2012 Registration document and annual financial report - BNP Paribas

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6INFORMATIONON THE PARENT COMPANY FINANCIAL STATEMENTSNotes to the parent company financial statementsNotes to the parent company financial statementsNote 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES APPLIEDBY BNP PARIBAS SA6BNP Paribas SA’s financial statements have been prepared in accordancewith the accounting principles applied to credit institutions in France.AMOUNTS DUE FROM CREDIT INSTITUTIONSAND CUSTOMERSAmounts due from credit institutions include all subordinated andunsubordinated loans made in connection with banking transactionswith credit institutions, with the exception of debt securities. They alsoinclude assets purchased under resale agreements, whatever the type ofassets concerned, and receivables corresponding to securities sold undercollateralised repurchase agreements. They are broken down betweendemand loans and deposits, and term loans and time deposits.Amounts due from customers include loans to customers other than creditinstitutions, with the exception of loans represented by debt securitiesissued by customers, assets purchased under resale agreements,whatever the type of assets concerned, and receivables correspondingto securities sold under collateralised repurchase agreements. They arebroken down between commercial loans, customer debit accounts, andother loans.Amounts due from credit institutions and customers are recorded in thebalance sheet at nominal value plus accrued interest not yet due.Outstanding loans and confirmed credit facilities are classified intosound loans, including sound restructured loans, and doubtful loans. Thesame analysis is performed for credit risks attached to forward financialinstruments whose present value represents an asset for the Group.Credit risks on outstanding loans and confirmed credit facilities aremonitored with an internal rating system based on two key parameters:the probability of default by the counterparty, expressed as a rating,and the overall recovery rate determined by reference to the type oftransaction. There are 12 counterparty ratings, ten covering sound loansand two covering doubtful loans and loans classified as irrecoverable.Doubtful loans are defined as loans where the Bank considers thatthere is a risk that the borrowers will be unable to honour all or partof their commitments. This is the case for all loans on which one ormore instalments are more than three months overdue (six months inthe case of real estate loans or loans to local governments), as well asloans for which legal procedures have been launched. When a loan isclassified as doubtful, all other loans and commitments to the debtorare automatically assigned the same classification.The Bank recognises an impairment for doubtful accounts on these loans,in an amount corresponding to the difference between the total loan valueand current value of the future cash flows (from principal, interest, andany realised guarantees) that are deemed recoverable, using a discountrate equal to the original effective interest rate (for fixed-rate loans), orthe most recent contractual interest rate (for floating-rate loans). Theguarantees considered here include mortgages and pledges on assets,as well as credit derivatives acquired by the Bank as a protection againstcredit losses in the loan book.If a loan is restructured because the borrower is facing financialdifficulties, the Bank calculates a discount at the current value of thedifference between the old and new repayment terms. These discountsare recognised as a deduction to assets and reversed through income onan actuarial basis over the remaining term of the loan. If any instalmentson a restructured loan are not paid, the loan is permanently reclassifiedas irrecoverable regardless of the terms of the restructuring.In the case of doubtful loans where the borrower has resumed makingregular payments in accordance with the original repayment schedule, theloan is reclassified as sound. Doubtful loans that have been restructuredare also reclassified as sound, provided that the restructuring termsare met.Irrecoverable loans include loans to borrowers whose credit standingis such that after a reasonable time recorded in doubtful loans noreclassification as a sound loan is foreseeable, loans where an event ofdefault has occurred, almost all restructured loans where the borrowerhas once again defaulted, and loans classified as doubtful for more thanone year that are in default and are not secured by guarantees coveringa substantial portion of the amount due.Impairments for credit risks on assets are deducted from the carryingamount of the assets. Provisions recorded under liabilities includeprovisions related to off-balance sheet commitments, loss provisionsrelating to interests in real-estate development programmes, provisionsfor claims and litigation, provisions for unidentified contingencies andprovisions for unforeseeable industry risks.Additions to and recoveries of provisions and impairment, losses onirrecoverable loans, recoveries on loans covered by provisions anddiscounts calculated on restructured loans are recorded in the profitand loss account under “Cost of risk”.The interest received from the repayment of the carrying amount of loansthat have been written-down, as well as the reversals of discountingeffects and the discount on restructured loans, are recognised under“Interest income”.3362012 Registration document and annual financial report - BNP PARIBAS
INFORMATION ON THE PARENT COMPANY FINANCIAL STATEMENTSNotes to the parent company financial statements6REGULATED SAVINGS AND LOAN CONTRACTSHome savings accounts (Comptes Épargne Logement, or CELs) and homesavings plans (Plans d’Épargne Logement, or PELs) are governmentregulated retail products sold in France. They combine an inseparablesavings phase and a loan phase with the loan phase contingent uponthe savings phase.These products contain two types of obligations for BNP Paribas SA: anobligation to pay interest on the savings for an indefinite period at arate set by the government on inception of the contract (in the case ofPEL products) or at a rate reset every six months using an indexationformula set by law (in the case of CEL products); and an obligation to lendto the customer (at the customer’s option) an amount contingent uponthe rights acquired during the savings phase at a rate set on inceptionof the contract (in the case of PEL products) or at a rate contingent uponthe savings phase (in the case of CEL products).BNP Paribas SA’s future obligations with respect to each generation (inthe case of PEL products, a generation comprises all products with thesame interest rate at inception; in the case of CEL products, all suchproducts constitute a single generation) are measured by discountingpotential future earnings from at-risk outstandings for that generation.At-risk outstandings are estimated on the basis of a historical analysisof customer behaviour, and