Universal Registration Document 2019 including the annual fi nancial report
CONTENTS Risks and Capital Adequacy 235 5 5.1 Risk factors 238 5.2 Risk management system 247 5.3 Capital management and adequacy 252 5.4 Credit and counterparty risks 260 5.5 Market risks 279 Group structure ...... 4 5.6 Operational risks 286 5.7 Structural interest rate risk 292 Activity 5 5.8 Liquidity risk 295 5.9 Non-compliance, reputational and legal 1 1.1 Key figures as at 31 December 2019 6 risks 300 1.2 2019 highlights 8 5.10 Model risk 303 5.11 Risks related to insurance activities 304 Corporate Governance 13 5.12 Other risks 306 2 2.1 Corporate Governance as at 31 December 2019 14 Corporate Social Responsibility (CSR) 309 2.2 Board of Director’s report 6 6.1 Overview of CSR at CDN 311 on corporate governance 15 6.2 A business model that places Information on the corporate officers 18 CSR at the heart of the corporate Remuneration of corporate officers 24 transformation project 313 Senior management remuneration policy 25 AFEP-MEDEF and AMF recommendations 29 6.3 Non-financial risk policy for sustainable Draft Resolutions: General Shareholders’ Meeting management of the business 322 of 7 May 2020 38 6.4 Independent verifier’s report on 2.3 Statutory Auditors’ special report consolidated non-financial statement on related-party agreements 41 presented in the Management Report 363
3 Management Report 43 Additional disclosures 367 Management Report...... 44 7 7.1 General description of Crédit du Nord 368 1. Presentation of Crédit du Nord Group’s situation 7.2 Group activity 371 during Fiscal Year 2019 44 2. I nternal control and risk management procedures relating to the preparation and processing Person responsible for the Universal of accounting and financial information 62 8 Registration Document 373 8.1 Person responsible for the Universal 4 Financial statements 75 Registration Document 374 8.2 Certification by the person responsible 4.1 Consolidated financial statements 76 for the Universal Registration Consolidated financial statements 76 Document and the Annual Financial Notes to the consolidated financial statements 82 Report 374 Statutory Auditors’ report on the consolidated financial statements 177 8.3 Statutory Auditors 375 4.2 Annual financial statements 182 2019 Management Report 182 Cross Reference tables 377 Five-year financial summary 185 9 Main changes in the securities portfolio in 2019 186 9.1. Cross Reference table for the Parent Company Balance Sheet 187 Registration Document 378 Parent Company Income Statement 189 9.2. Cross Reference table for the Annual Notes to the annual financial statements 190 Financial Report 381 Statutory auditors’ report on the financial statements 229 9.3. Cross Reference table prepared for the Clerk’s Office 382
2 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Universal Registration Document
This document is a free translation into English of the Registration Document (Document de Référence) issued in French. Only the French version of the Registration Document has been submitted to the AMF. It is 2019 therefore the only version legally binding. The original document was filed with the AMF (French Securities Regulator) on April 24, 2020, in accordance with article 212-13 of its General including the annual Regulation. As such, it may be used to support a financial transaction if accompanied by a prospectus duly approved by the AMF. This document fi nancial report was produced by the issuer and is binding upon its signatory.
In accordance with Regulation (EU) 2017/1129, the Universal Registration Document was filed with the competent authority, the AMF (French Financial Markets Authority), on 24 April 2020. It was filed without prior approval, pursuant to Article 9 of said Regulation. This Universal Registration Document may only be used in connection with a public offering of financial securities or for the admission of financial securities for trading on a regulated market if accompanied by a prospectus and, if applicable, by a summary and all amendments made to the Universal Registration Document. These documents as a whole shall be approved by the AMF pursuant to Regulation (EU) 2017/1a129. .
In accordance with Regulation (EU) 2017/1129, the Universal Registration Document was filed with the competent authority, the AMF (French Financial Markets Authority), on 24 April 2020. It was filed without prior approval, pursuant to Article 9 of said Regulation. The Universal Registration Document may only be used in connection with a public offering of financial securities or for the admission of financial securities for trading on a regulated market if it, as well as any amendments, is approved by the AMF and accompanied by a prospectus and summary approved pursuant to Regulation (EU) 2017/1129.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 3 Group structure
The diagram below shows the links between the main Crédit du Nord Group entities. Direct shareholdings are listed as well as the overall percentage of capital directly or indirectly held by the Group. The consolidation scope is presented in its entirety in Note 7.5.
CREDIT DU NORD
59% 100 % 100 % 99.99% 100% SOCIETE 41% SOCIETE BANQUE BANQUE MARSEILLAISE DE BANQUE RHONE-ALPES LAYDERNIER DE CREDIT MONACO
78.54%
100 % 100% 100% 99,97%
BANQUE BANQUE BANQUE BANQUE COURTOIS TARNEAUD NUGER KOLB
21.43%
100% 50% 35% 100%
NORBAIL ANTARIUS BANQUE KOLB IMMOBILIER POUYANNE INVESTISSEMENT
100% 100% 100% 100%
ETOILE ID STAR LEASE NORBAIL S.F.A.G. SOFERGIE
S.F.A.G. SDB 100% GILBERT DUPONT
SDB GILBERT DUPONT
4 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Activity 1
1.1 Key figures as at 31 December 2019 ______8
1.2 2019 highlights ______10
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 5 Activity 1 Key fi gures as at 31 December 2019
1.1 Key figures as at 31 December 2019 Consolidated Group data
Balance sheet
% change 12/2019 (in €m) 31/12/2019 01/01/2019 (1) 31/12/2018 31/12/2017 vs. 01/2019 Customer deposits 48,031.9 44,651.3 44,651.3 43,702.4 7.6 Customer loans (1) 46,802.4 43,151.8 43,151.8 41,587.9 8.5 Shareholders’ equity (1) 3,493.2 3,518.8 3,533.5 3,418.9 -0.7 Doubtful loans (gross) 2,035.3 2,273.6 2,273.6 2,563.3 -10.5 Impairments of individually impaired loans -1,279.4 -1,397.1 -1,397.1 -1,516.0 -8.4 TOTAL BALANCE SHEET (1) 73,656.8 70,745.7 70,651.8 70,471.4 4.1
ASSETS UNDER MANAGEMENT (off-balance sheet) 30,052.0 27,669.5 27,669.5 28,531.0 8.6
Results
% change (in €m) 31/12/2019 31/12/2018 31/12/2017 2019/2018 Net Banking Income (1) 1,808.9 1,908.8 1,891.3 -5.2 Gross Operating Income (1) 492.7 620.5 605.4 -20.6 Earnings before tax (1) 483.6 592.1 531.3 -18.3 Consolidated net income (1) 328.2 419.1 372.1 -21.7
(1) Further to the first-time adoption of IFRS 16 “Leases”, at 1 January 2019, Crédit du Nord Group recognised a lease liability representing its lease payment obligation under “Other liabilities” and a right of use asset representing its right to use the leased asset under “Tangible and intangible fixed assets”.
6 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Activity Key fi gures as at 31 December 2019 1
Ratios 31/12/2019 31/12/2018 Cost of risk/Outstanding loans 0.09% 0.15% Common Equity Tier 1 Ratio (Basel 3 fully-loaded) 11.3% 11.2% Total capital ratio (Basel 3 fully -loaded) 14.2% 14.1%
Ratings
31/12/2019 31/12/2018 Standard and Poor’s ST A - 1 A - 1 LT A A Fitch ST F1 F1 LT A A Intrinsic* bbb+ bbb+ * The intrinsic rating is Crédit du Nord Group’s individual rating as determined by the rating agency, i.e. separate from Societe Generale Group.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 7 Activity 1 2019 highlights
1.2 2019 highlights
Digital solutions, entrepreneurship, customers
Launch of Prismea, a neobank for professional data); facilitate e-commerce; or propose investments in customers rental properties, etc. They are useful, secure services In December 2019 Crédit du Nord Group announced that make our individual, professional and business the launch of Prismea, a neobank for professional customers’ lives easier and were developed internally or customers – self-employed entrepreneurs, freelancers, through partnerships with non-Group companies. The independent professionals, artisans and VSEs/SMEs. open banking approach enables the Bank to position Prismea is wholly owned by Crédit du Nord Group. It itself as a platform offering banking and non-banking combines a professional bank account with financial services by selling services it does not produce itself. and cash management services. The startup is based in The platform was launched alongside the new digital Lyon that took part in Societe Generale Group’s Internal showcase rolled out for all Crédit du Nord Group banks Startup Call intrapreneurial programme. from late 2019. Its full digital model draws on artificial intelligence to provide its customers with tailored advice. An algorithm Lille Rihour branch: a new branch concept is launched classifies incoming and outgoing payments to provide and rolled out across France an analytical view of account activities in real time and In response to its customers’ new aspirations, Crédit produce cash management forecasts over the long term. du Nord Group is reinventing the concept of the bank branch. In January 2019, it launched a new branch at From the end of 2020, Prismea will offer online short term 28 Place Rihour in Lille that has been redesigned with an loan applications with a guaranteed response in just 10 innovative approach to banking in mind. The new branch minutes and funds released within 48 hours. is intended to be a welcoming place that facilitates It will capitalise on being part of Crédit du Nord Group to meetings and sharing for our customers and employees. offer its customers access to the eight regional banks’ It echoes Crédit du Nord’s ambition to be an open bank branch network. This will allow it to meet more complex that shares its expertise and forms an integral part of needs that require expert assistance. In addition to the local social and economic landscape. The concept offering short term financing via instant loans, Prismea will is gradually being rolled out at the eight regional banks. sell other products from the Crédit du Nord range such as To foster mobility and facilitate the sharing of information, insurance, as well as offering access to its partners. advisors work on laptops in shared spaces located at Ramping up open banking and forming new the centre of the branch. The branch is divided into partnerships to enhance the digital offering connected zones that cater to the needs of customers, To help entrepreneurs navigate the digital transition, staff and different meeting types. Crédit du Nord Group is ramping up its open banking A partnership with LeChaudron.io to provide pop- solutions and has formed additional partnerships up learning spaces to reveal the secrets of digital covering 28 service universes. As an example, these for customers and employees in Crédit du Nord partnerships make it easier for company directors to Group branches is being extended across France in manage their everyday activity, support their staff, work 2019-2020. remotely, etc.; they enhance digital security (payments
8 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Activity 2019 highlights 1
Samsung Pay: a simple and secure innovative Signing of a partnership with Lumo to speed up the payment solution regional energy transition Crédit du Nord Group is committed to facilitating its Crédit du Nord Group has been a partner of Lumo – a customers’ everyday lives, in particular through payment pioneering crowdfunding platform dedicated to the solutions. Since September 2019, it has extended its energy transition – since November 2019. Lumo allows mobile offering by allowing the customers of its eight individuals and businesses to use their savings to regional banks to use Samsung Pay, a simple mobile co-fund renewable energy infrastructure projects that payment service provided by Samsung. help develop local economic wealth. This partnership has extended Crédit du Nord’s positive Digitalisation of the customer experience for home impact financing range. It is part of the Group’s open loan applications banking approach designed to offer its customers an Since June 2019, Crédit du Nord Group has made it innovative range of banking and non-banking products easier to take out a home loan by allowing its customers and services tailored as closely as possible to their to purchase the Group’s payment protection insurance needs. fully online. The solution used was developed in partnership with AON, the policy manager used by An award for Crédit du Nord private banking Societe Generale Assurances, the insurance provider. In July 2019, Crédit du Nord was named 2019 Best The new digital experience meets the aim of offering a Private Bank by Décideurs magazine. It also received simpler experience. It comprises two separate spaces – a special mention for the 2019 Positive Finance award. one to allow Crédit du Nord Group advisors to set up the This was a major acknowledgement of our teams’ work payment protection insurance application, and a secure, to serve their clients. intuitive and user-friendly space to allow customers to In each of the eight regional banks, Crédit du Nord finalise their membership. Group’s Private Banking arm offers the comprehensive range of expertise needed to manage the largest Online vehicle insurance for individual customers fortunes. Its original business model is built on distinctive Since September 2019, Crédit du Nord Group’s choices and it is reputed for its experience and detailed individual customers can take out vehicle insurance knowledge of local regions. Its approach is based on electronically directly from their secure online banking strategic dialogue to identify the best asset allocation to page 24 hours a day, 7 days a week. This online build and grow its clients’ wealth with bespoke solutions. insurance solution marks a new step in the digitalisation of the customer experience in response to changing uses among customers seeking simpler, seamless, instant solutions.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 9 Activity 1 2019 highlights
Appointments
Alexandre MAYMAT was appointed to the Board of Directors of Crédit du Nord in May 2019 to replace Bruno FLICHY.
Appointments to the Crédit du Nord Group Management Committee
Hélène SAUVAN, who was formerly Chairman of the Alain QUENTIN, previously Head of Specialised Management Board of Banque Kolb, was appointed Financing, was named Head of Business Customer Crédit du Nord Group Head of Human Resources in May Relations (corporate banking and external trade). In this 2019. She took over from Philippe CALMELS in October. role, he continues to supervise Star Lease (equipment Frédéric DI SCALA, Vice-Chairman of Banque and professional vehicle financing for business Courtois, was appointed Chairman of the Management customers) and Norbail Immobilier (real estate financing). Board of Banque Kolb in May 2019. Frédéric LARGERON, formerly Group Head of Private Ludovic VAN DE VOORDE, previously Head of Banking, was appointed Head of Wealth Management Transformation, was appointed Head of Professional and Private Banking. and Individual Customers (Retail and Multimedia Expert Béatrice LELIEVRE, previously Head of Client Centre), Payments and Innovation in April 2019. He Research and Quality, was named Head of Data, continues to sponsor the Group’s Transformation. Architecture, IT Oversight and Services. Hervé JIMBLET, formerly Deputy Head of Oversight in the Group Risk Division, was appointed Head of Customer Support Services (customer services, network support, logistics).
10 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Activity 2019 highlights 1
Commitment & Patronage
Philanthropy and responsible investments: €71,000 Franz Marc and August Macke were key artists donated to two associations of German Expressionism, “Der Blaue Reiter” Crédit du Nord Group is committed to following a (The Blue Rider) – one of the most important avant-garde solidarity and CSR policy that incorporates all its movements in Europe – who identified the beginnings of stakeholders (customers, employees, suppliers). It major changes in our world and transformed them into donated €71,000 to two associations chosen by its an innovative movement. Private Banking staff: Imagine for Margo and Les The exhibition showcases around sixty of the two artists’ Compagnons du Devoir. These donations will help fund works, which are rarely displayed in France. projects to improve society organised by these two associations. Crédit du Nord Group set up the donation Mes pages de Lumière exhibition by Mahjoub Ben by setting aside a portion of the margin generated by the Bella. Onyx Partage structured product available to its private Crédit du Nord Group exhibited a selection of works by banking clients. painter Mahjoub Ben Bella at its Haussmann branch in Paris (December 2019 – March 2020). Crédit du Sponsorship of the first digital art festival: Immersive Nord has supported the Algerian artist for many years. Art Festival Paris Mahjoub Ben Bella trained at the Beaux-Arts school Furthering its tradition of forming major cultural in Oran, then in Tourcoing and Paris, and his works partnerships, Crédit du Nord Group renewed its support are often shown abroad and purchased by leading for Culturespaces by sponsoring the first festival international museums. dedicated to immersive digital design, the Immersive Art Festival Paris. Imagine for Margo, longs-tanding support and a This ground-breaking project brings together 11 of unifying force the most influential artistic collectives in the world of Crédit du Nord is a long-standing partner of the Imagine digital arts in an atypical, innovative venue, the Atelier for Margo association, which it has sponsored since des Lumières, of which Crédit du Nord was a founding its creation in 2011. It has supported the Enfants sans patron. Cancer race since its first edition in 2012. This event draws enormous support from employees, and a Sponsorship of the Franz Marc - August Macke: growing number take part in the race each year. In 2019, L’aventure du Cavalier bleu exhibition employees raised over €84,000 to finance research into As part of its patronage policy, Crédit du Nord sponsored children’s cancer. the Franz Marc - August Macke: L’aventure du Cavalier bleu exhibition at the Musée de l’Orangerie.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 11 1 Activity
12 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Governance 2
2.1 Corporate Governance as at 31 December 2019 ______14
2.2 Board of Director’s report on corporate governance ______15 Information on the corporate officers 18 Remuneration of corporate officers 24 Draft Resolutions: General Shareholders’ Meeting of 7 May 2020 38
2.3 Statutory Auditors’ special report on related-party agreements ______41
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 13 Corporate Governance 2 Corporate Governance as at 31 December 2019
2.1 Corporate Governance as at 31 December 2019
Crédit du Nord Group Management Committee
The Group Management Committee has around 30 members and meets once a month. Meetings are held at Crédit du Nord’s head office in Paris, via conference call or video conference. The Group Management Committee discusses the Group’s strategy and matters in its general interest.
Name Function Françoise MERCADAL DELASALLES Chief Executive Officer, Crédit du Nord (CDN) Jean-Louis KLEIN Deputy Chief Executive Officer, CDN Christian BONHOMME Chairman of the Management Board, Banque Nuger Philippe DELACARTE Chairman of the Management Board, Banque Rhône-Alpes Bruno DESCHAMP Chairman of the Management Board, Société Marseillaise de Crédit Frédéric DI SCALA Chairman of the Management Board, Banque Kolb Jean DUMONT Regional Manager, Northern France (CDN) Marc DUSSART Chief Executive Officer, Corporate Finance Michel GASSIE Group CDN Chief Financial Officer Pierre HAREL Corporate Secretary and Head of CSR Hervé JIMBLET Head of Customer Support Eric L’HÔTE Head of Communications Stéphane LABAT SAINT VINCENT Inspector General Frédéric LARGERON Head of Wealth Management Yvon LEA Head of Major Clients and Financing Béatrice LELIEVRE Head of Data, Architecture and Projects Pascal MATHIEU Head of Gilbert Dupont (brokerage firm) Alain MELINE Chairman of the Management Board, Banque Laydernier François ORAIN Regional Manager, Ile de France and Loiret (CDN) Didier PARISET Regional Manager, North Western France (CDN) Alain QUENTIN Head of Corporate Clients Hervé ROGEAU Chairman of the Management Board, Banque Courtois Marc SALLE de CHOU Head of Monaco branch (CDN) Hélène SAUVAN CDN Group Head of Human Resources Pierre SOUVRAS Chief Risk Officer Ludovic VANDEVOORDE Head of Retail, Payments and Innovation Benoit VANDERMARCQ Chairman of the Management Board, Banque Tarneaud
Zakaria MOURSLI attends Management Committee meetings where he represents ITIM as Head of IT Networks, France.
14 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Governance Board of Director’s report on corporate governance 2
2.2 Board of Director’s report on corporate governance
This report was prepared subsequent to the publication of Order No. 2017-1162 of 12 July 2017 and Decree No. 2017-1174 of 18 July 2017. It was prepared by the Board of Directors for the General Shareholders’ Meeting.
The duties of Chairman of the Board and Chief Executive The Chief Executive Officer is vested with the broadest Officer were split on 1 January 2010. powers to act on behalf of the company in all The term of office of the Chief Executive Officer is circumstances. She exercises her powers within the determined by the Board of Directors. limits set out by the corporate purpose and subject to the powers expressly attributed by law to the General Françoise MERCADAL DELASALLES has been Crédit Shareholders’ Meetings and the Board of Directors. du Nord’s Chief Executive Officer since May 2018. She took over from Philippe AYMERICH, who was appointed The Chief Executive Officer’s powers in the area of credit Deputy Chief Executive Officer at Societe Generale. risk are specified in the rules adopted at the Board of Directors’ Meeting of 25 October 2012.
List of directors as at 31 December 2019
Philippe AYMERICH Sophie-Ségolène BENHAMOU Alexandre MAYMAT Chairman of the Board of Independent Director Director Directors Véronique CHAUFFERT-YVART Thierry MULLIEZ Françoise MERCADAL Independent Director Independent Director DELASALLES Director and Chief Executive Caroline DELCOURT* Anne PERRIN Officer Employee Director Independent Director
Thierry DIGOUTTE** Jean-François SAMMARCELLI Employee Director Independent Director
Aymeric le BIDEAU*** Patrick SUET Employee Director Director
Anne MARION-BOUCHACOURT Director
* Elected as a director representing employees on 9 November 2018 (Non-Executive staff). ** Re-elected as a director representing employees on 9 November 2018 (Executive staff). *** Replaced Annie PRIGENT, who retired in September 2019 (Executive staff).
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 15 Corporate Governance 2 Board of Director’s report on corporate governance
The Board of Directors had 13 members at in June 2018, document available at www.hcge.fr), with 31 December 2019, including five independent the exception of certain provisions: directors chosen for their expertise and commitment • assessment of the Board of Directors: the bank was to the company, and three directors representing unable to observe this recommendation, which was employees. Directors are appointed for four years, due to be applied in 2019. It will be observed in 2020; except for employee representative directors, who are • provision of a biography on candidates proposed elected for three years. during General Shareholders’ Meetings: each Since the General Shareholders’ Meeting of May 2019, candidate’s qualifications are carefully reviewed all directors who are natural persons have returned by the Appointment Committee, which transmits their loaned shares and are no longer shareholders the necessary information to the Board members of the bank. The company’s by-laws have been at the meeting prior to the review of the candidate amended accordingly. Crédit du Nord therefore has (reappointment, co-opting, appointment) or the two shareholders: Societe Generale and Sogéparts, a establishment of the agenda for the General wholly-owned subsidiary of Societe Generale, which Shareholders’ Meeting. It should be noted that the owns one Crédit du Nord share. Chairman of the Appointment Committee is also The Board is mandated by the shareholders and its the legal representative of Crédit du Nord’s majority decisions are made collectively. The organisation and shareholder, and that owing to Crédit du Nord’s status functioning of the Board are described in the next as a credit institution, each candidate is approved by chapter, and in the Board Rules, which are available on the national supervisory authority (ACPR) and the the Bank’s website – www.credit-du-nord.fr – under “Vie European Central Bank; de la Banque”. The Board Rules stipulate the conditions • committee rules: given the specific regulation under which directors can participate in meetings applicable to credit institutions, which stipulates the through video conferencing or other telecommunication attributions of each committee, it was not necessary methods. to formally define a specific set of rules; Crédit du Nord complies with the law of 27 January • succession plan: the succession plan is handled by 2011 governing the principle of balanced representation Societe Generale; of women and men on the Board. At 31 December • Compensation Committee: Crédit du Nord’s 2019, five women sat on the Board of Crédit du Nord, corporate officers are bound by an employment bringing the representation rate of women to 50%, contract to the Crédit du Nord’s majority shareholder. excluding employee directors. As such, it is appropriate for a legal representative Like its parent company, Societe Generale, of which it is of the shareholder to chair the Compensation a wholly-owned subsidiary, Crédit du Nord applies the Committee and for no employee director to sit on that AFEP-MEDEF Corporate Governance Code (revised committee.
