODS [A udited]5(See note 1.d to the Financial Statements – Summary of significantaccounting policies applied by the Group.)Proceeds from the sale of securitisation positions are recognised inaccordance with rules for the category of origin of positions sold.Therefore, for positions classified as loans and receivables and asavailable-for-sale assets, proceeds from asset sales are deducted fromcost of risk in an amount equal to the net amount previously recognised.Any remaining amount is recognised as net gains on available-for-saleassets and other financial assets not stated at fair value.For positions classified at fair value through profit or loss, proceedsfrom asset sales are recognised as net gains on financial instrumentsmeasured at fair value through profit or loss.1) Securitisation positions classifi ed as “Loans and receivables” aremeasured according to the amortised cost method as described innote 1.c.1 to the financial statements. The effective interest rate usedto recognise interest income is measured on the basis of an expectedcash flow model.For assets that have been transferred from another accounting category(see note 1.c.6), upward revisions of recoverable estimated flows arerecognised as an adjustment to the effective interest rate as of thedate the estimate is changed. Downward revisions are reflected by anadjustment in the carrying value. The same applies to all revisions ofrecoverable estimated flows of assets not transferred from anotheraccounting category. Impairment losses are recognised on these assetsin accordance with the principles set out in note 1.c.5 concerning Loansand Receivables.2) Securitisation positions classified on an accounting basis as availablefor-saleassets are measured at their fair value (see note 1.c.3 and1.c.10). Any changes to this amount, excluding accrued income, arepresented in a specific sub-section of equity. On the sale of thesesecurities, these unrealised gains or losses previously recognised asequity are recognised in the income statement. The same applies toimpairment losses. The fair value is determined in accordance withthe principles set out in note 1.c.10.Assets pending securitisation are recognised in the “loans and receivables”category and in the prudential banking portfolio in the case of exposuresresulting from the bank’s balance sheet, for which the bank will beoriginator in the future securitisation within the meaning of Basel 2.Meanwhile, assets pending securitisation are recognised in the “fair valuethrough profit or loss” category and in the prudential banking portfolioin the case of exposures purchased and put into warehousing, for whichthe bank will be arranger in the future securitisation within the meaningof regulation.SECURITISATION RISK MANAGEMENT [A udited]The monitoring of the securitised assets includes Credit, Market andLiquidity Risk on the underlying assets, and Counterparty Risk on hedgecounterparties of unfunded protections.PROCEDURE FOR CREDIT RISK ONSECURITISED ASSETSApproval of securitisation assets outside of the trading book are subjectto specific Securitisation Credit Committees. For new transactions apre-screening may be called prior to the committee in order to identifyareas of further analysis to be performed. All approvals are subject toan annual review. Exposures are monitored daily against the limits setby the relevant Securitisation Credit Committees.The performance of the underlying assets is closely monitored by regionand by collateral type and securitisation positions may be added to theWatchlist and Doubtful list should the credit quality of their collateraldeteriorate. Such positions are then subject to the Asset SecuritisationWatchlist and Doubtful process, which requires review at least twicea year in addition to the regular Securitisation Credit Committees. Theprocess is held quarterly for assets where BNP Paribas is investor. Ifa shortfall of assets relative to liabilities seems plausible under likelyscenarios, then impairments are taken.Re-securitisation originated by BNP Paribas are subject first to specificTransaction Approval Committees. The resulting assets are subsequentlymonitored under the Securitisation processes described above.REPORTINGPositions are closely monitored by asset type, seniority and in termsof rating migration. The distance between the Net Book Value afterprovisions and the Fair Value (Level 2) is also monitored, and reportedon a quarterly basis.2702012 Registration document and annual financial report - BNP PARIBAS