2012 Registration document and annual financial report - BNP Paribas

5RISKSAND CAPITAL ADEQUACYCounterparty riskEXPOSURES AT DEFAULT (EAD) BY CALCULATION APPROACH➤ TABLE 34: EXPOSURES AT DEFAULT (EAD) BY CALCULATION APPROACHIn millions of euros31 December 2012Internal model (EEPE) (*)NPV (**) + Add-OnIRBA Standardised Sub-total IRBA Standardised Sub-totalTotalDerivatives 69,597 29 69,626 0 2,355 2,355 71,981Securities financing transactions anddeferred settlement transactions 19,172 2 19,174 0 74 74 19,248TOTAL 88,769 31 88,800 0 2,429 2,429 91,2295In millions of euros31 December 2011Internal model (EEPE) (*)NPV (**) + Add-OnIRBA Standardised Sub-total IRBA Standardised Sub-totalTotalDerivatives 65,540 8 65,548 12,693 3,650 16,343 81,891Securities financing transactions anddeferred settlement transactions 11,415 4 11,419 2,621 6 2,627 14,046TOTAL 76,955 12 76,967 15,314 3,656 18,970 95,937(*) Effective Expected Positive Exposure.(**) Net Present Value.The measure of the Exposure at Default (EAD) for counterparty risk isbased mainly on the internal model method and takes into accountdirectly the derivative trade guarantees for the calculation of the EffectiveExpected Positive Exposure (EEPE). Exposure at default (EAD) includedin the internal model represents 97% of total EAD and now covers theBNP Paribas Fortis perimeter following the Belgian and French regulators(BNB and ACP) agreement to extend the BNP Paribas Valrisk model toBNP Paribas Fortis .For the perimeter not covered by internal models (now limited mainlyto subsidiaries BNL, BancWest, TEB and BGL), EAD is calculated usingthe market price valuation method (Net Present Value + Add-On). Thedecrease in EAD during 2012 is mainly related to a decrease across theBNP Paribas Fortis perimeter due to the change of model enabling EADto be measured more accurately by taking account of collateral received(whereas previously collateral was decreasing the LGD), partially clearedby an increase across the BNP Paribas perimeter due to regulatorychanges in the calculation parameter s.For exposures corresponding to credit derivative transactions, themodelling of the correlation between market data and probability ofdefault is included in the internal model. The exposure is thereforeconditional upon default, and includes wrong-way correlation risk. On acase-by-case basis, for significant transactions, a specific remodellingof the exposure in case of default is performed including the wrong-waycorrelation risk. Moreover, additional specific stress tests are performedto monitor transactions presenting a wrong-way correlation risk.Collateral guarantees used in the standard method to reduce the EADincreased to EUR 837 million on 31 December 2012, compared withEUR 313 million on 31 December 2011.Risk- weighted assets linked to counterparty credit risk are computedby multiplying the EAD by an appropriate weighting according to theapproach used (standard approach or IRB Approach).When EAD is modelled and weighted according to the IRB Approach,the LGD (Loss Given Default) is not adjusted according to the existingcollateral-guarantees since they are already taken into account in the“Effective Expected Positive Exposure” computation.2842012 Registration document and annual financial report - BNP PARIBAS