16 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Governance Board of Director’s report on corporate governance 2
Preparation and organisation of the Board’s activities
The Board of Directors meets at least once per quarter. The Board Rules stipulate the conditions under which The agenda of all Board meetings is set by the Chairman of directors can participate in meetings through video the Board after consultation with the Chief Executive Officer. conferencing or other telecommunication methods. The Board Rules may be consulted on the bank’s website For the purposes of setting the agenda, the following under “Vie de la banque”. are reviewed: Board meetings last approximately three hours. • items that must be examined by the Board pursuant to the law; The agenda items are presented by the Chairman, the • matters allowing the Board to ascertain that the Chief Executive Officer, the Deputy Chief Executive company is being efficiently run and that its strategic Officer or the person responsible for the item in question choices are being implemented: sales strategy, risk (Chief Financial Officer, Chief Risk Officer, etc.). A appetite, organisation, work conducted by the audit deliberation process ensues during which views and bodies, investments, labour relations, etc. opinions are expressed. At the end of deliberations, the Board is asked to vote, where necessary. The directors are convened no less than 15 days before the meeting. Their notification includes: The draft minutes of the meeting are prepared by the • the agenda of the meeting; Secretary of the Board, who submits the same to the Chairman, the Chief Executive Officer and the various • the draft minutes of the preceding Board meeting; participants (for the items concerning them). The draft • an information pack covering the key items on the minutes are then submitted for the approval of the Board agenda. at the start of the following meeting. When the Board meets to approve the annual financial On 29 July 2011, the Board of Directors approved statements, the following information is also provided: the creation of a Risk Committee. The Committee • to each director: a list of all other company offices is responsible for examining matters related to risks, held by the director, it being the responsibility of each compliance and permanent control. Crédit du Nord’s director to verify and amend the list as necessary, as Risk Committee met four times in 2019, in February, well as a “Related Parties” questionnaire, with each March, July and October. It reports to the Board on director required to report his or her undertakings with its work. The Risk Committee is comprised of four the entity or one of its subsidiaries greater than or directors, including three independent directors until May equal to a given amount; 2019, then two* following the resignation of one director • to the Chairman and Statutory Auditors, by virtue of in May 2019. It is chaired by Patrick SUET and its other current regulations: a list of all significant agreements members are Jean-Francois-SAMARCELLI*, Alexandre entered into between Crédit du Nord and its senior MAYMAT and Véronique CHAUFFERT-YVART*. managers and/or those companies with which Crédit The Capital Requirements Directive of 26 June 2013 du Nord shares senior managers or shareholders. (CRD IV) also calls for the creation of other specialised In addition to the directors, the following individuals also committees reporting to the management body. participate in Board meetings: At its meeting on 19 February 2015, the Board of • the Deputy Chief Executive Officer; Directors decided to delegate the duties provided for • members of the Management Committee and other by law to the Appointment Committee of its sole company executive managers, depending on the shareholder. Then, in 2018, it elected to create its own matters being discussed; committee. As of 16 March 2018, Société Marseillaise • the Statutory Auditors; de Crédit (SMC) delegated the duties of the appointment • the Corporate Secretary, who serves as the meeting committee to Crédit du Nord’s Appointment Committee. secretary; Philippe AYMERICH chairs this Committee. • The Secretary of the Central Economic and Labour In 2019, the Appointment Committee met to rule on the Relations Council (CSEC) or his/her representative. reappointment of seven directors (three for CDN and four for SMC), and for the appointment of a new director of Crédit du Nord. * Positions held for at least the past five years.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 17 Corporate Governance 2 Board of Director’s report on corporate governance
Furthermore, at its meeting of 27 July 2017, the Board Where applicable, it formulates recommendations and decided to create an Audit Committee with the shares its opinions with the Board. following main duties: The Risk Committee and the Audit Committee have the • oversight of matters related to the production and same members. Since May 2019, two of their members verification of accounting and financial information; are independent directors, while the other two are • verification of the independence of the Statutory employees of Societe Generale Group. Auditors (selection and recommendation regarding In 2019, the Audit Committee examined the financial their appointment or re-appointment by the General statements for fiscal year 2018 and approved the Shareholders’ Meeting, oversight of Statutory non-audit-related services performed by the Statutory Auditors’ fees, etc.); Auditors. The Committee met five times in 2019. • oversight of the effectiveness of internal control, Its members are Alexandre MAYMAT, its chairman, risk measurement, supervision and management Véronique CHAUFFERT-YVART, Jean-Francois- systems covering risks associated with accounting SAMARCELLI and Patrick SUET. and financial processes; • follow-up to the results of internal audit assignments (periodic control).
Information on the corporate officers
The directors were notified of the rules on holding several At the General Shareholders’ Meeting of 23 May 2019, corporate offices, which took effect on 6 November Philippe AYMERICH, Thierry MULLIEZ and Patrick 2014. They are reminded of these rules every year. SUET were reappointed as directors for four years by At the start of each year, they are asked to provide a list the majority of shareholders present or represented at of offices held during the current fiscal year and in the the meeting, and Alexandre MAYMAT was appointed as last five years to ensure that they observe the rules on director for four years by the majority of shareholders holding several corporate offices. present or represented.
Positions held and duties performed over the last five years
Positions held in at least the past five years
Philippe AYMERICH (12/08/1965) • Chairman of the Supervisory Board: Gilbert Dupont • Chief Executive Officer: Crédit du Nord (from 01/2012 (from 11/2016 to 05/2018); to 05/2018); • Director: Crédit du Nord (since 01/2012); Franfinance • Deputy Chief Executive Officer: Societe Generale (since 04/2014); Boursorama (since 05/2018); (since 05/2018); Antarius (from 12/2016 to 05/2018); Amundi Group (from 02/2012 to 11/2015); Sogecap (from 03/2012 • Chairman of the Board of Directors: Crédit du Nord to 12/2016); Norbail Immobilier (from 12/2017 to (since 05/2018); Boursorama (since 05/2018); 05/2018); Franfinance (since 04/2019); Norbail Immobilier (from 12/2017 to 05/2018); • Member of the Supervisory Board: Banque Courtois (from 02/2012 to 05/2018); Société Marseillaise de • Chairman of the Supervisory Board: Société Crédit (from 02/2012 to 05/2018); Banque Tarneaud Marseillaise de Crédit (from 02/2012 to 05/2018); (from 03/2012 to 05/2018); Banque Rhône-Alpes Banque Courtois (from 02/2012 to 05/2018); Banque (from 04/2012 to 10/2018); Banque Laydernier (from Rhône-Alpes (from 05/2013 to 10/2018); Banque 09/2016 to 10/2018); Laydernier (from 09/2016 to 10/2018);
* Positions held for at least the past five years.
18 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Governance Board of Director’s report on corporate governance 2
• Member of the Supervisory Board: Gilbert Dupont • Co-Manager: Santé Pluriel Holding - SPH (SARL)*; (from 11/2016 to 05/2018); Société Civile Hospitalière (SCI)*. • Permanent Representative of Societe Generale on Véronique CHAUFFERT-YVART (12/06/1952) the Supervisory Board of the Deposit Guarantee and Resolution Fund (from 10/2014 to 03/2016). • Director: Crédit du Nord (since 05/2016); Valmy- Participations (since 06/2018); Charbonneaux- Françoise MERCADAL DELASALLES (23/11/1962) Brabant SA (since 06/2018). • Chief Executive Officer: Crédit du Nord (since Bruno FLICHY (25/08/1938) 05/2018); • Director: Crédit du Nord (from 04/1997 to 05/2019); • Deputy Chief Executive Officer: Crédit du Nord (from Aviva France (from 11/2008 to 12/2016); Aviva 06/2017 to 05/2018); Participations (from 10/2002 to 06/2014); Eiffage • Chairman of the Board of Directors: Star Lease (from 04/2002 to 04/2015, then since 04/2017); (from 11/2017 to 06/2018); Societe Generale Global • Non-Voting Director: Eiffage (SA) (from 05/2015 to Solution Centre Private (from 12/2008 to 06/2017); 04/2017). Transactis (from 04/2012 to 10/2017); • Chairman of the Supervisory Board: Banque Courtois Anne MARION-BOUCHACOURT (10/12/1958) (since 05/2018); Société Marseillaise de Crédit (since • Chairman: Societe Generale China Ltd CAOA (from 05/2018); Banque Rhône-Alpes (since 10/2018); 09/2008 to 08/2018) Societe Generale Private Banque Kolb (from 10/2017 to 10/2018); Banking (since 06/2019); • Vice-Chairman of the Supervisory Board: Banque • Chief Executive Officer: Societe Generale China Ltd Courtois (from 09/2017 to 05/2018); Société CAOA (from 11/2017 to 08/2018); Societe Generale Marseillaise de Crédit (from 10/2017 to 05/2018); Zurich (since 10/2018); • Director: Crédit du Nord (since 05/2018); Societe • Director: Societe Generale China Ltd CAOA (from Generale Cameroun (from 06/2015 to 12/2019); 09/2008 to 08/2017, then from 02/2018 to 08/2018); Eurazeo (since 05/2015); Antarius (from 06/2017 to SGBT Luxembourg (from 11/2011 to 12/2017); Crédit 10/2018); Sogecap (from 07/2016 to 04/2018); Star du Nord (since 05/2013); Societe Generale Leasing Lease (from 11/2017 to 06/2018); Societe Generale and Renting CO. LTD (from 10/2016 to 03/2018); Global Solution Centre Private (from 12/2008 IPSOS since 04/2017; Societe Generale Private to 09/2017); Compagnie Générale de Location Banking (Suisse) (since 12/2018); Mécénat Musical d’Équipements (from 10/2010 to 03/2017); Societe Societe Generale (from 06/2010 to 06/2017); Societe Generale European Business Services SA (from Generale Bank & Trust (from 11/2011 to 12/2017); 12/2010 to 06/2017); Transactis (from 04/2011 to ALD Automotive AG (since 01/2019). 10/2017); • Member of the Supervisory Board: Fortune SG Fund • Member of the Supervisory Board: Banque Courtois Management CO Ltd (China) (since 03/2014). (since 09/2017); Société Marseillaise de Crédit (since 10/2017); Banque Rhône-Alpes (since 10/2018); Alexandre MAYMAT (11/05/1967) PJSC Rosbank (from 03/2011 to 06/2019); Banque • Chairman of the Board of Directors: Societe Generale Kolb (from 10/2017 to 10/2018). de Banque Aux Antilles (since 05/2013); Societe Generale Factoring (since 10/2019); Investima SA Sophie-Ségolène BENHAMOU (07/09/1974) (from 01/2016 to 03/2019); Societe Generale Afrique • Chairman of Hôpital Privé Nord Parisien (SA)*; de l’Ouest (from 01/2018 to 10/2019); • Chief Executive Officer of Hôpital Privé Nord Parisien • Chairman of the Supervisory Board: Transactis (since (SA)*; 12/2019); • Director: Crédit du Nord (since 05/2014); Hôpital • Director: Crédit du Nord (since 05/2019); Societe Privé Nord Parisien (SA)*; Generale de Banque aux Antilles (since 05/2013);
* Positions held for at least the past five years.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 19 Corporate Governance 2 Board of Director’s report on corporate governance
Societe Generale Côte d’Ivoire (since 07/2013); • Member of the Supervisory Board: Oosterdam BV SA Fondation d’Entreprise Societe Generale pour la (from 01/2012 to 12/2015); Solidarité (since 03/2018); Societe Generale Factoring • Permanent Representative of Holympiades SAS (since 10/2019); Societe Generale Cameroun (from on the Supervisory Board of Décathlon SA (from 11/2012 to 12/2019); Union Internationale de Banques 12/2009 to 06/2014). (from 06/2013 to 10/2019); EQDOM (from 12/2013 to 03/2019); Investima SA (from 01/2016 to 03/2019); Anne PERRIN (20/11/1964) Societe Generale Afrique de l’Ouest (from 01/2018 to • Director: Crédit du Nord (since 05/2016). 10/2019); Tagpay SA (from 06/2018 to 05/2019); • Member of the Supervisory Board: SG Marocaine de Jean-François SAMMARCELLI (19/11/1950) Banques (since 06/2015); Transactis (since 12/2019); • Deputy Chief Executive Officer of Societe Generale Societe Generale Algérie (from 10/2012 to 03/2019); (from 01/2010 to 09/2014); • Permanent representative of Societe Generale on • Chairman of the Board of Directors: Crédit du Nord the Board of Directors of: SG de Banque au Liban (from 01/2010 to 10/2014); (since 01/2013); Societe Generale African Business • Chairman of the Supervisory Board: NextStage (since Services SAS (du 06/2018 au 10/2019); Southeast 06/2015); Asia Commercial Joint Stock Bank (du 04/2013 to 05/2017); Union Internationale de Banques (from • Director: Crédit du Nord*; Sogeprom*; Boursorama*; 09/2012 to 04/2018); Sopra Stéria Group*; Societe Generale Private Banking (Monaco) (since 05/2015); Riverbank • Permanent Representative of SG Financial Services (Luxembourg) (since 04/2017); Sogecap (from Holding on the Board of Directors of Societe Generale 03/2005 to 02/2015); Amundi Group (from 12/2009 Bénin (from 11/2012 to 06/2019); to 12/2014); • Permanent Representative of Societe Generale • Member of the Supervisory Board: Societe Generale on the Board of Directors of Advans Cameroun Marocaine de Banques (from 12/2007 to 03/2019); Etablissement de Micro France (from 11/2009 to NextStage (since 06/2015); Banque Tarneaud (from 05/2016); 05/2011 to 11/2014); • Permanent Representative of Societe Generale • Permanent Representative of Crédit du Nord on the Cameroun on the Board of Directors of: Societe Supervisory Boards of Banque Rhône-Alpes (from Generale de Banque en Guinée Equatoriale (from 05/2010 to 12/2014) and of Société Marseillaise de 01/2010 to 12/2016); Societe Generale Tchad (from Crédit (from 12/2010 to 12/2014); 01/2010 to 06/2019). • Non-Voting Director: Ortec Expansion*. Thierry MULLIEZ (26/08/1954) Patrick SUET (13/01/1954) • Chief Executive Officer: HTM Group SA (since 05/2017); • Chairman of the Board of Directors: Societe Generale Bank and Trust Luxembourg*; Sofrantem (from • Chairman of the Board of Directors: HTM Group 10/2011 to 10/2015); SA*; Agapes SA (since 09/2014); Mobilis SAS (from 05/1998 to 05/2014); • Vice-Chairman of the Board of Directors: Institution de Prévoyance Valmy (from 06/2013 to 06/2015); • Chairman of the Supervisory Board: Oosterdam BV SA (from 01/2012 to 12/2015); • Director: Crédit du Nord*; Societe Generale Bank and Trust Luxembourg*; Societe Generale de Banques • Director: Crédit du Nord SA*; HTM Group SA*; en Côte d’Ivoire (since 06/2015); Sofrantem (from SECOM SA*; Agapes SA (since 09/2014); Décathlon 10/2011 to 10/2015); Institution de Prévoyance Valmy SA (from 06/2014 to 12/2017); Groupe Adéo SA (from (from 06/2005 to 06/2015). 05/2012 to 10/2014); Auchan Retail international SA (from 03/2017 to 12/2018);
* Positions held for at least the past five years.
20 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Governance Board of Director’s report on corporate governance 2
Employee directors:
Caroline DELCOURT (07/11/1975) Annie PRIGENT (15/07/1957) • Director elected by employees: Crédit du Nord (since • Director elected by employees: Crédit du Nord 11/2018). elected in December 2012 and retired at the end of September 2019. Thierry DIGOUTTE (15/05/1957) • Director elected by employees (reappointed in Aymeric le BIDEAU (30/01/1974) 11/2018): Crédit du Nord (since 07/2013). • Director elected by employees: Crédit du Nord, replaced Annie PRIGENT following her resignation.
Additional information on directors
● Experienced directors with complementary backgrounds
Board members are chosen for their experience, Committee to Societe Generale, its parent company, knowledge, expertise, honour and integrity. for a period of 3 years (from February 2015 to The composition of the Board of Directors seeks to February 2018). Crédit du Nord has since created its strike a balance between the experience, expertise and own Appointment Committee, which identifies and independence of members, while ensuring gender parity recommends appropriate candidates as directors for and diversity. In particular, the Board strives to maintain a both CDN and SMC. balance in terms of the age and professional experience The Appointment Committee met once in 2019 to of its members. review the reappointment of members of the CDN Board Pursuant to the decision of the Board of Directors of of Directors and the SMC Supervisory Board and the Crédit du Nord (CDN) at its meeting of 19 February appointment of a new director on the CDN Board of 2015, CDN delegated the duties of its Appointment Directors.
● Appropriate training for directorships
The following directors receive training: meeting so that they can perform their duties. As the – directors without a background in the banking Decree also calls for appropriate training throughout industry. Upon taking office, they each receive their term of office, the Board has also authorised 20 individually appropriate training organised by Bank hours of training per year. Professional training agency representatives; CEGOS has organised a three-day training course for all Crédit du Nord Group directors since 2016. The – directors elected by company employees. In cost of this training is paid for by Crédit du Nord. accordance with Decree No. 2015-606 of 3 June In addition to this training, employee-representative 2015, Crédit du Nord’s Board of Directors has granted directors receive training tailored to their profile, if employee directors 20 hours of preparation time per necessary, upon taking office.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 21 Corporate Governance 2 Board of Director’s report on corporate governance
● Profile of directors
All Crédit du Nord directors are French nationals:
Professional area of expertise Banking, Other Director Finance activities International Brief description Societe Generale Group since 1987. Supervised the resource functions in the US for five years. Deputy Group Head of Risk Management from Philippe AYMERICH ✓✓2006 to 2012, then Chief Executive Officer of Crédit du Nord until May 2018, he is currently Deputy Chief Executive Officer of Societe Generale. Societe Generale Group since October 2008. First Head of Operational Efficiency and Innovation, then Head of Resources and Innovation and member of the Group Executive Committee, she joined Crédit du Nord in 2017 as Deputy Chief Executive Officer and then Chief Executive Françoise MERCADAL ✓✓ ✓Officer in 2018. DELASALLES She had previously spent five years with Caisse des Dépôts as assistant to the Corporate Secretary, Head of Finance Control, Information Systems and Group Resources, and Head of the Optimisation Programme. She also worked in the Budget Division of the Finance Ministry (1995-2002). Sophie-Ségolène BENHAMOU ✓ Chairman of Hôpital Privé Nord Parisien SA since 1999. Consultant specialising in corporate fraud since 2012. Chief Administrative and Financial Officer, and member of the Management Véronique CHAUFFERT-YVART ✓✓ ✓ Committee of Inditex France from 1997 to 2012. Worked at Crédit Lyonnais Group in France and abroad from 1987 to 1997. Societe Generale (SG) since 2004. Chairman of Societe Generale China Anne MARION-BOUCHACOURT ✓✓from 2012 to 2018. She has since been Country Head for SG Group in Switzerland, and is now Chief Executive Officer of SG Zurich. Societe Generale (SG) since 2001. Head of SG’s Global Transaction & Payment Services Business Unit since 1 September 2019. CEO of Societe Generale Cameroun from 2009 to 2012, then Head of Alexandre MAYMAT ✓✓the Africa, Mediterranean and Overseas Business Unit until 08/2019 (23 subsidiaries, 18 countries and 13,000 employees). Alexandre MAYMAT has been a member of the SG Group Management Committee since 2013. Since 1975 in Auchan Group, including 6 years in Spain as Head Thierry MULLIEZ ✓✓of Hypermarkets; Chairman of the Mulliez Family Association and Chairman of Mobilis SAS from 1998 to 2014. Associate Director of Meteojob.com since 2011. Executive Director at Banque UBS France from 2006 to 2010. Corporate Secretary and Anne PERRIN ✓✓ member of the Executive Committee of Oddo and Cie Gestion Privée from 2004 to 2006. Before 2004, private banker at Merrill Lynch PFS France and HSBC. Societe Generale Group from 1974 to 2014, Deputy Chief Executive Jean-François SAMMARCELLI ✓ Officer since 2010, and Chairman of Crédit du Nord from 2010 to 2014. Retired in 2014. Societe Generale Group since 2000 as Deputy Corporate Secretary. Corporate Secretary and Head of Compliance from 2009 to 09/2015. Secretary of the Board of Directors since then. Former Chief of Staff to Patrick SUET ✓✓ Edouard BALLADUR in 1993; Treasurer and Paymaster General of the Hauts-de-Seine department from 1995 to 1999, then Chief Operating Officer of Elf Aquitaine. Appointed in November 2018. Since 2011, Crédit du Nord employee, Caroline DELCOURT ✓ Private Banking Customer Advisor. Thierry DIGOUTTE ✓ Since 1984, Crédit du Nord employee and portfolio manager. Replaced Annie PRIGENT as director representing employees. Branch Aymeric le BIDEAU ✓ manager since 2011.
22 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Governance Board of Director’s report on corporate governance 2
● Average age of Board members Including directors representing employees, the average age is 57.
● Absence of conflicts of interest
To the best of Crédit du Nord’s knowledge, there are Furthermore, there is no family link between the different no conflicts of interest between Crédit du Nord and Crédit du Nord directors. the members of the Board of Directors, with respect to Directors are independent in their analysis, judgement, either their personal or professional interests. Article 7 decisions and actions at all times. They do not seek of the Board Rules, which are available on the Bank’s out or accept any benefits liable to compromise their website, governs conflicts of interest involving directors. independence.
● Absence of criminal convictions
To the best of the Board of Directors’ knowledge, none Finally, none of the Crédit du Nord directors has been of the Crédit du Nord directors has been convicted of prevented by a court from acting as a member of an fraud in the past five years. administrative, supervisory or management body, or In addition, none of the directors has been associated from participating in the management and conduct of a with a bankruptcy, receivership or liquidation in the past company’s business in the past five years. five years, nor have they been incriminated or penalised by a statutory or regulatory authority.
● Independent directors
The number of independent Crédit du Nord directors Management and the majority shareholder according increased from two before the 2016 General to the criteria set forth in the AFEP-MEDEF Corporate Shareholders’ Meeting to five since 2017: Sophie- Governance Code and they hold the personal and Ségolène BENHAMOU, Véronique CHAUFFERT-YVART, professional qualities sought after to carry out the duties Anne PERRIN, Thierry MULLIEZ and Jean-François of their office. SAMMARCELLI. They were chosen by General
● Shares held by directors
Article 11 of the by-laws was amended at the last Nord’s only shareholders are Societe Generale, with General Shareholders’ Meeting. Since then, Crédit du 111,282,905 shares, and Sogéparts, with 1 share.