equate to statistically probable outstandingloans and the difference between statistically probable outstandings andminimum expected outstandings, with minimum expected outstandingsbeing deemed equivalent to unconditional term deposits.Earnings for future periods from the savings phase are estimated as thedifference between the reinvestment rate and the fixed savings interestrate on at-risk savings outstanding for the period in question. Earningsfor future periods from the loan phase are estimated as the differencebetween the refinancing rate and the fixed loan interest rate on at-riskoutstanding loans for the period in question.The reinvestment rate for savings and the refinancing rate for loansare derived from the swap yield curve and from the spreads expectedon financial instruments of similar type and maturity. Spreads aredetermined on the basis of actual spreads on fixed rate home loans inthe case of the loan phase and on products offered to retail clients in thecase of the savings phase.In order to reflect the uncertainty of future interest-rate trends, andthe impact of such trends on customer behaviour models and on atrisk outstandings, the obligations are estimated using the Monte-Carlomethod.When the sum of BNP Paribas SA’s estimated future obligations withrespect to the savings and loan phases of any generation of contractsindicates a potentially unfavourable situation for BNP Paribas SA,a provision is recognised, with no offset between generations, in thebalance sheet under “Provisions“. Movements in this provision arerecognised as interest income in the profit and loss account.SECURITIESThe term “securities“ covers interbank market securities, Treasury billsand negotiable certificates of deposit, bonds and other “Fixed Income“securities (whether fixed- or floating-rate) and equities and othervariable-income securities.In accordance with CRC standard 2005-01, securities are classifiedas “Trading account securities“, “Securities available for sale“, “Equitysecurities available for sale in the medium term“, “Debt securities heldto maturity“, “Equity securities held for long-term investment“, or“Investments in subsidiaries and affiliates“.When a credit risk has occurred, Fixed Income securities held in the“Available for sale“ or “Held to maturity“ portfolio are classified asdoubtful, based on the same criteria as those applied to doubtful loansand commitments.When securities exposed to counterparty risk are classified as doubtfuland the related provision can be separately identified, the correspondingcharge is included in “Cost of risk“.Trading account securities“Trading account securities“ are securities bought or sold with theintention of selling them or repurchasing them in the near future, aswell as those held as a result of market-making activities. These securitiesare valued individually at market value if they meet the following criteria:■ they can be traded on an active market (i.e., a market where thirdparties have continuous access to market prices through a securitiesexchange, brokers, traders, or market-makers);■ the market prices reflect actual, regularly-occurring transactionstaking place under normal competition conditions.“Trading account securities” also include securities bought or sold forspecific asset-management objectives (especially in terms of sensitivity)for trading books comprised of forward financial instruments, securities,or other financial instruments taken globally.Changes in the market value of these securities are recognised in income.“Trading account securities” cannot be reclassified into another categoryand must follow the valuation rules for this category until they are sold,fully redeemed, or recognised as a loss and consequently removed fromthe balance sheet.In the case of exceptional circumstances necessitating a change ininvestment strategy, “Trading account securities” can be reclassifiedas “Securities available for sale” or “Debt securities held to maturity”depending on the new strategy.If fixed income securities classified as “Trading account securities” can nolonger be traded on an active market, and if the Bank has the intentionand ability to hold these securities for the foreseeable future or untilmaturity, they can be reclassified as “Securities available for sale” or“Debt securities held to maturity”.The accounting rules for the new category would apply to reclassifiedsecurities as of the reclassification date.If the market in which securities classified as “Trading account securities”were purchased can no longer be considered active, the securities will bevalued using methods that take into account the new market conditions.62012 Registration document and annual financial report - BNP PARIBAS 337
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2012REGISTRATION DOCUMENTAND ANNUAL
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2012 Registration documentand annua
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1GROUP PRESENTATION1.1 Group presen
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GROUP PRESENTATIONPresentation of a
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1GROUPPRESENTATIONBNP Paribas and i
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1GROUPPRESENTATION1282012 Registrat
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2CORPORATEGOVERNANCEBoard of Direct
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2CORPORATEGOVERNANCEExecutive Commi
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32012REVIEW OF OPERATIONSBNP Pariba
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32012REVIEW OF OPERATIONSOutlook3.6
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32012REVIEW OF OPERATIONSLiquidity
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4CONSOLIDATEDFINANCIAL STATEMENTS -
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5RISKSAND CAPITAL ADEQUACY5.6 Count
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5RISKSAND CAPITAL ADEQUACYAnnual ri
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5RISKSAND CAPITAL ADEQUACYCapital m
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5RISKSAND CAPITAL ADEQUACYSecuritis
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Page 336 and 337: 6INFORMATIONON THE PARENT COMPANY F
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8GENERALINFORMATIONDocuments on dis
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8GENERALINFORMATIONStatutory Audito
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8GENERALINFORMATIONStatutory Audito
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9STATUTORYAUDITORSStatutory Auditor
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10PERSON RESPONSIBLE FOR THE REGIST
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11TABLE OF CONCORDANCEHeadings as l
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HEAD OFFICE16, boulevard des Italie
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2012 Registration document and annual financial report - BNP Paribas

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