● Ethics
All directors refrain from carrying out transactions extent that), by virtue of their offices, they are privy to in the shares of the companies for which (and to the information that has not yet been made public.
General Shareholders’ Meetings
Crédit du Nord’s General Shareholders’ Meetings are The next Crédit du Nord General Shareholders’ Meeting convened in accordance with all currently applicable will be held on 7 May 2020. laws and regulations. All shareholders and the Statutory Auditors receive a meeting notice.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 23 Corporate Governance 2 Board of Director’s report on corporate governance
Remuneration of corporate officers
The Compensation Committee, comprised of two paid to corporate officers and regulated categories of directors (including one independent director), examines staff under the Crédit du Nord Group compensation the remuneration granted to executive corporate policy as set on 15 February 2012 and approved by the officers, which is then approved by the Board based on Crédit du Nord Board of Directors on 17 February 2012 the recommendations of the Compensation Committee. and in accordance with the provisions of the sections This remuneration contains a fixed portion and a covering “Remuneration of Corporate Officers”, “Senior variable portion, based on criteria recommended by Management Remuneration Policy” and “AFEP-MEDEF the Compensation Committee in accordance with the and AMF recommendations”, which are described regulatory provisions governing credit institutions. below. The Committee met once in 2019 to examine the Company’s compensation policy and the remuneration
Related-party agreements
No agreements have been entered into between a Only standard agreements entered into under normal corporate officer/shareholder and Crédit du Nord. conditions were counted.
Authorisation to carry out a capital increase (currently valid)
Not applicable.
Information liable to have an impact in the event of a public offering
Not applicable.
24 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Governance Board of Director’s report on corporate governance 2
Senior management remuneration policy
The corporate officer remuneration policy, presented • an unvested portion, comprising at least 40% of total below, is determined based on the guidelines variable pay, payment of which is deferred over 3 to recommended by the Compensation Committee and 5 years according to the rules applicable to members approved by the bank’s Board of Directors. of the Management Committee who are or are not Pursuant to the Act of 9 December 2016 on Heads of Business Units (also awarded partly in cash transparency, prevention of corruption and and partly in shares or share equivalents (minimum modernisation of the economy (known as the Sapin 2 50%)), and is based on the achievement of economic Act), this policy is subject to the approval of the General targets. Shareholders’ Meeting. In the event of a negative vote, Françoise MERCADAL DELASALLES the Board of Directors will meet in a timely manner, and in the meantime the principles implemented in 2018 will Appointed Chief Executive Officer of Crédit du Nord by continue to apply. the Board of Directors on 3 May 2018, with effect from 14 May 2018, Françoise MERCADAL DELASALLES Furthermore, since 2018, no annual or exceptional took over the office from Philippe AYMERICH who took variable remuneration (including long-term incentives) on new functions at Societe Generale. is paid to the corporate officers before shareholder approval has been obtained. Françoise MERCADAL DELASALLES, who has an employment contract with Societe Generale, has been Remuneration guidelines seconded to Crédit du Nord. The remuneration of executive corporate officers is As Chief Executive Officer of Crédit du Nord, Françoise determined in compliance with Directive 2013/36/EU, MERCADAL DELASALLES is a member of Societe known as CRD IV, and according to Societe Generale Generale Group’s Management Committee. Group’s principles, in line with the recommendations of the AFEP-MEDEF Corporate Governance Code. The variable pay granted to Françoise MERCADAL DELASALLES in respect of fiscal year 2019 is related The remuneration of corporate officers can include: to her duties as Chief Executive Officer and to the • annual fixed pay that recognises experience and achievement of the targets associated with said duties, duties fulfilled, and takes market practices into including: consideration. This accounts for a significant portion • overseeing the Group’s transformation; of total remuneration; • reaching the sales and financial targets included in • annual variable pay granted at the end of each fiscal the budget; year, after the accounts are closed, the amount of which is determined based on an assessment of • ensuring operating budgets are well managed; multiple criteria (customer satisfaction, sales and • allocating assets with a view to improving revenues financial performance, risk management, Group and profitability; synergy, etc.) specific to each corporate officer; • upholding the promise of customer and employee • a long-term incentive. satisfaction; In accordance with CRD IV, the variable component • ensuring that regulatory requirements are met; (annual variable portion + long-term incentive bonus) is • contributing to the work of the Societe Generale capped at 200% of fixed compensation. Group Management Committee and the Executive Pursuant to regulations, the variable component for Committees of the Societe Generale Group’s French executive corporate officers can be broken down into: networks. • a vested portion, paid partly in cash and partly in • representing Crédit du Nord Group in the public Societe Generale share equivalents (minimum 50%), forum: with customers, control and supervisory and; authorities, the press.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 25 Corporate Governance 2 Board of Director’s report on corporate governance
Attendance fees and other compensation paid by Long-term incentives the Boards of Directors or Supervisory Boards on Each year, the Board of Directors can recommend to which Françoise MERCADAL DELASALLES sits as a Societe Generale that it grant Societe Generale shares representative of Crédit du Nord or Societe Generale to Françoise MERCADAL DELASALLES and Jean-Louis Group are retained by the company where the office is KLEIN in accordance with the terms and conditions held. established under the relevant plans, provided this is permitted by national legislation and regulations in force. Jean-Louis KLEIN The vesting of Societe Generale shares is contingent Jean-Louis KLEIN was appointed Deputy Chief upon meeting performance conditions established Executive Officer of Crédit du Nord by the Board of by the rules of the relevant plans, subject to national Directors on 3 May 2018 with effect at 14 May 2018. legislation and regulations in force He took over from Françoise MERCADAL DELASALLES, who was appointed Chief Executive Officer at the same Furthermore, as salaried employees of Societe Generale, Board meeting. Françoise MERCADAL DELASALLES and Jean-Louis KLEIN are eligible for Societe Generale’s profit-sharing Jean-Louis KLEIN has an employment contract with Societe and incentive programmes and are therefore ineligible for Generale. He had been seconded to Crédit du Nord. programmes offered by Crédit du Nord. Jean-Louis KLEIN is a member of the Societe Generale Group Management Committee. Obligation to hold and to keep Societe His variable compensation as Deputy Chief Executive Generale shares Officer in respect of fiscal year 2019 is related to his role In accordance with the recommendations of the AFEP- as Deputy Chief Executive Officer and the achievement MEDEF Corporate Governance Code, and based on of the following objectives: the proposal of the Compensation Committee, the • reaching the sales and revenue targets included in the Board of Directors resolved that Françoise MERCADAL budget; DELASALLES and Jean-Louis KLEIN are required to hold a minimum number of shares acquired under • ensuring operating and transformation budgets are Societe Generale share plans or from the exercise of well managed; options awarded under stock option plans in a registered • allocating assets with a view to improving revenues account until the end of their office. This minimum and profitability; number is set at 8,485 shares for Françoise MERCADAL • upholding the promise of customer and employee DELASALLES and 4,452 shares for Jean-Louis KLEIN. satisfaction; Provisions related to post-employment • ensuring that regulatory requirements are met; benefits • ensuring that supervisory and control managerial bodies function effectively; • Termination benefits • preparing the succession of senior management; Neither Françoise MERCADAL DELASALLES nor Jean- Louis KLEIN will receive a termination benefit when their • promoting the Culture and Conduct commitments; term of office expires. • representing Crédit du Nord Group within Societe Generale Group (in particular by taking part in the • Retirement Group Management Committee) and externally. Crédit du Nord CEOs are eligible for Societe Generale’s Attendance fees and other compensation paid by the supplementary pension allocation plan for “Unclassified” Boards of Directors or Supervisory Boards on which Jean- executive level employees. Louis KLEIN sits as a representative of Crédit du Nord are retained by the company where the office is held. Jean-Louis KLEIN has resigned from his offices held with Societe Generale Group subsidiaries.
26 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Governance Board of Director’s report on corporate governance 2
Supplementary pension plan January 2019 as annual annuity entitlements equivalent Françoise MERCADAL DELASALLES and Jean-Louis to 0.4% of the portion of gross annual compensation KLEIN retained their entitlement to the supplementary ranging from one to four times the annual social security pension plan for senior managers which applied to them ceiling. as employees prior to their appointment as executive However, further the publication of Order no. 2019-697 corporate officers. of 3 July 2019 on professional supplementary pension This supplementary scheme, set up in 1991 and schemes, which, from its publication, ruled out the complying with the provisions of Article L. 137-11 of inclusion of potential new beneficiaries in pension plans the French Social Security Code, granted “Unclassified” in which the vesting of rights depends on members executive level beneficiaries, on the date of settlement of completing their career within the company, and the their Social Security pension, a total pension equal to the vesting of conditional rights in respect of periods of product of the following two terms: employment prior to 2019, this plan was closed on 4 July 2019 and no further entitlements will be granted – the average, over the last ten years of the beneficiary’s after 31 December 2019. career, of the proportion of fixed remuneration exceeding the “Tranche B” category of the AGIRC Accordingly, the amount of entitlements vested at pension, increased by a variable amount limited to the retirement date will comprise the sum of the 5% of the base salary, entitlements frozen at 31 December 2018 and the minimum entitlements vested from 1 January 2019 – the rate equal to the ratio between the number of to 31 December 2019. These entitlements will be years of seniority within Societe Generale and 60, recalculated in line with changes in the value of AGIRC i.e. potential entitlements amount to 1.67% per points between 31 December 2019 and the date on year. Years of service taken into account cannot which the pension is claimed. Entitlements will continue exceed 42. to be subject to the beneficiary’s ending their career with The AGIRC “Tranche C” category pension vested in Societe Generale. These entitlements are 126 with an respect of professional services within Societe Generale insurance company. is deducted from this total pension. Supplementary pension plan (Art. 82) The supplementary award to be paid by Societe Generale was increased for beneficiaries who have Subsequent to the revision of the supplementary brought up at least three children, as well as for those pension plan for “Unclassified” executive level staff at retiring after the age that Social Security pensions may 31 December 2018, and in particular the elimination of legally be claimed. It could not be less than one-third the differential portion of the plan on amounts exceeding of the full-rate value of service of AGIRC “Tranche B” four times the annual Social Security ceiling, a defined- points acquired by the beneficiary since his or her entry contribution supplementary pension plan (Art. 82) was in Societe Generale’s “Unclassified” category. established for members of the Management Committee including the Deputy Chief Executive Officers with effect This plan was revised on 17 January 2019, effective from from 1 January 2019. 1 January 2019, and the potential future entitlements were frozen at 31 December 2018 based on seniority This plan requires the company to pay an annual and the AGIRC “Tranche B” and “Tranche C” points contribution to an Art. 82 individual pension account vested at that date, and the average over the last three opened in the eligible beneficiary’s name, based on fiscal years of fixed compensation exceeding AGIRC the portion of the employee’s fixed compensation that “Tranche B”, plus variable compensation within the limit exceeds four times the annual social security ceiling. of 5% of fixed compensation. Vested entitlements will be paid, at the earliest, at the effective liquidation date of the pension in respect of the Only minimum entitlements, previously defined as one- general old-age insurance plan. third of the AGIRC “Tranche B” points vested since the beneficiary was appointed to Societe Generale’s The contribution rate was set at 8%. “Unclassified” category, were carried over from 1
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 27 Corporate Governance 2 Board of Director’s report on corporate governance
Valmy pension plan (formerly Ip Valmy) within the limit of two times the annual social security Françoise MERCADAL DELASALLES and Jean-Louis ceiling, with 1.5% paid by the company (€1,216 based KLEIN also retained their entitlement to the defined- on the 2019 social security ceiling) up to 31 December contribution supplementary pension plan which applied 2019. From 1 January 2020, the remuneration limit is to them as employees prior to their appointment as raised to four times the annual social security ceiling, executive corporate officers. and the percentage funded by the company will increase to 1.75% on 1 July 2020. This plan is managed by This defined-contribution plan, established under Article Sogecap. 83 of the French General Tax Code, was set up in 1995 and amended at 1 January 2018 (under the new name Additional disclosures “Epargne Retraite Valmy”). All employees with at least Employer contributions in respect of pensions and six months’ seniority at the company are required to join personal protection insurance policies paid or awarded the plan, the purpose of which is to build up retirement in 2019 to corporate officers employed by Societe savings, paid out as annuities upon retirement. This Generale were as follows: plan is funded up to 2% of beneficiaries’ remuneration,
Art. 82 supplementary Personal protection pension plan employer Valmy pension plan insurance employer contribution employer contribution contribution in respect of 2019 in respect of 2019 in respect of 2019 (in €m) paid in 2020 paid in 2019 paid in 2019 Françoise MERCADAL DELASALLES, Chief Executive Officer 13,032 1,216 2,665 Jean-Louis KLEIN, Deputy Chief Executive Officer 5,432 810 -
Information pertaining to Philippe Aymerich was reported in the tables of chief executive officers’ remuneration subject to approval by Societe Generale’s shareholders in Societe Generale’s 2020 Universal Registration Document (page 119 and following).
Attendance fees paid to directors*
The amount of attendance fees was set at €160,000 • the balance is divided up among directors* in by the General Shareholders’ Meeting of 18 May 2018. proportion to the number of Board meetings attended The rules for distributing attendance fees among Board by each director during the fiscal year. The share members, as resolved by the Board of Directors on 12 belonging to absentees is not redistributed to other March 1998, are as follows: directors but is retained by Crédit du Nord. • half of the attendance fees are distributed in equal amounts among the directors*;
* Excluding corporate officers that are employees of Societe Generale Group, who may not receive attendance fees.
28 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Governance Board of Director’s report on corporate governance 2
AFEP-MEDEF and AMF recommendations
The Board of Directors of Crédit du Nord examined and decided to apply the AFEP-MEDEF recommendations on the compensation of corporate officers. The standardised presentation of their compensation, prepared in accordance with AFEP-MEDEF recommendations, is presented below:
Standard tables compliant with AFEP-MEDEF and AMF recommendations
Table 1
SUMMARY OF REMUNERATION AND STOCK OPTIONS, SHARES AND SHARE EQUIVALENTS ALLOCATED TO EACH CORPORATE OFFICER (1)
Fiscal Year 2018 Fiscal Year 2019 Philippe AYMERICH, Chairman of the Board Remuneration due for the fiscal year (detailed in Table 2) 1,195,335 1,555,136 Value of options awarded during the fiscal year (see Table 4) 0 0 Value of shares awarded in connection with a long-term incentive programme during the fiscal year (2) 268,501 570,000 TOTAL 1,463,836 2,125,136 Françoise MERCADAL DELASALLES, Chief Executive Officer
Remuneration due for the fiscal year (detailed in Table 2) 754,724 765,412
Value of options awarded during the fiscal year (see Table 4) 0 0
Value of shares awarded under a long-term incentive programme during the fiscal year 0 0
TOTAL 754,724 765,412 Jean-Louis KLEIN, Deputy Chief Executive Officer Remuneration due for the fiscal year (detailed in Table 2) 431,056 464,496 Value of options awarded during the fiscal year (see Table 4) 0 0 Value of shares awarded under a long-term incentive programme during the fiscal year 0 0 TOTAL 431,056 464,496
(1) These amounts are in euros, gross, before tax. (2) This programme is detailed in Chapter 3 of the Societe Generale Universal Registration Document on the remuneration of Chief Executive Officers.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 29 Corporate Governance 2 Board of Director’s report on corporate governance
Table 2
STATEMENT OF REMUNERATION PAID TO EACH CORPORATE OFFICER (1) Fiscal Year 2018 Fiscal Year 2019 Amount due Amount due in respect of in respect of Amount paid the fiscal year Amount paid the fiscal year Philippe AYMERICH, Chairman of the Board (2) - fixed compensation 598,652 598,652 800,000 800,000 - annual fixed bonus 7,389 7,389 - non-deferred variable compensation (3) 132,500 127,921 127,921 151,027 - deferred variable compensation (3) 289,996 456,184 218,158 604,109 - multi-annual variable compensation 0 0 0 0 - attendance fees 0 0 0 0 - exceptional remuneration 0 0 0 0 - benefits in kind (4) 5,189 5,189 0 0 TOTAL 1,033,726 1,195,335 1,146,079 1,555,136 Françoise MERCADAL DELASALLES, Chief Executive Officer - fixed compensation 325,000 325,000 325,000 325,000 - non-deferred variable compensation (3) 62,500 115,000 115,000 117,000 - deferred variable compensation (3) 52,102 310,000 143,501 318,000 - other remuneration paid (5) 297,943 0 139,640 0 - multi-annual variable compensation 0 0 0 0 - benefits in kind (4) 4,724 4,724 5,412 5,412 TOTAL 742,269 754,724 728,553 765,412 Jean-Louis KLEIN, Deputy Chief Executive Officer - fixed compensation 145,028 145,028 230,000 230,000 - non-deferred variable compensation (3) 0 23,310 39,690 66,000 - deferred variable compensation (3) 0 54,390 39,808 154,000 - other remuneration paid (6) 221,751 197,494 96,760 0 - multi-annual variable compensation 0 0 0 0 - benefits in kind (7) 10,834 10,834 14,496 14,496 TOTAL 377,613 431,056 420,754 464,496
(1) Compensation figures are in euros, gross, before tax. (2) The amounts reported include sums received in respect of his office as Deputy Chief Executive Officer of Societe Generale. Please see Chapter 3 of the Societe Generale Universal Registration Document on the remuneration of chief executive officers for more details. (3) The criteria used to determine these figures are detailed in the Chapter covering the remuneration of corporate officers (SG and CDN). (4) Provision of a company car. (5) Françoise MERCADAL DELASALLES began her term of office on 1 July 2017. The amounts reported comprise the fixed and variable components granted and covered by SG in respect of her duties as an employee prior to taking up her office at CDN. (6) Jean-Louis KLEIN began his term of office as Deputy Chief Executive officer on 14 May 2018. The amount reported under “Other remuneration paid” comprises the fixed and variable components granted in respect of his duties as an employee prior to becoming Deputy Chief Executive Officer of CDN. (7) Provision of a company car and residence. In accordance with Article L. 511-79 of the French Monetary and Financial Code, a discount rate of no more than one-fourth of total variable pay may be applied, provided that the payment is made in deferred instruments for a period of at least five years.
30 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Governance Board of Director’s report on corporate governance 2
Table 3
STATEMENT OF ATTENDANCE FEES RECEIVED BY CORPORATE OFFICERS Attendance fees awarded in Attendance fees awarded Members of the Board that receive attendance fees* respect of 2018 and paid in 2019 (1) in respect of 2019 and paid in 2020 (1) Sophie-Ségolène BENHAMOU (2) 10,733 10,173 Véronique CHAUFFERT YVART (2) 12,600 12,600 Caroline DELCOURT (3) - 8,280 (4) Thierry DIGOUTTE (3) 8,280 (4) 7,590 (4) Bruno FLICHY 7,000 2,333 Aymeric le BIDEAU (3) - 2,759 (5) Medhi MADJI (3) 6,899 (4) - (6) Thierry MULLIEZ 6,416 7,000 Anne PERRIN 7,700 7,700 Annie PRIGENT (3) 7,590 (5) 5,520 (5) Jean-François SAMMARCELLI (2) 10,850 12,600 Bernardo SANCHEZ INCERA 5,366 - (7) TOTAL 83,434 76,555
* The individual allocation of attendance fees has been reviewed since the General Shareholders’ Meeting of May 2016. It was increased from €6,000 to €10,000 per Board member and to €2,000 per member of the Risk and Audit committees. (1) Net amounts paid to individuals after deducting mandatory withholding tax and social security contributions. (2) Also member of the Risk Committee and the Audit Committee (following the resignation of Sophie-Ségolène BENHAMOU in May 2019). (3) Director representing employees. (4) Gross amount paid to the CDN union (CFDT), net of tax. (5) Gross amount paid to the CDN union (SNB), net of tax. (6) Did not stand for re-election as employee representative on the CDN Board of Directors. (7) Resigned.
Table 4
STOCK OPTIONS GRANTED DURING THE FISCAL YEAR TO EACH CORPORATE OFFICER BY THE ISSUER AND BY ANY COMPANY BELONGING TO THE GROUP
The Board of Directors of Societe Generale (SG) did not award any stock options in 2019.
Table 5
SOCIETE GENERALE STOCK OPTIONS EXERCISED DURING THE FISCAL YEAR BY EACH CORPORATE OFFICER
The last Societe Generale (SG) stock option plan expired in 2017.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 31 Corporate Governance 2 Board of Director’s report on corporate governance
Table 6
SOCIETE GENERALE SHARES AWARDED TO EACH CORPORATE OFFICER
Value of shares awarded, Number according to the of shares method used for Date of awarded the consolidated observation of during the financial performance Performance- Amount in EUR Grant date Reason for award fiscal year statements (1) criterion Release date based
Terms of payment of annual 3,279 73,187 31/03/2021 01/10/2021 Yes (3) variable compensation due in respect of 2018 (1) 3,280 68,650 31/03/2022 01/10/2022 Yes (3)
Terms of payment of annual variable compensation due 576 12,056 31/03/2022 01/10/2022 Yes (4) Philippe 13/03/2019 (2) in respect of 2018 AYMERICH (3) Long-term incentive due 14,800 126,244 31/03/2023 01/04/2024 Yes (1) in respect of 2018 14,800 139,860 31/03/2025 01/04/2026 Yes (3)
(4) Long-term incentive due 576 6,255 31/03/2023 01/10/2023 Yes in respect of fiscal year 2018 578 6,560 31/03/2024 01/10/2024 Yes (4) Terms of payment of variable component due in respect 1,511 31,625 31/03/2022 01/10/2022 Yes (4) Françoise of 2018 MERCADAL 13/03/2019 (2) 1,511 16,409 31/03/2023 01/10/2023 Yes (4) DELASALLES Long-term incentive due in respect of fiscal year 2018 1,512 17,161 31/03/2024 01/10/2024 Yes (4)
Terms of payment of variable 1,085 24,217 31/03/2021 01/10/2021 Yes (4) Jean-Louis 13/03/2019 (2) component due in respect KLEIN (5) of 2018 1,085 22,709 31/03/2022 01/10/2022 Yes (4)
(1) The amounts of the variable component were determined by the SG Board of Directors at its meeting of 6 February 2019. The corresponding performance shares were awarded by the SG Board of Directors at its meeting of 13 March 2019. (2) The corresponding performance shares were awarded by the SG Board of Directors at its meeting of 13 March 2019. (3) The performance criteria applied are described in Chapter 3 of the Societe Generale Universal Registration Document on the remuneration of Chief Executive Officers. (4) The performance criteria applicable are described in the Performance and Remuneration report available on societegenerale.com (5) Jean-Louis KLEIN began his term of office as Deputy Chief Executive officer on 14 May 2018. The number of shares reported includes those granted in respect of his duties as an employee prior to becoming Deputy Chief Executive Officer of CDN.
32 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Governance Board of Director’s report on corporate governance 2
Table 7
SOCIETE GENERALE SHARES RECEIVED DURING THE FISCAL YEAR BY EACH CORPORATE OFFICER Grant date Number of shares received during the fiscal year Philippe AYMERICH (1) 18/05/2016 1,813 Françoise MERCADAL DELASALLES (1) 12/03/2015 1,968 Jean-Louis KLEIN (2) 12/03/2015 546
(1) Shares awarded in respect of deferred variable compensation awarded in 2016 in respect of 2015. (2) Françoise MERCADAL DELASALLES began her term of office on 1 July 2017. The number of shares reported corresponds to the remuneration granted in respect of his duties as an employee prior to taking up his office at CDN. (3) Jean-Louis KLEIN began his term of office at CDN on 14 May 2018. The number of shares reported corresponds to the remuneration granted in respect of his duties as an employee prior to taking up his office at CDN.
Note: Shares arising from the share buyback programme.
SOCIETE GENERALE SHARE EQUIVALENTS RECEIVED DURING THE FISCAL YEAR BY EACH CORPORATE OFFICER (1) Number of share equivalents Amount paid Grant date vested during the fiscal year (in euros) Philippe AYMERICH 31/03/2019 1,678 43,437 Françoise MERCADAL DELASALLES (2) 31/03/2019 4,457 115,376 Jean-Louis KLEIN (3) 31/03/2019 2,441 63,189
(1) Share equivalents received as deferred variable compensation awarded in 2019 in respect of fiscal year 2018.
Table 8 The last Societe Generale (SG) stock option plan expired in 2017.
Table 9 No stock option plan was established by Societe Generale during fiscal year 2019. The last Societe Generale (SG) stock option plan expired in 2017.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 33 Corporate Governance 2 Board of Director’s report on corporate governance
Table 10
HISTORY OF PERFORMANCE SHARES AWARDED DISCLOSURES ON PERFORMANCE SHARES AWARDED Date of SG Shareholders’ Meeting 23/05/2018 18/05/2016 18/05/2016 18/05/2016 20/05/2014 Date of SG Board of Directors’ meeting 13/03/2019 14/03/2018 15/03/2017 18/05/2016 12/03/2015 Total number of shares awarded 177,725 110,665 113,849 149,210 97,032 o/w number awarded to corporate officers (1) Corporate Officer 1: Philippe AYMERICH 37,889 2,815 2,857 3,626 - Corporate Officer 2: Françoise MERCADAL 4,534 2,436 4,136 5,905 DELASALLES (2) Corporate Officer 3: Jean-Louis KLEIN (3) 2,170 779 816 1,093 - Total number of beneficiaries 360 347 420 401 514 See table below See table below See table below See table below 31/03/2017 (R) Vesting date 31/03/2019 (NR) See table below See table below See table below End date of holding period (4) See table below 31/03/2019
Performance-based (5) Yes Yes Yes Yes Yes 36.4 (R) Fair value (in €) (6) See table below See table below See table below See table below 34.9 (NR) Number of shares vested at 31/12/2019 0 0 8,712 112,411 95,209 Total number of cancelled or expired shares 928 2,239 3,503 4,447 1,823 Performance shares outstanding at year-end 176,797 108,426 101,634 32,352 0
(1) For the corporate officers, see also Tables 6 and 7 of the Universal Registration Document. (2) Françoise MERCADAL DELASALLES’ term of office as Deputy Chief Executive Officer began on 1 July 2017. The number of shares reported under the 2018 share award includes those granted in respect of her previous duties as Head of Resources and Innovation of Societe Generale Group. The shares awarded in 2016 and 2017 were granted before she began her term of office, in respect of her previous duties as Head of Resources and Innovation of Societe Generale Group. The corresponding shares are therefore not included in the total number of shares awarded to CDN employees. (3) Jean-Louis KLEIN began his term of office as Deputy Chief Executive officer on 14 May 2018. The shares awarded in 2016, 2017 and 2018 were granted in respect of his duties as a Crédit du Nord employee prior to taking up his office. These shares are therefore not included in the total number of shares awarded to CDN employees. The number of shares reported under the 2019 share award includes those granted in respect of his duties as an employee prior to becoming Deputy Chief Executive of CDN. (4) Applicable to beneficiaries who are French tax residents only. (5) The performance criteria applicable are described in the Performance and Remuneration report available on societegenerale.com
R = French tax residents. NR = Non-French tax residents.
34 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Governance Board of Director’s report on corporate governance 2
DETAILED INFORMATION ON THE 2016 PERFORMANCE SHARE PLAN (1) Date of SG Shareholders’ Meeting 18/05/2016 Date of SG Board of Directors’ meeting 18/05/2016 Total number of shares awarded 149,210 o/w number awarded to corporate officers (2) Corporate Officer 1: Philippe AYMERICH 1,813 - - 1,813 Corporate Officer 2: Françoise MERCADAL 1,968 - - 3,937 DELASALLES (3) Corporate Officer 3: Jean-Louis KLEIN (4) 546 - - 547 29/03/2018 31/03/2020 29/09/2019 31/03/2021 (First tranche) (First tranche) Vesting date 29/03/2019 31/03/2022 - - (Second tranche) (Second tranche) End date of holding period 30/09/2018 01/04/2021 N/A 02/10/2021 30/09/2019 01/04/2023 Performance-based (6) Yes Yes Yes Yes 30.18 22.07 (First tranche) Fair value (First tranche) Fair value (in €) (5) 32.76 28.92 (in29.55 21.17 (Second tranche) (Second tranche)
(1) Under the annual long-term employee incentive and performance share plan, in accordance with the retention and compensation policy for regulated categories of employees within the meaning of banking regulations (including corporate officers and members of the Executive Committee). (2) For the corporate officers, see also Tables 6 and 7 of the Universal Registration Document. (3) Françoise MERCADAL DELASALLES’ term of office as Deputy Chief Executive Officer began on 1 July 2017. The shares awarded in 2016 were awarded by Societe Generale in respect of her previous duties as Group Head of Resources and Innovation. (4) Jean-Louis KLEIN began his term of office as Deputy Chief Executive officer on 14 May 2018. The shares awarded in 2016 were granted in respect of his duties as a CDN employee prior to taking up his office. (5) The performance criteria applicable are described in the Performance and Remuneration report available on societegenerale.com (6) Performance shares are marked to market, including a holding period discount.
DETAILED INFORMATION ON THE 2017 PERFORMANCE SHARE PLAN (1) Date of SG Shareholders’ Meeting 18/05/2016 Date of SG Board of Directors’ meeting 15/03/2017 Total number of shares awarded 113,849 o/w number awarded to corporate officers (2) Corporate Officer 1: Philippe AYMERICH 1,428 - - 1,429 Corporate Officer 2: Françoise MERCADAL 1,378 - - 2,758 DELASALLES (3) Corporate Officer 3: Jean-Louis KLEIN (4) 408 - - 408 29/03/2019 31/03/2021 31/03/2020 31/03/2022 (First tranche) (First tranche) Vesting date 31/03/2020 31/03/2023 - - (Second tranche) (Second tranche) End date of holding period 30/09/2019 01/04/2022 N/A 02/10/2022 02/10/2020 01/04/2024 Performance-based (5) Yes Yes Yes Yes 42.17 27.22 (First tranche) (First tranche) Fair value (in €) (6) 41.05 43.75 40.33 26.34 (Second tranche) (Second tranche)
(1) Under the annual long-term employee incentive and performance share plan, in accordance with the retention and compensation policy for regulated categories of employees within the meaning of banking regulations (including corporate officers and members of the Executive Committee). (2) For the corporate officers, see also Tables 6 and 7 of the Universal Registration Document. (3) Françoise MERCADAL DELASALLES’ term of office as Deputy Chief Executive Officer began on 1 July 2017. The shares awarded in 2017 were awarded by Societe Generale in respect of her previous duties as Group Head of Resources and Innovation. (4) Jean-Louis KLEIN began his term of office as Deputy Chief Executive officer on 14 May 2018. The shares awarded in 2017 were granted in respect of his duties as a Crédit du Nord employee prior to taking up his office. (5) The performance criteria applicable are described in the Performance and Remuneration report available on societegenerale.com (6) Performance shares are marked to market, including a holding period discount.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 35 Corporate Governance 2 Board of Director’s report on corporate governance
DETAILED INFORMATION ON THE 2018 PERFORMANCE SHARE PLAN (1) Date of SG Shareholders’ Meeting 18/05/2016 Date of SG Board of Directors’ meeting 14/03/2018 Total number of shares awarded 110,665 o/w number awarded to corporate officers (2) Corporate Officer 1: Philippe AYMERICH 1,407 - - 1,408 Corporate Officer 2: Françoise MERCADAL 1,218 - - 1,218 DELASALLES (3) Corporate Officer 3: Jean-Louis KLEIN (4) 389 - - 390 31/03/2020 31/03/2022 31/03/2021 31/03/2023 (First tranche) (First tranche) Vesting date 31/03/2021 29/03/2024 - - (Second tranche) (Second tranche) End date of holding period 01/10/2020 01/04/2023 N/A 01/10/2023 01//10/2021 31/03/2025 Performance-based (5) Yes Yes Yes Yes 40.39 26.40 (First tranche) (First tranche) Fair value (in €) (6) 39.18 39.17 38.59 24.43 (Second tranche) (Second tranche)
(1) Under the annual long-term employee incentive and performance share plan, in accordance with the retention and compensation policy for regulated categories of employees within the meaning of banking regulations (including corporate officers and members of the Executive Committee). (2) For the corporate officers, see also Tables 6 and 7 of the Universal Registration Document. (3) Françoise MERCADAL DELASALLES’ term of office as Deputy Chief Executive Officer began on 1 July 2017. The number of shares reported under the 2018 share award includes those granted in respect of her previous duties as Head of Resources and Innovation of Societe Generale Group. (4) Jean-Louis KLEIN began his term of office as Deputy Chief Executive officer on 14 May 2018. The shares awarded in 2018 were granted in respect of his duties as a Crédit du Nord employee prior to taking up his office. (5) The performance criteria applicable are described in the Performance and Remuneration report available on societegenerale.com (6) Performance shares are marked to market, including a holding period discount.
DETAILED INFORMATION ON THE 2019 PERFORMANCE SHARE PLAN (1) Date of SG Shareholders’ Meeting 23/05/2018 Date of SG Board of Directors’ meeting 13/03/2019 Total number of shares awarded 177,725 o/w number awarded to corporate officers (2) 44,593 Corporate Officer 1: Philippe AYMERICH 7,135 - 29,600 1,154 Corporate Officer 2: Françoise MERCADAL 1,511 - 3,023 DELASALLES Corporate Officer 3: Jean-Louis KLEIN (3) 2,170 - 31/03/2021 31/03/2023 31/03/2023 31/03/2022 (First tranche) (First tranche) (First tranche) Vesting date 31/03/2022 31/03/2025 29/03/2024 - (Second tranche) (Second tranche) (Second tranche) End date of holding period 01/10/2021 01/04/2024 01/10/2023 N/A 01//10/2022 01/04/2026 01/10/2024 Performance-based (4) Yes Yes Yes Yes 22.32 8.53 (First tranche) (First tranche) 11.35 Fair value (in €) (5) 21.4 20.93 9.45 (Second tranche) (Second tranche) (Second tranche)
(1) Under the annual long-term employee incentive and performance share plan, in accordance with the retention and compensation policy for regulated categories of employees within the meaning of banking regulations (including corporate officers and members of the Executive Committee). (2) For the corporate officers, see also Tables 6 and 7 of the Universal Registration Document. (3) Jean-Louis KLEIN began his term of office as Deputy Chief Executive officer on 14 May 2018. The number of shares reported includes those granted in respect of his duties as an employee prior to becoming Deputy Chief Executive Officer of CDN. (4) The performance criteria applicable are described in the Performance and Remuneration report available on societegenerale.com (5) Performance shares are marked to market, including a holding period discount.
36 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Governance Board of Director’s report on corporate governance 2
Table 11
SITUATION OF THE CORPORATE OFFICERS Compensation or benefits due as a result Compensation Employment contract Supplementary of termination or related to a non- Dates of offices with Crédit du Nord (1) pension plan (2) change of position compete clause
Start End Yes No Yes No Yes No Yes No Philippe AYMERICH Chairman of the Board since 14 May 2018 2012 2022 (4) XX(3) XX Françoise MERCADAL DELASALLES Chief Executive Officer: 2017 2021 X X (3) XX Jean-Louis KLEIN Deputy Chief Executive Officer 2018 2021 X X (3) XX
(1) As regards the combination of a corporate office with an employment contract, the only positions addressed by the AFEP-MEDEF recommendations are Chairman of the Board of Directors, Chairman and Chief Executive Officer, and Chief Executive Officer of companies with a Board of Directors. (2) Detailed information on the supplementary pension plans is provided in the section entitled “Information on Corporate Officers” in the CDN Universal Registration Document and in the “Corporate Governance” chapter of the Societe Generale 2020 Universal Registration Document. (3) Paid by SG. (4) Term ending at the 2023 Shareholders’ Meeting called to approve the financial statements for the year ending 31 December 2022.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 37 Corporate Governance 2 Draft Resolutions: General Shareholders’ Meeting of 7 May 2020
Draft Resolutions: General Shareholders’ Meeting of 7 May 2020
Calling for the approval of the Ordinary Shareholders’ Meeting
First resolution “The General Meeting, under the conditions required by Ordinary General Approval of the consolidated Meetings as to quorum and majority, after considering the reports of the Board financial statements of Directors and the Statutory Auditors on the consolidated financial statements, approves the transactions cited therein, the balance sheet closed 31 December 2019, and the income statement for fiscal year 2019. The General Meeting approves consolidated net income after taxes of €328,224,000.00.”
Second resolution “The General Meeting, under the conditions required by Ordinary General Approval of the individual Meetings as to quorum and majority, having been informed of the reports of financial statements and the Board of Directors and the Statutory Auditors on the individual financial discharge of directors statements, approves the transactions cited therein, the balance sheet closed 31 December 2019, and the income statement for fiscal year 2019. The General Meeting approves the net income after taxes of €188,417,172.20. Consequently, the General Meeting fully and without reservation releases the directors from their mandates for said fiscal year.”
Third resolution “The General Meeting, under the conditions required by Ordinary General Distribution of earnings Meetings as to quorum and majority, resolves to allocate net income for the period amounting to €188,417,172.20. Profits plus earnings carried forward from the previous period, i.e. €531,078,562.10, resulted in total income available for distribution of €719,495,734.30, which the General Meeting resolves to allocate in full to retained earnings. In accordance with the law, shareholders are hereby reminded that the following dividends were distributed over the past three years: – Fiscal year 2018: €3.06 per share; – Fiscal year 2017: €2.05 per share; – Fiscal year 2016: €1.53 per share.”
Fourth resolution “The General Meeting, under the conditions required by Ordinary General Agreements addressed by Meetings as to quorum and majority, formally acknowledges the Statutory Article L. 225-38 et seq. of the Auditors’ Special Report on agreements addressed by Articles L 225-38 et seq. French Commercial Code of the French Commercial Code, approves this report and notes that there are no new agreements to submit for approval.”
Fifth resolution “The General Meeting, under the conditions required by Ordinary General Consultative opinion on the Meetings as to quorum and majority, having read the report of the Board, compensation paid in 2019 consulted in accordance with Article L. 511-73 of the French Monetary and to the persons referred to in Financial Code, issues a favourable opinion of the overall budget of €XXX,000 Article L. 511-71 of the French for all types of remuneration paid during fiscal year 2019 to the persons referred Monetary and Financial Code to in Article L. 511-71 of the French Monetary and Financial Code.”
38 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Governance Draft Resolutions: General Shareholders’ Meeting of 7 May 2020 2
Sixth resolution “The General Meeting, under the conditions required by Ordinary General Approval of the compensation Meetings as to quorum and majority, having read the report of the Board, in policy for the Chief Executive accordance with Article L. 225-37-2 of the French Commercial Code, approves Officer and Deputy Chief the compensation policy for the Chief Executive Officer and Deputy Chief Executive Officer pursuant Executive Officers as presented in the Universal Registration Document.” to Article L. 225-37-2 of the French Commercial Code
Seventh resolution “The General Meeting, under the conditions required by Ordinary General Approval of the components Meetings as to quorum and majority, having read the report of the Board of of total remuneration and Directors, in accordance with Article L. 225-100 of the French Commercial benefits of any kind paid Code, approves the components of total remuneration and benefits of or awarded to Françoise any kind paid or awarded to Françoise MERCADAL DELASALLES, Chief MERCADAL DELASALLES, Executive Officer, as presented in the Universal Registration Document.” Chief Executive Officer, in accordance with Article L. 225-100 of the French Commercial Code
Eighth resolution “The General Meeting, under the conditions required by Ordinary General Approval of the components Meetings as to quorum and majority, having read the report of the Board of remuneration and benefits of Directors, in accordance with Article L. 225-100 of the French Commercial any kind paid or awarded to Code, approves the components of remuneration and benefits of any kind paid Jean-Louis KLEIN, Deputy or awarded to Jean-Louis KLEIN, Deputy Chief Executive Officer, as presented Chief Executive Officer, in the Universal Registration Document.” in accordance with Article L. 225-100 of the French Commercial Code
Ninth resolution “The General Meeting, under the conditions required by Ordinary General Reappointment of a director Meetings as to quorum and majority, hereby reappoints Véronique CHAUFFERT YVART as a director for a term of four years. Her office will expire at the General Meeting called in 2024 to approve the 2023 financial statements.”
Tenth resolution “The General Meeting, under the conditions required by Ordinary General Reappointment of a director Meetings as to quorum and majority, hereby reappoints Anne PERRIN as director for a term of four years. Her office will expire at the General Meeting called in 2024 to approve the 2023 financial statements.”
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 39 Corporate Governance 2 Draft Resolutions: General Shareholders’ Meeting of 7 May 2020
Calling for the approval of the Extraordinary Shareholders’ Meeting
Eleventh resolution “The General Meeting, under the conditions required by Extraordinary General Meetings as to Approval of an quorum and majority, having heard the partial transfer of assets agreement and the reports of agreement with the Board of Directors and the Mergers Commissioner, approves all provisions of said treaty SDBM covering a and its appendices, and more generally, the transaction under which the activities of Crédit du partial transfer of Nord’s branch in Monaco, representing net assets of €1,518,594 are transferred to Société de assets Banque Monaco (SDBM). It is expressly agreed that the liabilities acquired by SDBM will not be jointly and severally guaranteed by Crédit du Nord. Shareholders note that the partial transfer of assets will only be completed after the Extraordinary General Shareholders’ Meeting of SDBM that approves said transfer and completes the corresponding capital increase and approves the notarised deed confirming the removal of conditions precedent established by the notary public responsible for the formalities pertaining to the capital increase by Société de Banque Monaco. The effective date of the transfer will be set in the notarised deed confirming the removal of the conditions precedent included in the two partial transfer of assets agreements concerning respectively Crédit du Nord and Société Marseillaise de Crédit with Société de Banque Monaco.”
Twelfth resolution “The General Meeting, under the conditions required by Extraordinary General Meetings Specific powers as to quorum and majority, authorises the Chief Executive Officer to act alone in signing statements of sincerity and compliance.”
Thirteenth resolution The General Meeting, under the conditions required by Extraordinary General Meetings as Amendment to to quorum and majority, pursuant to Article 185 of the PACTE act on business growth and the by-laws transformation, which deletes the term “Attendance fees”, modifies Article 17 of the by-laws as follows: Previous wording: Article 17 – Attendance fees Members of the Board may receive remuneration in the form of attendance fees, the total amount of which, as set by the General Shareholders’ Meeting, is shared between beneficiaries by the Board of Directors in the proportions it deems fit, taking into account members’ attendance of Board meetings. New wording: Article 17 - Remuneration of directors Members of the Board may receive remuneration for their duties, the total amount of which, as set by the General Shareholders’ Meeting, is shared between beneficiaries by the Board of Directors in the proportions it deems fit.
Fourteenth resolution “All powers are granted to bearers of a copy or extract of the minutes of this General Meeting Powers to carry out all formalities and publications relating to the preceding resolutions.”
40 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Governance Statutory Auditors’ special report on related-party agreements 2
2.3 Statutory Auditors’ special report on related-party agreements
Annual General Meeting held to approve the financial statements for the year ended December 31, 2019
This is a translation into English of the Statutory Auditors’ report on related-party agreements that is issued in French and it is provided solely for the convenience of English-speaking users. This report on related-party agreements should be read in conjunction, and construed in accordance with, French law and professional auditing standards applicable in France. It should be understood that the agreements reported on are only those provided by the French Commercial Code and that the report does not apply to those related-party transactions described in IAS 24 or other equivalent accounting standards.
To the Annual General Meeting of Crédit du Nord,
In our capacity as Statutory Auditors of your Company, Shareholders’ Meeting pursuant to Article L. 225-38 of the we hereby report on certain related-party agreements. French Commercial Code (Code de commerce). The terms of our engagement require us to communicate to you, based on information provided to us, the principal Agreements already approved terms and conditions of those agreements brought to by the annual general meeting our attention or which we may have discovered during In accordance with Article R. 225-30 of the French the course of our audit, as well as the reasons justifying Commercial Code, we have been advised that why they benefit the Company, without expressing the following agreements already approved by the an opinion on their usefulness and appropriateness Shareholders’ Meeting during previous years, continued or identifying other such agreements , if any. It is your during the year responsibility, pursuant to Article R. 225-31 of the French Commercial Code (Code de commerce), to assess the interest involved in respect of the conclusion of these With Société Générale, shareholder agreements for the purpose of approving them. of your company Our role is also to provide you with the information a) Nature and purpose stipulated in Article R. 225-31 of the French Commercial Management of Crédit du Nord IT infrastructure Code relating to the implementation during the past year by Société Générale’s ITIM team. of agreements previously approved by the Shareholders’ Meeting. Terms and conditions We conducted the procedures we deemed necessary Crédit du Nord, retail bank, outsourced the management in accordance with the professional guidelines of the and evolution of its information system to Société French Institute of Statutory Auditors (Compagnie Générale’s ITIM team, namely CHANGE IT (dedicated Nationale des Commissaires aux Comptes) relating to the Crédit du Nord and corresponding the projects to this engagement. These procedures consisted in and developments of information system of Crédit verifying the consistency of the information provided to du Nord or mutualized between Crédit du Nord and us with the relevant source documents. Société Générale) and RUN which are non-Projects and Evolutions prestations’ corresponding of the Agreements submitted for approval maintenance or the exploitation of Crédit du Nord’s to the annual general meeting existing tools. This contract with Société Générale was signed in December 2016. It cancels and replaces the We hereby inform you that we have not been advised of contract signed with Société Générale SIOP team in any agreement or commitment authorized and concluded 2012 which had been the object of an authorization of during the year to be submitted to the approval of the the Board of Directors of May 6, 2011.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 41 Corporate Governance 2 Statutory Auditors’ special report on related-party agreements
For the year ended December 31, 2019, billing for d) Nature and purpose services performed under the Contract signed between Mutualization of back office payment activities (GTPS) ITIM and Crédit du Nord amounted to K€ 123 747 excluding tax. Terms and conditions b) Nature and purpose As part of the payment back office pooling project, three platforms were created for all France networks located Management of Crédit du Nord IT infrastructures. in Paris of cheques, cash flows and electronic banking, in Schiltigheim (Bas-Rhin) for electronic banking and in Terms and conditions Lille (Nord) for flows. RESG / GTS contract concluded with Crédit du Nord This project is linked to Société Générale Group’s as part of the management of Crédit du Nord Group’s regulatory obligations, rated as a systemic institution, IT infrastructures. Contract which ensures the evolution, which must therefore implement a particularly resilient deployment, production and maintenance of IT technical device for payment. infrastructure services for the network or headquarters. This contract with Société Générale was signed in Your board of Directors of May 28, 2014 has authorized December 2016. the signing of texts required for the implementation of this project, i.e. the signature of: For the year ended December 31, 2019, billing for services performed under the Contract signed between • a framework agreement (RESPAY) on date of July 1, Société Générale and Crédit du Nord amounted to 2014 which defines the general conditions under which K€ 49 050 excluding tax. Société Générale’s teams will perform the treatment of “means of payment” activities of the Crédit du Nord c) Nature and purpose Group ; Management of Crédit du Nord’s HRIS. • application contracts on date of July 11, 2014, which detail the services provided by Société Générale on Terms and conditions behalf of Crédit du Nord Group. Crédit du Nord has benefited from RESG / BSC In 2016, a ninth application contract was signed services in the field of Human Resources (HRIS: Human regarding mutualized projects to cover all the services Resources Information System) and certain applications provided by Société Générale on behalf of the Crédit du described in the RESG/BSC catalog, including Nord Group. the Electronic Document Storage and Archiving In June 2017, a tenth application contract was signed, Services and Data (SCAD). This contract was signed relating to the processing services of SEPA and ETECE in December 2016. flows. For the year ended December 31, 2019, billing for In May 2018, a framework contract for the provision of services performed under the Contract signed between payment services was signed. Société Générale and Crédit du Nord amounted to For the financial year ended December 31, 2019, the K€ 4 448 excluding tax. amount of services billed to Crédit du Nord amounted to K€ 21 845 excluding tax, with K€ 20 508 excluding taxes for “means of payments” services and K€ 1 338 excluding taxes for mutualized projects. .
Paris-La Défense, April 22, 2020
The Statutory Auditors French original signed by
DELOITTE & ASSOCIES ERNST & YOUNG et Autres Marjorie BLANC LOURME Vincent ROTY
42 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Management Report 3
Management Report ______44 1. Presentation of Crédit du Nord Group’s situation during Fiscal Year 2019 44 2. Internal control and risk management procedures relating to the preparation and processing of accounting and financial information 62 Glossary of key technical terms used ______70
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 43 Management Report 3
MANAGEMENT REPORT 1. Presentation of Crédit du Nord Group’s situation during Fiscal Year 2019 Economic environment
Global economy activity continued to slow in 2019, The French economy should stay fairly resilient, reflecting the stagnation in global trade and widespread outperforming the German economy but with downturn in investment, especially in the manufacturing significantly weaker public finances and the permanent sector. challenge of butting up against an unyielding structural The profit cycle hit maturity in the United States and landscape. The dynamics of local elections in Italy may several major euro zone economies. Efforts to restore generate new concerns over the stability of the existing profit margins can be expected to take a toll on coalition. investment and employment, with adverse impacts on French GDP fell even further in 2019, coming out at domestic demand. 1.4% due to waning exports and slowing household The economic outlook will be significantly influenced by investment. It is pegged to slide to 0.8% and 0.7% how governments respond to multiple major political in 2020 and 2021, respectively, before picking up challenges, such as defining an appropriate policy mix slightly in 2022 (1.1%). The 2020-2021 forecast can capable of addressing low structural growth and high be chalked up to weaker foreign trade momentum and debt. A new approach to global governance is also relocations of production capacities in the automotive warranted, primarily in the form of trade agreements sector. Furthermore, the resurgence of social tensions in and political agreements to combat climate change response to reforms threatens to put a short-term dent and meet the challenges of the digital transition (e.g. in domestic demand. employee training). The United Kingdom left the European Union on The world’s major central banks became more January 31, 2020, embarking on the transition period accommodative this year amid low global inflation and set to end on December 31, 2020. The risk at this point declining growth prospects. The Federal Reserve cut is the UK could arrive at that deadline without reaching its rates three times after July 2019, hitting a range of a trade agreement. 1.50% to 1.75%, and ended its balance sheet reduction Business investment is forecast to remain moderate efforts. given the uncertainties surrounding future trade relations The ECB will soon be revising its strategy, potentially with the EU. The UK posted GDP growth of 1.2% in changing how it conducts its monetary policy, particularly 2019, which should drop to just 0.2% in 2020 and 0.5% with the addition of green criteria. in 2021. Growth slowed further in the euro zone this year, hitting The US recorded persistently robust GDP growth of 1.2%, due in part to the simultaneous slowdown in 2.3% in 2019, with unemployment at record 5-decade exports and manufacturing. The risk of US protectionist low. That said, economic growth is expected to gradually policies is likely to affect global supply chains, weighing lose momentum in light of the administration’s neutral on multinational corporations, including those in the euro fiscal policy and eroding profit margins. zone. The Fed cuts its key rate again in response to trade Growth is expected to slow to 0.7% in 2020 and 0.4% uncertainties and the downturn in global growth. in 2021. Key risks include seeing trade tensions intensify and financial conditions tighten.
44 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Management Report 3
At 6.1%, China’s GDP growth was adversely impacted Restated net fee income fell -2.6% owing to restrictive by trade tensions with the United States. regulations (cap on third-party notification fees, limitation In addition, the Chinese authorities addressed on incident penalties charged to vulnerable customers) growing debt by adopting a conservative approach and growing risk aversion in the wake of the steep to quantitative easing in a bid to stimulate economic market downturn at end-2018. activity. The slowdown should stabilise at 5.8% in 2020 Crédit du Nord continued working on its and 5.5% in 2021. digitisation and digital transformation plans, aimed at improving sales efficiency Amid persistently declining interest rates, and customer satisfaction Crédit du Nord Group delivered flagging financial performances 2019 saw the following main achievements: Compared to end-December 2018, consolidated NBI • more detailed customer dashboard. After entering was down -5.2 % to €1,808.9m at December 31, 2019. their login and password on our websites and Operating expenses climbed +2.2% to -€1,316.2m, with applications, individual and professional customers personnel expenses holding steady. are now greeted with a new personalised snapshot of their account status; As a result, gross operating income shed -20.6% to €492.7m relative to December 2018. • expanded online services: the Debit Card self- service range now includes a temporary blocking/ Cost of risk hit a record low of €44.6m, attributable to unblocking feature, allowing customers to block non-recurring items (including the year-end arrangement the use of their card in real time and cut down on of a synthetic securitisation in the Large Corporate/ cancellations when not yet sure that the card was SME segment) and the positive impact of recalibrated actually lost or stolen. A real-time notification service inputs to provisioning models. Restated for these items, provides clients with information on their debit cards cost of risk amounted to €92 million (18 bp) in 2019 for easier management: cancellation confirmed, versus €122 million in 2018 (25bp) (based on identical payment limit exceeded, temporary blocking/ restatements). unblocking confirmed, first transaction abroad, etc.; Operating income fell by -18.6% to €448.1m. • new mobile payment solution: after Apple Pay, Consolidated net income totalled €328.2 million, down launched in November 2018, Crédit du Nord rolled -21.7%. out yet another easy and secure payment solution for Crédit du Nord Group’s ROE came to 9.5 % and its fully android smartphones with Samsung Pay; loaded Basel 3 Common Equity Tier 1 ratio to 11.3 % at • development of Self-Service ATMs to process December 31, 2018. retailer deposits, with nearly 350 ATMs available Restated for the PEL/CEL provision, non-economic across all regions of operation; items (credit value adjustment on XVA derivatives), • gradual roll-out of electronic signature as of the TLTRO bonus, capital gains on disposal of HQLA 2018 for consumer loans (Etoile Express and Etoile shares, capital gains on the disposal of VISA shares, Avance): now customers can sign up for LDDS provision reversals due to the VAT exemption on third- sustainable development and solidarity passbook party notification fees and inheritance, and exceptional savings accounts, auto insurance and the Sécurité provision reversals on the litigation portfolio, Group NBI 12 policy (accidental death benefits) via electronic was down -3.3 % at December 31, 2019. signature. Professional customers can electronically Net interest income restated for the above items shed sign up to 20 different types of contracts (account -3.5 %, mainly owing to the negative impacts of the opening, debit card, insurance policies, etc.); low interest rate environment and substantial deposit outflows.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 45 Management Report 3
• customers can digitally take out Group for “enterprising customers” (simplify my business payment protection insurance now that a secure operations, pay/deposit, build my real estate portfolio, medical page has been set up to complete health etc.). It also offers à la carte solutions, enhanced with questionnaires and sign the associated contractual the products and services offered by our partners in documents via electronic signature; all markets, aimed at building up business through all • online auto insurance: the entire process, from digital contact points. estimate to contract signature, can be completed At the same time, loyal to its tradition of seamlessly on the customer’s secure account page, partnerships, Crédit du Nord stepped up 24/7; its open banking approach to offer its • digitisation of internal processes as part of customers a range of banking and non- the overhaul of the real estate acquisition process banking products and services tailored as thanks to the arrival of the electronic filing system. An closely as possible to their needs electronic file is automatically created when the home Crédit du Nord entered into several different agreements loan is set up by the advisor, replacing the paper and partnerships with fintechs and traditional economic file and used to store the supporting documents players in 2019, providing them with new innovative and provided by the customer. The file can be shared personalised offers: by all internal staff (advisors, managers, front office, • the release of Convention Etoile, the new modular back office, commitment department), making it package for individual customers which can be easier to complete the application and more efficient personalised to meet their individual needs, has to process it; met with resounding success. Package options • In-branch end-to-end account opening were made even more attractive thanks to new procedure for professional customers: as of partnerships: First of all, AéroTag by Tracernet September 2019, advisors can open accounts (included in the international option) offers protection for professional customers and sign them up for and geolocation services for luggage around the associated bank products directly at the branch world. Juridica, online purchase insurance included in or from the customer’s home. Crédit du Nord thus the family option, provides an out-of-court settlement serves as the single direct entry point for creating service in the event online purchases are not delivered an account and buying products and services, or fail to meet the seller’s description. with an improved system that guides the customer • in the second half of 2019, Crédit du Nord started seamlessly through the process; a new partnership with Lumo, a French fintech • New Digital Showcase developed at SMC in belonging to SG Group. As a result, customers can late 2019, set to launch in all other regions and now go online and invest directly in renewable energy subsidiaries in early 2020: with the overhaul of projects rooted in their regions via this market-leading corporate websites, Crédit du Nord Group has crowdfunding platform. improved its visibility in terms of existing and potential • a new payment protection insurance policy for customers. The new showcase, which embodies the medium-term loans and lease financing arrangements Group’s engagement in the regions, is focused on is available through Aon/SwissLife, specifically visitors in the core target segment, core target guests, covering medical professionals. displaying the wide range of products and services
46 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Management Report 3
• in light of its successful partnership with Payzen, an to €2.4bn, primarily in EUR-denominated funds as the innovative online payment solution launched in 2017 markets went into wait-and-see mode at the cycle peak. on the professional and corporate customer markets, New investments in unit-linked vehicles took a turn for the offer has been fully integrated in Crédit du Nord ‘s the worse at end-December (-3.2 points). e-commerce range under the brand name “Clic&Pay The Private Banking business line recorded another by groupe Crédit du Nord.” strong performance at end-December: • two new offers have been added to the range for • the number of Private Banking customers continued professional and executive management customers, growing at a fast pace (+8% year on year), climbing namely Simplébo, an easy-to-use solution for to 4,407 in 2019, with net inflows up +14% over the creating a personalised showcase website, and year. Captain Contrat, which helps executive managers • NBI, excluding interest income on loans, rose +6% with legal and labour matters in running their year-on-year to €66.7m. company. Property and personal insurance for individual • a new electronic banking partner, JDC, customers recorded robust new business, with sales has rounded out the range of EPT leasing and of new products on the rise thanks to a gradually maintenance solutions for professional and corporate expanding range of options. The gross number of new customers, with a new device allowing smartphones policies picked up sharply, with 142,000 policies sold to be used to track deposits of debit card payments at end-December, representing an +18% increase over in real time. 2018. Life and Non-Life insurance continued to The insurance range was recently expanded to include drive growth in 2019 a new remote surveillance offer for individual customers Financial savings business was once again on a good in 2018 and additional insurance products with the track, with total assets in custody up +8.6%, driven overhaul of the Individual Customer Package in H1 by life insurance products. Off-balance sheet savings 2019. deposits (life insurance, ST and MT UCITS) climbed
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 47 Management Report 3
Sales activity
The present analysis of Crédit du Nord Group’s sales Stable Professional customer base activity extends across the entire scope of the Group’s Our Professional customer base (business accounts, banks, i.e. Crédit du Nord and its subsidiary banks. and business + personal accounts) continued to The indicators shown relate to euro-based businesses, expand in 2019 (restated for a project effect). Crédit which account for virtually all of the Group’s activities. du Nord earned nearly 17,866 new professional Outstanding loans and growth in customer bases are customers (not including exclusively personal banking based upon period-end figures. customers) in 2019. The Group focused in particular on account activation and quality of customer acquisition, Quality-driven individual customer targeting companies created more than 2 years ago. acquisition Customer acquisition was once again very strong in the Crédit du Nord Group welcomed more than 100,000 Independent Professionals segment, with more than new individual customers in 2019 while focusing on core 4,905 new customers recorded at end-December 2019, target segments. After reviewing its IT bases in March served by specialist advisors. and April, the Individual customer base decreased to 1.8 (1) million active individual customers . Professional Customer Base (at December 31) Individual Customer Base Number of customers (thousands) (at December 31) Number of customers (thousands)
155 156 159 159
2016 2017 2018 (1) 2019
(1) Pro forma applied in 2017 subsequent to the change in classification. 1,892 1,910 1,835 1,800 Crédit du Nord’s emphasis on close relations and 2016 2017 2018 2019 convenience means that each Professional or Business The bank draws on its Professional and Corporate customer has a dedicated advisor keen on addressing customer base to develop relations with corporate their personal and business banking needs: 69% of our executives and offer their employees a range of products professional customers also rely on Crédit du Nord for and services from its partners. their personal banking needs.
(1) Intrinsically active customers or customers belonging to an active household.
48 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Management Report 3
Ongoing development of the Corporate cash surplus among Corporate customers, which also customer base (+0.8 %) benefited from low-rate loans to fund their investments. The active Corporate Customer base grew by +0.8 %. Regulated savings account deposits climbed +4.6% Crédit du Nord serves as the main bank for more than to €10 billion at end-December. Livret A and ordinary one third of its Corporate customers. passbook savings accounts recorded robust deposit growth in the Individual customer base (+6% and Business Customer Base +9.2%, respectively). LDD sustainable passbook savings account deposits posted less of an improvement (at December 31) (+3.1%), as did PEL inflows (+1.8%), while CEL deposits Number of companies (in thousands) sagged -1.6% year-on-year. Term account deposits remained on a downtrend, shedding -2.4% compared to December 2018 due to lower rates of return and non-renewal of interest payments on CDs and medium-term notes. Only term account deposits continued to rise in 2019 (+13.9%).
On-Balance Sheet Savings Deposits 41.1 41.9 42.9 43.2 (at December 31) (in €bn) 2016 2017 2018 2019 41.3 42.9 43.6 46.6 On-balance sheet savings continued to +6.8% climb in 2019 7.5 Driven by demand deposits (up +10%), deposit inflows 9.6 7.6 11.3 -2.4% gained another +6.8% compared to end-December 10.0 2019, with outstandings hitting €46.6 billion, thus 9.0 9.5 8.7 maintaining the sharp uptrend since 2016. +4.6% Demand deposits climbed +10.1 % year-on-year in the Individual Customer market and +10.4 % in the +10.3% Professional and Corporate Customers market. 21.2 24.3 26.4 29.2 The nearly €3bn rise in total on-balance sheet deposits over the last year once again reflected an increase in 2016 2017 2018 2019 disposable savings among Individual customers and a Sight deposits CERS Other deposits
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 49 Management Report 3
Off-balance sheet savings on the rise in Robust growth in new home loans, 2019 particularly in second-half 2019 Life insurance AuM expanded by +€1.5bn in 2019, In the wake of the steep decline in 2018, new home loan geared more towards EUR-denominated funds as the activity picked up again in H1 2019 before ramping up markets fell into wait-and-see mode, i.e. an increase significantly in H2 (especially in October and December), of +7.6% compared to December 2018 and +2.9% in improving +51.4% year-on-year. cumulative average AuM at end-December. Outstanding home loans amounted to €25.1 billion at Overall, savings under management (on- and off-balance end-December, up +9.9% in 2019. sheet) climbed 7.7% year-on-year. Crédit du Nord continued to apply a selective risk policy to the amounts of customer down payments, debt ratios Off-balance sheet savings deposits and sales of loans limited to terms of 25 years or less. (at December 31) (in €bn) New housing loans 27.1 28.5 27.7 30.1 (at December 31) +8.6% (in €m) 1.9 +51.4% 2.1 1.9 0.1 1.9 0.5 0.2 +1.2% 0.4 -25.8%
+7.6% 21.7 19.6 20.3 20.1
5,188 6,534 4,460 6,753 5.3 5.7 5.5 +16.2% 6.3 2016 2017 2018 2019 2016 2017 2018 2019
Other Custody Life insurance ST mutual funds MLT mutual funds
50 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Management Report 3
Robust growth in consumer loans Through its longstanding relations with the All Crédit du Nord Group advisors strive to help customers of French SMEs, Crédit du Nord actively contributes to the funding of the customers achieve their goals with respect for their economy individual financial situation. After a record year in terms of new personal loans, business remained strong in New equipment loans dipped slightly in 2019, losing 2019 with €845m in disbursements, down just slightly -0.7% in comparison with the record performance of (-0.4%) compared to 2018. Driven by significant new 2018. Outstanding equipment loans saw fast-paced lending activity, outstanding personal loans rose +4.4% growth (+7.4%), ending the year at €12.2 billion. versus December 2018. The total volume of loans to the economy in corporate customer segment came to €15.2 billion at end- December 2019, a year-on-year improvement of +5.3%.
New personal loans New equipment loans (at December 31) (at December 31) (in €m) (in €m) -0.4% -0.7%
733 762 848 845
2016 2017 2018 2019 2,8603,492 3,625 3,598
Total outstanding loans to Individual Customers totalled 2016 2017 2018 2019 €27.1 billion, up +9.6% year-on-year.
Outstanding loans to Individual customers (at December 31) (in €bn) 22.7 24.224.7 27.1
+9.6% 0.3 +22.9% 0.2 0.2 0.3 1.8 1.6 1.7 +3.5% 1.6
+9.9% 20.9 22.4 22.8 25.1
2016 2017 2018 2019
Housing loans Consumer loans Overdrafts
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 51 Management Report 3
New equipment leases climbed another +2.8% year-on-year in 2019, on the heels of a record 2018 performance. Outstandings also remained on an uptrend (+6 %).
New equipment leasing activity Outstanding business loans (at December 31) (at December 31) (in €m) (in €bn)
12.3 13.3 14.4 15.2 +2.8% +5.3% 1.4 1.5 -5.2% 1.4 1.6 1.4 1.6 +0.2% 1.5 1.4
+7.4%
722 721 793 815
2016 2017 2018 2019 9.5 10.4 11.3 12.2
2016 2017 2018 2019
Housing loans Consumer loans Overdrafts
52 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Management Report 3
Financial developments
The financial information presented below was taken from the consolidated financial data for Crédit du Nord Group, prepared in compliance with IFRS (International Financial Reporting Standards).
Net banking income
(in €m) (including change in PEL/CEL provision) 31/12/2019 31/12/2018 % change 2019/2018 Net interest and similar income 959.7 1,049.9 -8.6 Net fee income 849.2 858.9 -1.1 NBI 1,808.9 1,908.8 -5.2
Net banking income In order to provide an economic approach to financial (at December 31) performance, the following data are restated in the Consolidated Group scope (in €m) analyses of Group results: -5.2% • TLTRO bonus (+€8.2 million at end-December 2019 before tax); • capital gains on the sale of HQLA and EIRLESS shares (+€3.0 million in 2019 before tax); • disposal of VISA shares (+€16.7 million at end- December 2019 before tax); • provision on PEL/CEL outstandings (-€13.3m before tax); 2,006 1,891 1,909 1,809 • credit value adjustment on XVA derivatives (€4.1 million before tax); 2016 2017 2018 2019 • macro-hedging (-€0.7 million before tax); • exceptional reversals on the litigation portfolio (€2.9 million before tax); • provision reversals due to the VAT exemption on third- party notification fees and inheritance (€12.3 million before tax). Restated for these items, Group NBI fell -3.3% to €1,775.8 million (€1,836.4 million at end-December 2018). Net interest income restated for the above items declined -3.5%, impacted by the adverse impacts of the low interest rate environment.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 53 Management Report 3
Net fee income Service fees were up +0.5% thanks to provision (at December 31) reversals associated with the VAT exemption on third- Consolidated Group scope (in €m) party notification fees and inheritance, offsetting the impact of the restrictive regulatory environment (cap on 826.5 853.1 858.9 849.2 third-party notification fees and limitation on incident -1.1% penalties charged to vulnerable customers as from March 2019). The rise in insurance fees (payment protection insurance, 206.6 193.4 195.9 219.9 casualty insurance, etc.) helped offset the drop in fees -6.4% on payment instruments (excl. debit cards) and the erosion of limit overrun fees. Financial fees were down -6.4%, with the rise in risk aversion early in the year affecting investment business (stock exchange fees, fund and life insurance investment fees).
630.6 633.2 652.3 +0.5% 655.9 Overall, consolidated net fee income dipped -1.1%. Restated for provision reversals due to the VAT 2016 2017 2018 2019 exemption on third-party notification fees and Service fee income Financial fee income inheritance, consolidated net fee income fell -2.6%.
54 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Management Report 3
Operating expenses
(in €m) 31/12/2019 31/12/2018 % change 2018/2019 Personnel expenses -691.9 -692.0 -0.0 Taxes -45.4 -38.3 +18.6 Other operating expenses -470.7 -482.4 -2.4 Depreciation and amortisation -108.1 -75.5 +43.2 TOTAL OPERATING EXPENSES 1,316.2 -1,288.2 +2.2
Operating expenses climbed +2.2% year-on-year at Operating expenses end-December 2019: (at December 31) • personnel expenses were stable Consolidated Group scope (in €m) • taxes picked up +18.6%, due in large part to the +2.2% increase in SRF contributions • other operating expenses were down -2.4% • depreciation and amortisation increased +43.2%). This rise can be attributed to the application of IFRS 16 “Leases”. Crédit du Nord Group recognised a lease liability representing rent payment obligations under “Other liabilities” and a right-of-use asset 1,231.8 1,285.9 1,288.2 1,316.2 under “Tangible and intangible fixed assets.” The interest expense on the lease liability was recorded 2016 2017 2018 2019 under “Interest and similar expenses” and the depreciation expense on the right-of-use asset under “Amortisation and depreciation expense on intangible and tangible fixed assets”.
At end-December 2019, the Group had 7,494 active employees, bringing the headcount down slightly by -0.7% year-on-year.
31/12/2019 31/12/2018 % change 2019/2018 Pro-rata active staff count - Group 7,494 7,548 -0.7
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 55 Management Report 3
Gross operating income
(in €m) 31/12/2019 31/12/2018 % change 2019/2018 NBI 1,808.9 1,908.8 -5.2 Operating expenses 1,316.2 -1,288.2 +2.2 GOI 492.7 620.5 -20.6
Book GOI totalled €492.7 million in 2019, down -20.6% The book cost-to-income ratio was 72.8%. Restated, compared to December 2018. Restated for the above it was 74.4% versus 70.5% in December 2018, an items, GOI fell by -16.2%. increase of +3.90 points.
Gross operating income (GOI) Cost-to-income ratio (at December 31) (at December 31) Consolidated Group scope (in €m) Consolidated Group scope (%)
-20.6%
773.7 605.4 620.5 492.7 61.4 68.0 67.5 72.8
2016 2017 2018 2019 2016 2017 2018 2019
56 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Management Report 3
Cost of risk
(in €m) 31/12/2019 31/12/2018 % change 2019/2018 Cost of risk -44.6 -70.0 -36.3 Gross on-balance sheet loans 51,405.2 48,272.2 6.5 Cost of risk/outstanding loans -0.09% -0.15 % -0.06 pt
Crédit du Nord Group’s consolidated cost of risk came Provisions for S3 doubtful and disputed loans, net of to €44.6 million in 2019 versus €70.0 million in 2018. collateral, climbed to 84.1%, with overall defaulted Divided by total loans issued by the Group, cost outstandings on the decline (-11% year-on-year, i.e. of risk came out at 0.09%, i.e. a drop of 6 basis a decrease of more than €230 million), thanks to points compared to 2018, reflecting a combination dynamic management of disputed loans (primarily in the of decreased cost of risk and increased performing corporate and professional customer segments) and exposures. initiatives taken to monitor non-performing loans. This low cost of risk can be attributed to one-off items Provisions for S1/21 performing loans stood at 0.31%, and the positive impact of recalibrated provisioning down slightly (-4 bp) compared to 2018. Cost of risk model inputs. Restated for these items, cost of risk generated income in 2019, on the back of: amounted to €92 million (18 bp) in 2019 versus • the year-end arrangement of a synthetic securitisation €122 million in 2018 (25 bp) (based on identical (securitised exposures totalling €1.4 billion in the large restatements). corporate/SME segment), resulting in recognition of In the corporate customers market, 2019 cost of risk for income receivable (reimbursement claim representing S3 defaulted loans was moderate and down from 2018, the compensation owed to the bank on the hedged which was impacted by one major loan. The fourth portfolio); quarter of the year saw a slight upturn in new defaults in • positive impact of recalibrated provisioning model this market, however, with the total remaining moderate. inputs. In the individual and professional customer markets, 2019 cost of risk on S3 defaulted loans fell significantly (-74%) compared to 2018. Restated for the recalibration of statistical provisioning model inputs and non-recurring events, cost of risk recorded a lesser decline of 39%, reflecting a lower base of defaulted exposures and more effective collections.
(in €m) 31/12/2019 31/12/2018 % change 2019/2018 S3 doubtful and disputed loans (gross on-balance sheet amount) 2,035.3 2,273.6 -10.5 Impairments of individually impaired S3 loans (on-balance sheet amount) -1,124.9 -1,238.0 -9.1 Ratio of doubtful and disputed loans (gross) to total loans (gross on-balance sheet amount) 4.0% 4.7% -0.7 pt Loss allowance ratio for doubtful and disputed loans net of guarantees received on defaulted exposures in the balance sheet 84.1% 77.9% 6.2 pt
(in €m) 31/12/2019 31/12/2018 % change 2019/2018 Performing exposures (on-balance sheet) 49,369.9 45,998.6 7.3 Impairments of individually impaired S1+S2 loans (on-balance sheet) -154.5 -159.1 -2.9 Provisioning ratio for performing S1+S2 loans (on-balance sheet) 0.31% 0.35% -0.04 pt
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 57 Management Report 3
Operating income
Taking cost of risk into account, Crédit du Nord Group Operating income generated operating income of €448.1 million in 2019, (at December 31) down -18.6% in relation to December 2018. Restated Consolidated Group scope (in €m) operating income shed -13.2%.
637.7 491.9 550.5 -18.6% 448.1
-44.6 -136.0 -113.5 -70.0 -36.3%
2016 2017 2018 2019
Cost of risk Operating income
Operating income before corporation tax
(in €m) 31/12/2019 31/12/2018 % change 2019/2018 GOI (1) 492.7 620.5 -20.6 Cost of risk -44.6 -70.0 -36.3 OPERATING INCOME 448.1 550.5 -18.6 Net income from companies accounted for by the equity method 33.9 40.7 -16.7 Gains or losses on fixed assets 1.5 0.8 nm OPERATING INCOME BEFORE CORPORATION TAX 483.6 592.1 -18.3
Net income
Consolidated net income amounted to €328.2 million at end-December 2019, down -21.7% versus December 2018. Restated for the aforementioned items, consolidated net income declined -17.1%.
(in €m) 31/12/2019 31/12/2018 % change 2019/2018 OPERATING INCOME BEFORE CORPORATION TAX 483.6 592.1 -18.3 Corporation tax -155.4 -172.9 -10.1 CONSOLIDATED NET INCOME 328.2 419.1 -21.7
58 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Management Report 3
Capital adequacy and liquidity
CDN Group reiterated its zero tolerance for structural supervised on an individual basis and is subject to the interest rate and liquidity risks under its risk appetite STE and ILAAP pertaining to liquidity risk. framework. ALM oversight is subject to a governance The rapid development of on-balance sheet deposits system in acordance with a perfectly centralised and growing use of collateralised loans have secured organisational structure, with a single decision-making a strong positioning for the Group in terms of funding. body and strict management of its positions based on It boasts surplus liquidity positions in all maturities, still internal and regulatory limits. CDN Group is classified above the limits set by the SG Finance Committee at as a Category 2 institution by the ECB. As such, it is December 31, 2019.
Group long-term liquidity gap 8,000 7,000 6,000 5,000 3,710 3,834 3,184 3,564 3,420 3,425 4,000 3,347 3,108 2,670 2,321 2,850 2,493 3,000 2,060 1,045 1574 2,000 1,050 490 1,000 97 222
-1,000 -74 -2,000 -3,000 -4,000 1 year 2 years 3 years 4 years 5 years 6 years 7 years 8 years 9 years 10 years 11 years 12 years 13 years 14 years 15 years 16 years 17 years 18 years 19 years 20 years
CDN Group’s regulatory liquidity position remained in line with the targets defined by SG Group: LCR still over 110% (averaging 130% in 2019) and NSFR still above 120%.
Crédit du Nord Group LCR
180%
160% 147% 138% 138% 138% 135% 138% 133% 129% 133% 131% 132% 130% 140% 128% 124% 118% 128% 128% 128% 124% 122% 122% 119% 119% 120%
100%
80%
60%
40%
20%
0% feb. 18 march 18 apr. 18 may 18 june 18 jul. 18 aug.18 sept. 18 oct. 18 nov. 18 dec. 18 janv. 19feb. 19 march 19 apr. 19 may 19 june 19 jul. 19 aug.19 sept. 19 oct. 19 nov. 19 dec. 19
Interest rate positions are governed primarily by internal systematically initiated in order to maintain a very low limits, expressed as the sensitivity of the present value residual balance sheet exposure. At December 31, of the modelled position. Whenever the limits set by the 2010, all limits governing interest rate risk indicators SG Group Finance Committee are reached, hedges are were observed.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 59 Management Report 3
ALM data are produced by a central team, which addition to the IT system reserved for ALM and regulatory operates under the principles of governance defined by data production, are covered by comprehensive Societe Generale Group. All metrics generated by the documentation and subject to assessments ensuring team are reported to the DFIN/ALM, DFIN/GTR and that they meet the requirements set for the robustness RISQ/ALM teams, which work closely with the CDN and security of production processes. teams. Fusion Risk, the application used by CDN, in
Outlook
In a restricted market and a vastly changing environment will be focused on insurance and personal protection - with customers changing their preferences and new products in a bid to strengthen our positioning as a players coming on the scene - Crédit du Nord plans bancassurance provider and meet the full range of to forge ahead with its transformation while confirming customer needs; its unique positioning and engagement: contributing to • at end-2019, Crédit du Nord decided to help Prisméa the economic development of enterprising customers establish a neobank specialising in meeting the basic working sustainably in the regions. needs of professional customers (freelancers, auto Crédit du Nord has centred its strategy on 3 ambitions: entrepreneurs and micro enterprises). Starting in • Being the bank for enterprising customers, by early 2020, this online banking solution offering flat- convening the highest level of expertise for greater rate products and services will round out the range of customer satisfaction; experts made available to professional customers at our branches; • Being a Bank that is there for its customers when and where it is needed, in person and • lastly, we will once again be putting considerable effort through digital channels, with the guarantee of a intoproviding our employees with the support local branch in the area and the best digital tools, all they need during our transformation, with the aim of founded on a relationship banking model tailored to ensuring they maintain the level of expertise required each customer; to meet market expectations and anticipate changes in the bank’s businesses. • Being a bank that makes quick decisions, working closely with local and regional economic Furthermore, in keeping with this model, Crédit du Nord operators, and with teams given the autonomy to Group has decided to better grasp the potential of the make quick decisions to meet our customers’ needs Monegasque market by combining the Crédit du Nord as soon as possible. and Société Marseillaise de Crédit brands into a new banking subsidiary via a partial contribution of assets in Drawing on the transformations and progress achieved 2020. this year towards these ambitions, and building on its solid foundation, Crédit du Nord will move forward with The Management Report does not address the impacts its strategy in 2020: of the Covid-19 epidemic, which had not really taken hold in Europe at the time the Board of Directors • we are still making adjustments to our sales approved the financial statements for fiscal year 2019 structure, changing up our branch formats and on February 26, 2020. However, the “Outlook” section developing new business lines specialised in wealth has since been updated. management, protection, independent professionals and VSEs. All our wealth management specialists and Covid-19 emerged in China in December 2019 and businesses are now equipped to travel where they are has spread to multiple countries around the world. needed, and all professional customer advisors and The World Health Organisation officially declared the branch directors will be equally equipped by 2020; Covid-19 epidemic to be a pandemic in March 2020. The spread of the virus and the government measures • we plan to continue expanding our range of products taken in response (closed borders, travel restrictions, and services by entering into new partnerships, confinement) are having a direct impact on economic driven by our new digital showcase. The spotlight activity and the financial markets worldwide.
60 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Management Report 3
The Covid-19 pandemic has created a very uncertain the country started 2020 with negative growth of -1% environment at this point. Global trade, consumer due to the steep drop in household consumption and services and the financial markets have been extensively GDP (-6% year-on-year). The launch of the Covid-19 disrupted. The critical factors at this time are just how crisis in January 2020 has made a recession virtually long the various confinement measures will last and inevitable, with the added impact of having to postpone whether or not the political initiatives taken to prevent the Olympic Games. Chinese growth has been heavily a monetary liquidity crisis will be enough to avoid a affected by the Covid-19 epidemic, despite the reduced downward spiral of defaults. All around the world, a spread of the virus since March. Economic activity is series of measures has been implemented to curb the likely to bottom out in Q1 2020 before gradually picking economic impact of the crisis. up over the course of the year. GDP growth is expected Chinese political authorities were quick to introduce to decline all across Asia, due to strong ties with China measures aimed at mitigating the impact of the and the global economy. health crisis, such as lowering interest rates, reducing For the euro zone, Covid-19 exacerbated the problems mandatory bank reserves, increasing public spending, already plaguing the region, including in particular the conducting local government transfers and supporting ongoing transition of the automotive industry and Brexit. businesses by partially eliminating social security Covid-19 will generate a growth shock. Targeted fiscal contributions. China’s markets have recovered measures and falling oil prices will only offset some of somewhat, primarily because Covid-19 is thought to the initial shock, and the unemployment rate is expected have peaked and companies are gradually resuming to climb from H2 2020 onward. The UK’s slowdown in business operations. The world’s main central banks the wake of Brexit, more moderate uptrend in Chinese have also done their part to address the crisis. The Fed growth, and the cyclical turnaround expected in the US immediately reduced interest rates by 50 basis points in 2021 promise to be the major factors underlying the and injected cash in the short-term money markets, euro zone depression. while also cutting the fed funds rate to zero. The ECB In France, Covid-19 will trigger a very negative shock announced cash injections aimed at facilitating access to business activity and the economy will sink into to TLTROs, then increased the net amount of the Asset recession. The projected improvement in H2 2020, Purchase Programme from now to the end of the year the steep drop in oil prices and a more expansionist by €120 billion on March 12 and by €750 billion on fiscal policy will only partially offset the initial shock. March 19. The Bank of England also announced an Foreign trade momentum will take a major hit in 2020- emergency 50 bp rate cut at a special meeting. And, like 2021. Covid-19 will impact exports by causing supply their euro zone counterparts, the supervisory authorities chain disruptions and a steeper-than-expected drop relaxed regulatory requirements governing minimum in demand. The decline in foreign demand will have capital ratios applicable to banks. a marginal effect on the domestic economy starting On the fiscal front, the US Congress adopted an in 2020. Moreover, the Covid-19 epidemic will further emergency coronavirus spending bill, part of which is slow domestic demand, despite the increase in public earmarked to disburse low interest rate lows to SMEs. demand as well as the measures taken to shore up Euro zone member states announced public health household cash and income. As a result, household and measures to prevent the virus from spreading, coupled especially business investment will plummet in 2020. with business stimulus initiatives. CDN Group is exposed to these pandemic risks and its The global economy is likely headed for a recession in consequences on the economy and the markets due 2020. The US economy began showing signs of tension to its general inherent exposure to macroeconomic in late 2018, with rising production costs and waning conditions and market conditions. We are currently foreign demand weighing on corporate profits. Growth assessing the consequences of the coronavirus health is expected to gradually decline due to decreased crisis on our activity. Our priority since the crisis began fiscal support and profit erosion. Persistent political has been to guarantee the safety of our colleagues uncertainties stemming from trade tensions, the Covid- while continuing to the best of our ability to provide our 19 crisis and the November presidential elections should customers with banking services in order to contribute also take a toll on investments. Japan is also on track our fair share to the economy during these exceptional for a major economic downturn in 2020, slowed by the times. consumer tax hike enacted in Q4 2019. Furthermore,
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 61 Management Report 3
2. Internal control and risk management procedures relating to the preparation and processing of accounting and financial information
Internal control procedures apply to all entities within requirements. These reports are also submitted to each Crédit du Nord Group. entity’s decision-making body. The activities of Crédit du Nord Group take place within a secure framework guaranteed by banking regulations Controls performed by the shareholder and the control system put in place by its shareholder As a member of Société Générale Group since 1997, (1). Crédit du Nord also benefits from the control system As a network bank with strong regional roots and a established by its shareholder. customer base essentially comprised of individuals and This system focuses primarily on risk exposure, the SMEs, Crédit du Nord and its subsidiaries are exposed accuracy of financial and management accounting data to various risks (2). and the quality of information systems. Internal Control at Crédit du Nord Group is based on Systematic controls are performed by the majority a system that draws a distinction between Permanent shareholder as part of a programme of regular Control and Periodic Control (3). inspections of Group entities aimed at ensuring that As regards accounting and financial management, a procedures are being applied. pooled information system is shared by virtually all the As the shareholder also conducts retail banking companies in the Group, and in particular the banking activities, comparisons between the two networks make subsidiaries. This system provides the means to enforce it easier to control risk. Crédit du Nord’s rules and procedures while allowing the bank to centralise all the data needed to monitor the results and activities of Group companies in real time (4). 2. Banking risks 1 - Overall interest rate, foreign exchange and 1. A secure framework liquidity risks (excluding market activities) With regard to overall risk management, Crédit du Nord Regulatory reporting Group draws a distinction between structural balance sheet risks (Asset and Liability Management or ALM) and The annual report on internal control and on risk risks related to trading activities. measurement and oversight, prepared in accordance with Articles 258 to 266 of the Ministerial Decree of November 3, 2014, was sent to the Risk Committee 1-1 Asset and liability management (ALM) in April 2019 and was the subject of a report to the Reporting directly to the Finance Division of Crédit du decision-making body. Nord (DGF), the ALM unit comes under the authority of The ACPR (French Prudential Supervisory and Crédit du Nord’s Chief Financial Officer. It measures and Resolution Authority) receives the individual annual oversees liquidity and interest rate risks for each Group reports from each Crédit du Nord subsidiary and the entity (banking and non-banking subsidiaries). The ALM consolidated annual report for Crédit du Nord Group. unit is responsible for monitoring and analysing Crédit du Nord Group’s exposure to mismatched interest rate and In addition to reports addressing specific topics that it liquidity positions. might request, each year the Group’s RSCIs (Investment Services Compliance Officers) provide the AMF (French The ALM unit applies the liquidity and interest rate securities regulator) with the completed questionnaire risk management standards and principles defined by on compliance with investment service provider Societe Generale Group’s Finance Division.
62 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Management Report 3
An ALM Committee, chaired by the Chief Executive and has complied with these ratios since October 2015. Officer, meets once a month to make decisions on how The ALM unit is currently responsible for producing and to manage liquidity and interest rate risks based on the analysing the CRD4 liquidity ratios (LCR and NSFR) of associated risk metrics produced. Crédit du Nord Group and the liquidity sub-group via Shareholder control is exercised through a series of a process coordinated with Societe Generale Group. It submits the LCR monthly and the NSFR quarterly to reports and participation in the ALM Committee by a the ACPR. The ALM unit is also in charge of oversight member of the Finance Division and a member of the and projections of the short-term LCR. Responsibility for Risk Division of Societe Generale Group. overseeing Crédit du Nord Group’s LCR is shared with The ALM unit uses an application called “Fusion Risk” to the Treasury and Foreign Exchange Department (which prepare the dashboard for the ALM Committee as well reports to the Chief Financial Officer) for the purpose of as the various reports submitted to the shareholder and implementing the necessary actions. These items are the ACPR. discussed by the ALM Committee. CDN Group now relies on Societe Generale’s IT Finally, the liquidity risk supervision and management infrastructure and maintenance, shared by the various tools have been expanded. Since 2015, two Asset ALM tools used by SG Group, to centralise relations with Encumbrance reports, consistent with FINREP, have the software publisher and sync version upgrades of SG been submitted to the ACPR on a quarterly basis. Since Group’s Fusion Risk. April 2016, new Additional Monitoring Tools (funding The gaps presented at the ALM Committee meetings concentration, financing cost and renewal, concentration are produced using “Fusion Risk”. These gaps are then of liquid assets) have also been submitted to the ACPR entered into the community tool, “Basyliq”, used by on a monthly basis. Societe Generale Group to consolidate the indicators of Crédit du Nord Group has also taken part in the Short- the various Group entities. Term Exercise, at the ECB’s request, since end-2015, and reports information on liquidity risk. Liquidity risk In 2019, in its response to an ECB recommendation Crédit du Nord measures and oversees liquidity risk(1) Crédit du Nord Group developed a daily monitoring and its issuance programme using gaps (static and system for assets and liabilities as well as the main stressed), based on “asset-liability” scenarios, and using liquidity indicators at D+2. regulatory liquidity ratios (LCR and NSFR). Liquidity risks reflect a mismatch between balance sheet Interest rate risk assets and liabilities over the short, medium or long term. All assets and liabilities of Group banks, excluding those Funding requirements or surpluses are measured by the related to trading activities, are subject to an identical set liquidity gap, governed by thresholds and limits defined of rules governing interest rate risk management. by the Societe Generale Group Finance Committee. Crédit du Nord primarily bases the measurement of its Threshold breaches are subject to action plans aimed interest rate risk on a calculation of the fixed interest rate at resolving and preventing the recurrence of the breach. gap and its sensitivity to several interest rate shocks. The Group oversees its cash management within this Fixed-rate gaps are calculated monthly for the Group framework. Changes in the structure of the balance and for each banking entity in the Group. NPV sensitivity sheet and its run-off are managed by the ALM unit is also calculated monthly for the Group. This calculation and monitored by the ALM Committee, which in turn covers the entire banking book. It is subject to thresholds determines the refinancing requirements of the Group’s and limits defined by the Societe Generale Group entities. Finance Committee. Threshold breaches are subject Since mid-2014, Crédit du Nord Group has been to action plans aimed at resolving and preventing the required to report the liquidity ratios defined by the CRD4 recurrence of the breach.
(1) In accordance with regulatory provisions, regulatory liquidity ratios are not determined for each legal entity, but rather for a broader scope including Crédit du Nord parent company, its banking subsidiaries and brokerage firm Gilbert Dupont. This scope is referred to as the «liquidity sub-group» and is subject to general oversight.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 63 Management Report 3
Within this framework, Crédit du Nord Group enforces 1-2 Trading activity a consistent hedging policy against interest rate risk Barring exceptions, transactions in derivatives linked to by instituting the appropriate hedges to reduce the customer transactions are hedged by Crédit du Nord’s exposure of Group entities to interest rate fluctuations. shareholder, with Crédit du Nord holding only residual The hedges recommended by ALM and validated by the proprietary positions in such products. ALM Committee, cover all Group entities, each of which is specifically monitored. Controls of limits assigned to these trading activities by General Management are performed by the Treasury and In a bid to improve internal oversight and meet its Foreign Exchange Department in accordance with the regulatory reporting requirements, Societe Generale standards adopted by the majority shareholder. launched an IRRBB (Interest Rate Risk in the Banking Book) project in March 2015. The purpose of the project The results of these activities are checked by the was to centralise the management and measurement of appropriate control teams (see paragraph on “Market Societe Generale Group’s interest rate and option risks risks” below). in a shared software tool, and to expand the interest rate and option risk oversight system. 2- Market risks linked to customer-driven Crédit du Nord Group’s ALM unit joined the project transactions in 2015. The first deliveries were made in 2016 and Crédit du Nord consistently matches customer orders, work on the project has been since been continued in mainly through its shareholder, thus significantly reducing conjunction with Societe Generale Group. its exposure to market risks. In 2018, the Societe Generale Group Finance Committee A specialised team drawn from staff in the Treasury and approved the implementation of the new IRRBB Foreign Exchange Department and the Central Risk oversight system. Supervision and oversight indicators Division monitors market and counterparty risks on include: market transactions. • NPV sensitivity to +10 bp and -10 bp shocks These risks are calculated on a daily basis and compared (including dependent interest rate models); with the limits. Any market limit breaches are reported to the Chief Risk Officer, the heads of the Treasury and • NPV sensitivity in two stress scenarios identical to Foreign Exchange Department, and the Chief Executive those defined by RISQ/MAR for the supervision of Officer. interest rate risk in market activities. A breach control report is submitted to the majority In 2019, the SG Group Finance Committee approved shareholder once every day. The Chief Financial Officer the expansion of the oversight system, with supervision receives a monthly report on changes in limits and of the Group’s NII sensitivity and the risk generated by oversight of results. The Chief Executive Officer also loans with indexed variable interest rates. Supervision receives a quarterly report on changes in limits from the and oversight indicators include: Treasury and Foreign Exchange Department. • NII sensitivity to +10 bp and -10 bp shocks; • Sensitivity of positions to indexed variable rates to a 3 - Climate change risks +10 bp shock. Climate change risks, whether physical (increased Crédit du Nord Group has also taken part in the Short- frequency of extreme climate-related events) or Term Exercise (STE), at the ECB’s request, since end- transitional (new carbon regulations), are not a new 2015, and reports information on interest rate risk. category of risk, but rather are identified as aggravating factors of the Group’s existing risks, and particularly credit and operational risks.
64 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Management Report 3
Crédit du Nord Group applies the general environmental banking or audit field. The periodic control system and social (E&S) principles and the E&S sector policies is part of Societe Generale’s General Inspection and of Societe Generale, in particular the “coal” sector policy, Audit Division (IGAD). The shareholder’s audit teams or to the implementation of its credit policy. combined teams also regularly conduct periodic controls In the day-to-day management of credit risks, both of Crédit du Nord Group, particularly regarding IT issues. physical risks and transitional risks are incorporated in The annual audit plan is prepared based on the regular sector micro and macro analyses as well as individual and methodical identification of the risk areas to which credit risk analysis for countries and sectors with the the Bank and its Subsidiaries are exposed while taking highest exposure. Changes in sensitivity to these risks into account the key areas of focus of the Group’s is monitored by the Risk Committee, which plans to Management, Internal Control Coordination Committee, further include this risk factor as it continues its work Risk Committee and regulators. The plan is approved and conducts specific initiatives, such as raising the by Crédit du Nord’s General Management based on awareness of credit analysis to changes in these risks. the recommendation of Crédit du Nord’s Inspector General, in conjunction with Societe Generale’s General Inspection and Audit Division. 3. Organisation of internal control Periodic Control assignments include an evaluation Crédit du Nord’s General Inspection and Audit Division phase, aimed at identifying the risk areas calling for (IGAD) reports directly to the Chief Executive Officer, investigation in the scope of audit, plus an on-site audit who guarantees the independence of this office, and and a reporting phase. The Crédit du Nord Inspector functionally to Societe Generale’s Periodic Control General submits the resulting report directly to General Department (DCPE). Management at the end of the assignment. As a member of the Executive Committee, the Periodic Control directly monitors the application of the Corporate Secretary supervises the Permanent Control, recommendations contained in the report. Compliance, Investment Services Compliance (RCSI), Financial Security, Group Affairs, Legal Affairs and A review of the work performed and observations Disputes divisions. made by Periodic Control, and the application of its recommendations, are monitored by Crédit du Nord An Internal Control Coordination Committee (CCCI) is Group’s Periodic Control Committee and Internal Control chaired by the Chief Executive Officer, and comprises Coordination Committee. the members of the Executive Committee and the Heads of Periodic Control, Permanent Control, Compliance, Furthermore, the Inspector General reports on his Operational Risks, Information System Security, Financial work to the Crédit du Nord Board of Directors’ Risk Security and the RCSI. This committee met four times Committee, which meets in the presence of an IGAD in 2019. representative.
1 - Periodic Control System 2 - Permanent Control Crédit du Nord Group’s Periodic Control system The head of each entity must perform a Level One covers all Crédit du Nord Group activities. Its role is control on transactions and operations conducted to assess the compliance of transactions carried out, within his remit. Branch and Business Centre managers the level of risk incurred, observation of procedures must adhere to a predefined plan (detailing frequency and the efficiency and suitability of the permanent and risks to be controlled) and must record and report control system. It also performs any special analyses on certain controls performed; specialised supervisory requested by Crédit du Nord’s General Management. staff also assist the branches with the day-to-day Periodic Control is staffed by recent university graduates monitoring of accounts. and experienced managers with a background in the
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 65 Management Report 3
A Level Two control is conducted by dedicated 4. Production and control of personnel, who report directly to the head of local financial and accounting data control (Region, Subsidiary or Operating Division), who The Chief Financial Officer, who reports to the Chief in turn reports directly to the Regional or Subsidiary Executive Officer, is responsible for the production and Director and operate under the authority of Crédit du control of financial and accounting data. Nord Group’s Head of Permanent Control. As such, he oversees the proper application of The controllers of the Group Compatibility Department applicable accounting rules and guidelines, and monitors (DCIG report to the Finance Division, but operate recommendations issued by the Statutory Auditors. under the authority of Crédit du Nord Group’s Head of Permanent Control. Applicable accounting standards are French standards for the preparation of parent company financial The scheduling and details of these controls are statements and the standards formulated by Societe determined for each of these entities. Generale Group’s Finance Division for the preparation The Head of Permanent Control reports on permanent of the consolidated financial statements, which are controls to the General Management of Crédit du Nord based on IFRS accounting standards as adopted by the and to the members of the Executive Committee at each European Union. meeting of the Internal Control Coordination Committee. Pursuant to European Regulation No. 1606/2002 of July 19, 2002, Crédit du Nord Group is required to prepare Regional and Subsidiary Level One and Two its consolidated financial statements in compliance with administrative and accounting controls IFRS. The Line Management Control Manual sets out both the In addition, Crédit du Nord Group is also required to requirement for vigilance (day-to-day security: reception, publish the regulatory reports (SURFI, COREP, FINREP, opening of mail, filing, etc.) and a limited number of etc.) submitted to the national supervisory authorities controls to be formally established by the hierarchy (ACPR and Banque de France). (recognition of value at branches, sensitive procedures such as anti-money laundering, compliance with MiFID, The Finance-Accounting function is divided into three CRS, etc.). These controls may be delegated on the Shared Service Centres (CSP), reporting to the Group condition that each delegation of authority is subject to Accounting Division (DCG), located in Paris, Lille and supervisory control. Aubagne. Level Two controls are performed by dedicated The CSPs centralise the accounting oversight activity personnel using control forms prepared together with and accounting production activities for all Crédit du the Head of Permanent Control and a predefined plan Nord Group banks. that specifies the frequency of controls based on the degree of risk that the process or transaction represents. 1- Production of accounting data Whenever an on-site control of a procedure is performed, the procedure is rated for its degree of 1-1 Role of the Group Accounting Division (DCG) compliance with applicable rules using a GPS (Global Placed under the authority of the Chief Financial Officer, Permanence Supervision, SG Group) software tool. the DCG comprises centres of expertise encompassing This allows the Head of Permanent Control to map the following activities: procedural compliance at both the local and national • organisation and accounting procedures: level. definition of a set of accounting rules for the At the conclusion of its assignments, the Periodic entire Group that comply with current accounting Control department writes up an assessment of the regulations (definition of accounting frameworks and Permanent Control conducted for each area being procedures, management of the internal chart of audited. accounts, definition of reporting requirements, etc.);
66 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Management Report 3
• production and analysis of accounting and • manual entries, which are on the decline, are subject financial statements: preparation of the individual to Group control procedures; and consolidated financial statements of Crédit du • accounting databases are interfaced to automatically Nord Group and of other statements required by the input data into the consolidation packages and reports regulatory authorities; intended for the French Prudential Supervisory and • accounting oversight: day-to-day supervision of Resolution Authority (ACPR) and the Banque de France. accounting activities at the branches (operational and administrative staff), analysis of accruals and 1-3 Production of accounting data adjustment of automatic or manual accounting entries Preparation of individual financial statements and that do not comply with established accounting individual consolidation packages treatment controls. The figures presented in regulatory reports and individual consolidation packages are pre-estimated using 1-2 Accounting information system parameters managed centrally by DCIS. Crédit du Nord’s information system is a multi-bank Each CSP, using the same accounting information network, i.e. all Group banks are managed on the same system, then records all non-automated items at the information network. As such, they share the same balance sheet date (representing a very low volume of processing systems for banking transactions and the entries). same summary reporting systems. The CSPs verify, analyse and record, where applicable, For accounting purposes, the summary accounting any adjustment entries in all financial reports for all system comprises the reference summary database, Group banking entities. “Base de Synthèse de Référence” (BSR), into which the Once approved, the entities transmit the regulatory accounting entries of the different operating systems are reports to the supervisory authorities and the individual entered on a daily basis. This database incorporates financial statements are published. non-accounting details to form the enriched reference summary database, “Base de Synthèse de Référence In addition, all other entities, having their own accounting Enrichie” (BSRE). information systems, transmit, above and beyond the regulatory reports forwarded to the supervisory At the hub of Crédit du Nord Group’s summary system, authorities, a separate consolidation package generated the BSRE is used to: by their internal accounting application, compliant with • provide data for all accounting and tax-related Group regulations and procedures. reports; • prepare the different regulatory reports (SURFI, Account consolidation process COREP, FINREP, etc.); This phase culminates with the production of the • provide data on risk drivers in the Basel 3 ratio consolidated financial statements used in managing determination process, thus ensuring “native” the Group, legal and regulatory publications as well as accounting consistency. reports to the shareholders. This unified information system is instrumental in To this end, the individual consolidation packages of ensuring accounting consistency and regularity Group companies from the CSPs are checked and among the banks of the Group, with DCG overseeing validated. Consolidation entries are input and reciprocal the definition and validity of accounting rules and transactions eliminated. procedures, as well as the flow of accounting information from input to output: The consolidated financial statements are then • the accounting treatment of Group-wide transactions analysed and validated before being published internally is based on automated procedures. Regardless of and externally. The majority of these operations are whether the accounting frameworks are defined at performed on a monthly basis, which increases the the accounting user level (over two-thirds of book reliability of the process. Group tax consolidation and entries) or defined automatically by operating system reporting are also carried out during this phase. software, all accounting procedures have been defined, tested and approved by DCG;
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 67 Management Report 3
2- Internal accounting control Controls on consolidation tools A Group chart of accounts specific to consolidation is 2-1 Accounting supervision managed by DCG and aids in breaking down information In the Finance Function, daily accounting supervision is to improve analysis. conducted by accounting oversight managers reporting The configuration of the Group consolidation system to the Heads of the Shared Service Centres (CSP). is monitored and the various automated consolidation They use a day-to-day account monitoring application processes are verified and approved. developed and maintained by DCG, which identifies Lastly, the automation of the monthly consolidated accounts requiring further examination (balance or reporting process in itself helps to control changes in directional anomaly, failure to comply with regulatory data over time by detecting any problems as they arise. thresholds, manual entries). All of these controls help guarantee the quality of Level One controls, reporting on the proper performance accounting documents. of this oversight, are formalised and conducted by the Heads of the CSPs, who report to the Chief Accounting Accounting controls Officer for all Group entities. The purpose is to ensure the quality of accounting Level Two controls are performed quarterly by the document preparation by setting up a certification Permanent Control department of the Group Finance process. Division. Crédit du Nord Group participated in the quarterly certification of Societe Generale Group based on key 2-2 Control of the preparation of individual and controls, indicators, real accounting control data. consolidated financial statements This certification provides Societe Generale Group with The process of consolidating accounting data and a consolidated view of accounting controls in order to: preparing consolidated financial statements is subject to • strengthen the accounting control system; several types of control: • ensure the quality of the financial statement Data controls preparation process and of the accounting and financial information published (certification process); The software used to generate the consolidated reports includes configurable data consistency tests. • meet requests from the Group’s Audit Committee. As long as the reporting company has not satisfied control requirements, it may not transmit accounting 2-3 Structure established to guarantee the information to DCG. quality and reliability of the audit trail Once received, the consolidated reporting packages Each Crédit du Nord Group bank has an end-to- sent in by each consolidated company are analysed, end audit trail of the information chain. Given the corrected as necessary, and approved, notably via complexity of the different banking systems and data controls checking consistency with previous monthly production channels, this trail consists of various tools consolidated reporting packages, available budgets and interconnected by references that represent search keys. unusual events for the month. It is defined by procedures established at each phase of Entries specific to consolidation are then recorded. the data production process. Finally, DCG performs controls of consolidated data The audit trail is organised to be able to optimally output and analyses variations, particularly those relating respond to different types of queries. to changes in shareholders’ equity. In fact, different tools are used depending on whether the user wishes to locate a specific event or to recreate a regulatory filing comprising a large number of accounting entries and requiring the tracking of reference tables.
68 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Management Report 3
The tools used by Crédit du Nord Group include: systems, which are able to break down data by item • a query tool ranging from Event Reports (CREs) and by entity. This information is stored in a unified to accounting entries, with an audit trail at the management database that covers the scope of accounting user level; Crédit du Nord and its banking subsidiaries. • accounting database query tools (accounting flows The Financial Management Division (DGF), under the and balances); authority of the CFO, manages the allocation of general accounting data to the various cost accounting line • query tools that work within data output applications items. On the basis of the rules defined by the Group (regulatory reporting software packages, consolidation ALM unit regarding the match-funding of assets and software packages, etc.). liabilities, the analytical accounting system allows users Furthermore, the accounting documents used to monitor to switch from an interest paid/received accounting view and control accounting operations are retained for the to an analytical approach in terms of margins on notional lengths of time specified by laws and agreements. match-funding. Information from the management database is available 2-4 Isolation and monitoring of assets held for from the branch level up to the Group level and is third parties identical from one level to the next. As a result, the data As an investment service provider, Crédit du Nord is can be used by all Crédit du Nord Group control teams: required to: subsidiaries, regional divisions, functional divisions and the Financial Management Division, which use • protect the rights of its customers to the financial this information in particular to prepare the half-yearly instruments belonging to them; management report. • prevent the use of said financial instruments for proprietary purposes, except with the customer’s 3-2 Verification of financial and management consent. information Assets held for third parties are segregated from assets This information is checked during the monthly data held for proprietary activities and are managed by entry process by verifying the cost accounting category separate departments and accounts. to which the collected data is assigned, the income IT authorisations for the applications used for both statement, the balance sheet and operating procedures, activities are restricted and separate, thus facilitating and by systematic analysis of variations in totals and their separate management. significant changes. A monthly reconciliation is also The Statutory Auditors issue an annual report on the performed by comparing the financial accounting figures measures taken by the Group to ensure the protection with the management reporting figures for the main of customer assets. intermediate balances. Budget monitoring is carried out twice a year in the 3- Preparation and control of financial and presence of General Management: in the first half of the management accounting data year at the Regional and Subsidiary Meetings and in the second half at the annual budget meeting. During 3-1 Production of financial and management these meetings, changes in NBI, operating expenses, accounting data investments and key risk indicators are systematically reviewed. Crédit du Nord Group bases its financial management upon financial accounting data. A Cost Control Committee, which includes the Chief Executive Officer, meets four times a year. to review Analytical accounting data needed for the financial other operating expenses, investments and staff in the management of Crédit du Nord Group are generated operating network and all the head office divisions. by the accounting information system and operating
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 69 Management Report 3
GLOSSARY OF KEY TECHNICAL TERMS USED
Acronyms
Acronym Definition Glossary CRD Capital Requirements Directive EAD Exposure at Default EL Expected Losses LCR Liquidity Coverage Ratio NSFR Net Stable Funding Ratio PD Probability of Default RWA Risk-Weighted Assets ROE Return on Equity VaR Value at Risk
Basel 1 (... Accord): a prudential framework Bond: a bond is a fraction of a borrowing, issued as a established in 1988 by the Basel Committee on Banking security, that is negotiable and which, in a given issue, Supervision, aimed at ensuring the solvency and awards the bondholders the same claim to the issuer’s stability of the international banking system by setting a assets for a given nominal value (the issuer being a international standardised minimum limit on the amount corporation, public-sector entity or government). of capital held by banks. Basel I notably set a minimum Collateral: transferable assets or guarantee pledged as ratio of capital to risk-weighted assets of more than 8%. security for repayment of a loan, in the event the loan (Source: Banque de France Glossary – Documents and beneficiary is unable to meet its payment obligations. Debates – No. 4 – May 2012). (Source: Banque de France Glossary – Documents and Basel 2 (... Accord): a prudential framework aimed at Debates – No. 4 – May 2012). better understanding and limiting the risks incurred by Common Equity Tier 1 capital: a bank’s core capital credit institutions, focusing in particular on credit risk, including common shares, additional paid-in capital and market risks and operational risk. (Source: Banque de reserves, less regulatory deductions. France Glossary – Documents and Debates – No. 4 – Common Equity Tier 1 ratio: ratio of Common Equity May 2012). Tier 1 capital to risk-weighted assets, in accordance with Basel 3 (... Accord): changes to prudential standards CRD4/CRR rules. The definition of Common Equity Tier in the banking industry, supplementing the Basel 2 1 capital is more restrictive under CRD4/CRR compared Accord by strengthening the quality and quantity of to CRD3 (Basel 2). minimum capital requirements for banks. Basel 3 also Core Tier 1 ratio: ratio of Core Tier 1 capital to risk- implemented minimum requirements in terms of liquidity weighted assets. risk management (quantitative ratios), defined measures aimed at limiting the procyclicality of the financial system Cost of commercial risk in basis points: cost of (capital buffers varying according to the economic cycle) risk in basis points is calculated by dividing the net cost and enhancing requirements for systemic institutions. of commercial risk by outstanding loans at the start (Source: Banque de France Glossary – Documents and of the period. Net cost of commercial risk is equal to Debates – No. 4 – May 2012). The Basel 3 Accord was cost of risk calculated for loan commitments (on- and transposed in Europe via Directive 2013/36/EU (CRD4) off-balance sheet), i.e. Allowances-Reversals (used or and Regulation 575/2013 (CRR), which have been in unused) + Losses on bad debts - Amounts recovered effect since January 1, 2014. on amortised loans and receivables. Allowances and
70 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Management Report 3
reversals of provisions for disputes are excluded from Equity: a capital share issued by a publicly traded this calculation. company, representing an ownership stake and entitling Cost-to-income ratio: ratio indicating the portion the holder (shareholder) to proportionate rights to any of NBI (net banking income) used to cover operating distribution of profits or net assets, and to voting rights expenses (company overheads. It is determined by at General Shareholders’ Meetings. dividing OPEX by NBI. Expected Losses (EL): losses liable to be incurred due CRD3 (Capital Requirements Directive): a European to the arrangement quality of the transaction and of any directive governing capital requirements, incorporating measured taken to mitigate risk such as real collateral. the provisions of Basel 2 and 2.5, including in particular Fair value: the amount for which an asset can be the provisions in respect of market risk: improved exchanged, or a liability settled, between knowledgeable, incorporation of the risk of default and rating migration willing parties in an arm’s length transaction. of assets comprising the trading book (tranched and Gross doubtful exposures coverage ratio: ratio untranched assets) and reduced procyclicality of Value- of provisions and impairments recorded on the loan at-Risk (see definition). book to gross doubtful exposures (customer loans and Credit and counterparty risk: risk of losses arising receivables, bank loans and receivables, finance leases from the inability of the Group’s customers, issuers or and operating leases). other counterparties to meet their financial commitments. Gross doubtful exposures ratio: ratio of gross Credit risk also includes the counterparty risk linked to doubtful exposures to gross outstanding loans market transactions, as well as that stemming from recognised on the balance sheet (customer loans and securitisation activities. receivables, bank loans and receivables, finance leases CRR/CRD4 (Capital Requirements Regulation): and operating leases). Directive 2013/36/EU (CRD4) and Regulation (EU) Haircut: percentage deducted from the market value of No. 575/2013 (CRR) form the body of texts transposing securities to reflect their value in a stressed environment Basel 3 in Europe. They define the European regulations (counterparty risk or market stress). The higher the governing capital adequacy ratios, large exposures, haircut, the higher the perceived risk. leverage and liquidity, and are supplemented by the Internal Capital Adequacy Assessment Process technical standards set by the European Banking (ICAAP): a process provided for in Pillar II of the Basel Authority (EBA). Accord, under which the Group evaluates its capital Derivative: a financial security or financial contract adequacy in light of all risks incurred. Investment Grade: whose value changes according to the value of an a long-term rating of a given counterparty or underlying underlying financial asset (equity, bond, currency, etc.) issue, as determined by an external rating agency, or non-financial asset (commodity, agriculture product, ranging from AAA/Aaa to BBB-/Baa3. A rating of BB+/ etc.). This change in value may be accompanied by a Ba1 or below qualifies an instrument as Non-Investment leverage effect, depending on the case. Derivatives may Grade. be securities (warrants, certificates, structured EMTNs, Impairment: accounting recognition off a probable etc.) or contracts (forwards, options, swaps, etc.). capital loss on an asset. (Source: Banque de France Derivative contracts quoted on the market are called Glossary – Documents and Debates – No. 4 – May futures. 2012). EAD (Exposure at Defaut): exposure incurred by the Insurance risk: in addition to management of asset/ financial institution in the event the counterparty defaults. liability risks (interest rate risk, valuation risk, counterparty Earnings par share: ratio of the company’s net profits risk and foreign exchange risk), insurance risk includes (restated for remuneration of hybrid shares recognised the pricing risk associated with premiums on mortality as equity instruments) to the average weighted number risk and structural risks in life insurance and property of shares outstanding. & casualty insurance activities, including pandemics, accidents and disasters (e.g. earthquakes, hurricanes, industrial accidents, acts of terrorism and military conflicts).
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 71 Management Report 3
LCR (Liquidity Coverage Ratio): the objective of this agreement extends this mechanism to different families ratio is to promote short-term resilience of a bank’s of transactions, subject to different master agreements liquidity risk profile by ensuring that it has sufficient covered by an umbrella agreement. high quality liquid resources to survive an acute stress NSFR (Net Stable Funding Ratio): the objective of scenario lasting for one month. (Source: Basel 3, this ratio is to promote resilience over a longer time December 2010). horizon by creating additional incentives for a bank to Leverage ratio: the leverage ratio is meant to be fund its activities with more stable sources of funding straightforward, with the aim of governing the size on an ongoing structural basis. The NSFR has a time of a bank’s balance sheet. To that end, the leverage horizon of one year and has been developed to provide ratio divides Tier 1 capital by the bank’s average total a sustainable maturity structure of assets and liabilities. consolidated assets (on- and off-balance sheet), restated (Source: Basel 3, December 2010). for certain items. A new definition of the leverage ratio Operational risk (including accounting and was implemented with the enactment of the Capital environmental risk): risk of losses or penalities due Requirements Regulation. in particular to failures or inadequacies of internal Liquidity: for a bank, liquidity is the institution’s ability to procedures and systems, human error or external meet its short-term obligations as they come due. For events. an asset, liquidity designates the degree to which the Probability of Default (PD): the probability that a asset can be quickly bought or sold on the market with counterparty of the bank will default within one year. a limited haircut. (Source: Banque de France Glossary – Rating: an evaluation, by a financial rating agency Documents and Debates – No. 4 – May 2012). (Moody’s, FitchRatings, Standard & Poor’s), of the Market risk: risk of a loss in value on financial financial solvency risk of a given issuer (corporation, instruments arising from changes in market inputs, the government or other public authority) or a given volatility of these inputs, and the correlations between transaction (bond, securitisation, covered bond). The them. These inputs include, but are not limited to, rating has a direct impact on the cost of raising capital. exchange rates, interest rates, prices of securities (Source: Banque de France Glossary – Documents and (equities or bonds), commodities, derivatives and other Debates – No. 4 – May 2012). assets such as real estate assets. Real collateral: collateral comprising tangible or Maturity transformation risk: risk arising when assets intangible, movable or immovable assets, such are funded using resources (liabilities) with a different as commodities, precious metals, cash, financial maturity. Given that their traditional activity is to transform instruments or insurance contracts. resources with a short-dated maturity into assets with Return On Equity (ROE): ratio of net income restated longer-dated maturities, banks naturally deal with for remuneration of hybrid securities recognised as transformation risk, which in turn generates illiquidity and equity instruments to restated shareholders’ equity interest rate risk. Positive period transformation occurs (mainly restated for hybrid securities), used to measure when long-term assets are purchased using short-term the profitability of equity. liabilities, as opposed to negative period transformation, when short-term assets are purchased using long-term Risk appetite: level of risk, by type and by business liabilities. line, that the Group is willing to assume in pursuit of its strategic objectives. Risk appetite is measured on the Netting agreement: agreement under which two basis of quantitative and qualitative criteria. The Risk parties to a financial contract, securities lending Appetite exercise is one of the strategic oversight tools agreement or repo agree to offset their reciprocal debts available to the Group’s management bodies. arising from said contracts, the settlement of which thus exclusively pertains to an offset net balance, particularly Risk-weighted assets (RWA): value of an exposure in the event of default or termination. A master netting multiplied by its risk weight.
72 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Management Report 3
Securitisation: transaction consisting in transferring arise from commercial activities and from corporate a credit risk (loan receivables) to an organisation that centre transactions. issues, to that end, negotiable securities subscribed for Tier 1 capital: consists of CET1 capital and Additional by investors. This transaction may give rise to a transfer Tier 1 capital. AT1 capital comprises capital instruments of receivables (physical securitisation) or exclusively that are continuous, i.e. with no fixed maturity and to a transfer of risks (credit derivatives). Securitisation thus no incentive for the issuer to redeem them, less transactions may, depending on the case, give rise to regulatory deductions. subordination of securities (tranches). Tier 2 capital: supplementary capital mainly consisting Structured issue or structured product: a financial of subordinated debt, less regulatory deductions. instrument combining a fixed income product and Total capital ratio: ratio of total capital (Tier 1 and Tier an instrument (e.g. an option) exposing the holder to 2 capital) to risk-weighted assets. any type of asset (equities, currencies, interest rates, commodities). The instruments may offer a full or partial Tier 1 ratio: ratio of Tier 1 capital to risk-weighted guarantee of the invested capital. The term “structured assets. product” or “structured issue” may also refer to securities Value-at-Risk (VaR): a synthetic indicator used to resulting from securitisation transactions, in which case monitor the market risks incurred by the Group on a a ranking is established to determine priority in terms of daily basis, particularly in its trading activities (99% VaR repayment. in accordance with the regulatory internal model). 99% Structural interest rate and foreign exchange risk: VaR is the largest loss obtained after eliminating the risks of losses or impairments on Group assets in the 1% of the most adverse occurrences over a one-year event of fluctuations in interest rates and exchange history. Under this definition, it equals the average of the rates. Structural interest rate and foreign exchange risks second and third largest losses observed.
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74 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements 4
4.1 Consolidated financial statements ______76 Consolidated financial statements 76 Notes to the consolidated financial statements 82 Statutory Auditors’ report on the consolidated financial statements 177
4.2 Annual financial statements ______182 2019 Management Report 182 Five-year financial summary 185 Main changes in the securities portfolio in 2019 186 Parent Company Balance Sheet 187 Parent Company Income Statement 189 Notes to the annual financial statements 190 Statutory auditors’ report on the financial statements 229
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 75 Financial statements | Consolidated fi nancial statements 4 Consolidated financial statements
4.1 Consolidated financial statements
Consolidated financial statements
Consolidated balance sheet
Assets
(in €m) Note 31/12/2019 01/01/2019 31/12/2018 Cash, due from central banks 9,064.7 9,660.2 9,660.2 Financial assets at fair value through profit or loss 3.1, 3.2, 3.4 461.3 443.9 443.9 Hedging derivatives 3.2, 3.4 1,418.7 1,147.6 1,147.6 Financial assets at fair value through other comprehensive income 3.3, 3.4 4,113.1 4,430.1 4,430.1 Securities at amortised cost 3.5, 3.8, 3.9 8.8 8.7 8.7 Due from banks and equivalent at amortised cost 3.5, 3.8, 3.9 10,087.3 10,196.9 10,196.9 Customer loans at amortised cost 3.5, 3.8, 3.9 46,602.7 42,925.1 42,925.1 Revaluation differences on portfolios hedged against interest rate risk 199.7 226.7 226.7 Tax assets 6 26.4 51.1 43.7 Other assets 4.3 278.3 256.8 256.8 Non-current assets held for sale 2.5 0.2 0.2 0.2 Investments in subsidiaries and affiliates accounted for by the equity method 221.7 226.1 226.1 Tangible and intangible fixed assets* 7.3 665.9 664.2 577.8 Goodwill 508.0 508.0 508.0 TOTAL 73,656.8 70,745.7 70,651.8 * As from January 1, 2019, in accordance with IFRS 16 “Leases”, the Group has recognised a right-of-use asset for leased assets under “Tangible and intangible fixed assets” (see Note 1).
76 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Consolidated financial statements 4
Liabilities
(in €m) Note 31/12/2019 01/01/2019 31/12/2018 Due to central banks --- Financial liabilities at fair value through profit or loss 3.1, 3.2, 3.4 604.2 695.1 695.1 Hedging derivatives 3.2, 3.4 486.1 242.0 242.0 Due to banks and equivalent 3.6, 3.9 16,414.6 14,524.7 14,524.7 Customer deposits 3.6, 3.9 46,884.0 43,509.5 43,509.5 Debt securities 3.6, 3.9 2,546.6 5,262.3 5,262.3 Revaluation differences on portfolios hedged against interest rate risk 1,147.9 1,141.8 1,141.8 Tax liabilities (1) 257.8 279.2 279.2 Other liabilities* 4.3 1,196.0 954.9 846.3 Provisions 3.8 176.2 167.2 167.2 Subordinated debt 3.9 450.2 450.2 450.2 TOTAL DEBT 70,163.6 67,226.9 67,118.3 SHAREHOLDERS’ EQUITY Shareholders’ equity, Group share Ordinary shares and associated reserves 1,615.7 1,522.8 1,522.8 Other equity instruments --- Consolidated reserves 1,529.8 1,546.4 1,561.1 Net income 328.2 419.1 419.1 Sub-total 3,473.7 3,488.3 3,503.0 Gains or losses booked directly to other comprehensive income 19.5 30.4 30.4 Sub-total, equity, Group share 3,493.2 3,518.7 3,533.4 Non-controlling interests --- TOTAL SHAREHOLDERS’ EQUITY 3,493.2 3,518.8 3,533.5 TOTAL 73,656.8 70,745.7 70,651.8 * Following the first-time application of IFRS 16 “Leases”, the Crédit du Nord Group has recognised, as from January 1, 2019, a lease liability representing its obligation to make lease payments under “Other Liabilities” (see Note 1). (1) Since January 1, 2019, tax provisions relating to income tax are presented under “Tax liabilities” following the entry into force of IFRIC 23 “Uncertainty over Income Tax Treatment” (see Note 1).
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 77 Financial statements | Consolidated fi nancial statements 4 Consolidated financial statements
Consolidated income statement
(in €m) Note 2019 2018 Interest and similar income 3.7 1,236.8 1,198.8 Interest and similar expenses 3.7 -346.1 -266.2 Fee income 4.1 972.3 960.4 Fee expenses 4.1 -123.1 -101.5 Net income from financial transactions 73.8 123.9 o/w net gains or losses on financial instruments at fair value through profit or loss 3.1 62.9 100.0 o/w net gains or losses on financial instruments at fair value through other comprehensive income 3.3 10.9 23.9 o/w net gains or losses resulting from derecognition of instruments at amortised cost - - Income from other activities 4.2 24.1 26.2 Expenses due to other activities 4.2 -28.8 -32.8 Net banking income 1,808.9 1,908.8 Personnel expenses 5 -691.9 -692.0 Other administrative costs 7.1 -516.2 -520.7 Amortisation and depreciation expense on intangible and tangible fixed assets -108.1 -75.5 Total operating expenses -1,316.2 -1,288.2 Gross operating income 492.7 620.5 Cost of risk 3.8 -44.6 -70.0 Operating income 448.1 550.5 Share of net income of companies accounted for by the equity method 33.9 40.7 Net gains or losses on other assets 1.5 0.8 Goodwill impairment -- Earnings before tax 483.6 592.1 Income tax 6 -155.4 -172.9 Consolidated net income 328.2 419.1 Non-controlling interests -- CONSOLIDATED NET INCOME AFTER TAXES 328.2 419.1 Earnings per ordinary share (in €) 2.95 3.77 Diluted earnings per share (in €) 2.95 3.77 Number of shares comprising the share capital 111,282,906 111,282,906
78 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Consolidated financial statements 4
Statement of net income and gains and losses booked directly to other comprehensive income
(in €m) 2019 2018 Consolidated net income 328.2 419.1 Gains and losses booked directly to other comprehensive income that will be subsequently reclassified to profit or loss -1.8 -28.9 Translation gain (loss) -- Revaluation difference for the period -- Reclassified to profit or loss -- Revaluation of debt instruments at fair value through other comprehensive income -8.1 -33.6 Revaluation difference for the period -5.1 -9.2 Reclassified to profit or loss -3.0 -24.4 Revaluation of hedging derivatives 0.2 -0.3 Revaluation difference for the period 0.2 -0.3 Reclassified to profit or loss -- Share of gains and losses booked to other comprehensive income of companies accounted for by the equity method 5.8 -6.4 Other items - 0.1 Related taxes 0.3 11.3 Gains and losses booked directly to other comprehensive income that will not be subsequently reclassified to profit or loss -9.1 3.0 Actuarial gains/losses in respect of defined-benefit plans -3.5 -0.1 Revaluation of own credit risk of financial liabilities measured at fair value through profit or loss -0.2 8.4 Revaluation of equity instruments at fair value through other comprehensive income -8.8 0.1 Share of gains and losses booked directly to other comprehensive income of companies accounted for by the equity method -- Related taxes 3.3 -5.3 Total gains and losses booked directly to other comprehensive income -10.9 -25.9 NET INCOME AND GAINS AND LOSSES BOOKED DIRECTLY TO OTHER COMPREHENSIVE INCOME 317.3 393.2 o/w Group share 317.3 393.2 o/w non-controlling interests --
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 79 Financial statements | Consolidated fi nancial statements 4 Consolidated financial statements
Change in shareholders’ equity
Shareholders’ equity, Group share Gains and losses booked Ordinary Conso- directly to Total shares and Conso- lidated other com- Non- consolidated associated Other equity lidated net prehensive controlling shareholders’ (in €m) reserves instruments reserves income income Total interests equity SHAREHOLDERS’ EQUITY AT JANUARY 1, 2018 1,739.8 - 1,572.2 56.2 3,368.2 - 3,368.2 Capital increase and issues/redemption of equity instruments ------Elimination of treasury stock - - -2.6 - - -2.6 - -2.6 Equity component of share-based payment plans 2.9 - - - - 2.9 - 2.9 2018 dividends paid -228.1 - - - -228.1 - -228.1 Impact of changes in consolidation scope ------Sub-total of changes linked to relations with shareholders -225.2 - -2.6 - - -227.8 - -227.8 2018 net income - - - 419.1 - 419.1 - 419.1 Change in gains and losses booked directly to other comprehensive income - - - - -25.8 -25.8 - -25.8 Other changes 8.3 - -8.5 - - -0.2 - -0.2 Sub-total 8.3 - -8.5 419.1 -25.8 393.1 - 393.1 SHAREHOLDERS’ EQUITY AT DECEMBER 31, 2018 1,522.8 - 1,561.1 419.1 30.4 3,533.4 - 3,533.5 Distribution of earnings 431.7 - -12.6 -419.1 0.1 0.0 - 0.0 Impact of the application of IFRS16 (see Note 1) - - -14.7 - - -14.7 -14.7 SHAREHOLDERS’ EQUITY AT JANUARY 1, 2019 1,954.5 - 1,533.8 -0.0 30.5 3,518.7 - 3,518.8 Capital increase and issues/redemption of equity instruments ------Elimination of treasury stock ------Equity component of share-based payment plans 1.8 - - - - 1.8 - 1.8 2019 dividends paid -340.5 - -3.8 - - -344.3 -0.0 -344.3 Impact of changes in consolidation scope ------Sub-total of changes linked to relations with shareholders -338.7 - -3.8 - - -342.5 -0.0 -342.5 2019 net income - - - 328.2 - 328.2 0.0 328.2 Change in gains and losses booked directly to other comprehensive income - - - - -11.0 -11.0 0.0 -11.0 Other changes - - -0.1 - - - -0.0 -0.0 Sub-total - - -0.1 328.2 -11.0 317.2 0.0 317.2 SHAREHOLDERS’ EQUITY AT DECEMBER 31, 2019 1,615.7 - 1,529.8 328.2 19.5 3,493.2 - 3,493.3
At December 31, 2019, Crédit du Nord SA’s fully paid-up share capital amounted to €890,263,248 and consisted of 111,282,906 shares each with a par value of €8.
80 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Consolidated financial statements 4
Statement of cash flows
(in €m) 2019 2018 Net income (I) 328.2 419.1 Net amortisation and depreciation expense on tangible and intangible fixed assets (including operating leases) 107.4 75.5 Net allocation to provisions -111.4 -135.2 Share of net income of companies accounted for by the equity method -33.9 -40.7 Change in deferred taxes -1.0 7.8 Net income from the sale of long-term assets and consolidated subsidiaries -3.5 -15.9 Other changes 233.4 192.7 Non-monetary items included in net income and other adjustments (not including income on financial instruments measured at fair value through profit or loss) (II) 191.0 84.2 Net income on financial instruments measured at fair value through profit or loss (1) -17.3 -63.7 Interbank transactions 2,017.2 3,017.3 Transactions with customers -162.7 -556.5 Transactions related to other financial assets and liabilities -2,585.6 -1,581.0 Transactions related to other non-financial assets and liabilities 50.7 25.2 Net increase/decrease in cash related to operating assets and liabilities (III) -697.7 841.3 NET CASH FLOW FROM OPERATING ACTIVITIES (A)=(I)+(II)+(III) -178.5 1,344.6 Cash flows from the acquisition and disposal of financial assets and long-term investments 54.9 219.4 Cash flows from the acquisition and disposal of tangible and intangible fixed assets -109.8 -97.8 NET CASH FLOW FROM INVESTING ACTIVITIES (B) -54.9 121.6 Cash flow from/to shareholders -359.1 -230.7 Other net cash flows from financing activities - -66.0 NET CASH FLOW FROM FINANCING ACTIVITIES (C) -359.1 -296.7 NET FLOW OF CASH AND CASH EQUIVALENTS (A) + (B) + (C) -592.5 1,169.5 Cash and cash equivalents at the start of the year 9,686.6 8,517.3 Net balance of cash accounts and accounts with central banks (excluding related receivables) 9,660.2 8,444.0 Net balance of accounts, demand deposits and loans with banks 26.5 73.3 Cash and cash equivalents at the close of the year 9,094.1 9,686.7 Net balance of cash accounts and accounts with central banks (excluding related receivables) 9,064.5 9,660.2 Net balance of accounts, demand deposits and loans with banks 29.6 26.5 NET FLOWS OF CASH AND CASH EQUIVALENTS -592.5 1,169.5
(1) Net income on financial instruments measured at fair value through profit or loss includes realised and unrealised income.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 81 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
Notes to the consolidated financial statements
These consolidated financial statements were approved by the Board of Directors on February 26, 2020.
Note 1 Main valuation and presentation Note 4 Other activities 148 rules for the consolidated 4.1 Fee income and expenses 148 financial statements 83 4.2 Income and expenses from other activities 149 4.3 Other assets and liabilities 150 Note 2 Consolidation 91 2.1 Scope of consolidation 94 Note 5 Personnel expenses 2.2 Goodwill - Segment balance sheet 95 and employee benefi ts 151 2.3 Additional information on consolidated 5.1 Personnel expenses and related-party entities and entities accounted transactions 151 for by the equity method 97 5.2 Breakdown of provisions for employee 2.4 Unconsolidated structured entities 98 benefits 153 2.5 Non-current assets held for sale 5.3 Detailed information on performance and associated liabilities 100 share grants 159
Note 3 Financial instruments 101 Note 6 Taxes 162 3.1 Financial assets and liabilities 6.1 Breakdown of the tax expense 163 at fair value through profit or loss 106 6.2 Breakdown of tax assets and liabilities 164 3.2 Derivative financial instruments 110 6.3 Tax provisions 164 3.3 Financial assets at fair value through other comprehensive income 115 3.4 Fair value of financial instruments Note 7 Other disclosures 165 measured at fair value 117 7.1 Other operating expenses 165 3.5 Loans, receivables and securities 7.2 Foreign exchange transactions 166 at amortised cost 124 7.3 Tangible and intangible fixed assets 167 3.6 Debt 128 7.4 Breakdown of provisions 171 3.7 Interest income and expenses 130 7.5 Detailed consolidation scope 172 3.8 Provisions and impairments 132 7.6 Statutory Auditors’ fees 174 3.9 Fair value of financial instruments 7.7 Gains and losses booked directly measured at amortised cost 142 to other comprehensive income 175 3.10 Commitments and assets pledged and received as collateral 144 3.11 Transferred financial assets 146 3.12 Contractual maturities of financial liabilities 147
Information on risk categories, management of risks associated with financial instruments, and information on capital management and the observation of the regulatory ratios required by IFRS, as adopted in the European Union, are presented in Chapter 5 of this Universal Registration Document (Risks and capital adequacy). This information is an integral part of the notes to the consolidated financial statements of Crédit du Nord Group and are covered by the Statutory Auditors opinion on the consolidated financial statements; it is identified as such in Chapter 5 of this Universal Registration Document.
82 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
NOTE 1 Main valuation and presentation rules for the consolidated financial statements
1. Introduction
Accounting Standards In accordance with European Regulation No. 1606/2002 of July 19, 2002 on the application of international accounting standards, Crédit du Nord Group (the “Group”) has published its consolidated financial statements for the period ended December 31, 2019 in compliance with IFRS (International Financial Reporting Standards) as adopted by the European Union and applicable at said date. These standards are available on the European Commission website at the following address: https://ec.europa.eu/info/law/international-accounting-standards-regulation-ec-no-1606-2002/amending- and-supplementary-acts/acts-adopted-basis-regulatory-procedure-scrutiny-rps_en The most significant change to the rules governing measurement and the presentation of the consolidated financial statements is the application of IFRS 16, “Leases”, as from January 1, 2019. The Group made the choice, offered by IFRS 9 transition guidance, to continue recognising its hedging transactions in accordance with IAS 39, as adopted by the European Union, including the provisions related to macro-fair value hedge accounting (IAS 39, “Carve out”).
Presentation of the financial statements In the absence of a model imposed by IFRS, the format of the financial reports for fiscal year 2019 complies with the format for financial reports proposed by the Autorité des Normes Comptables (French accounting standards authority) in Recommendation No. 2017-02 of June 2, 2017. The information presented in the notes to the consolidated financial statements focuses on relevant and material data pertaining to the Group’s financial statements, activities and the circumstances in which these activities were conducted over the period.
Currency of the consolidated financial statements The consolidated financial statements are presented in euros. The amounts presented in the financial statements and in the notes are expressed in millions of euros, unless otherwise indicated. Rounding effects may generate gaps between the amounts presented in the financial statements and those presented in the notes.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 83 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
2. New standards applied by the Group from January 1, 2019
IFRS 16 “Leases”
IFRIC 23 “Uncertainty over Income Tax Treatment”
Amendments to IAS 39, IFRS 7 and IFRS 9 within the framework of the reform of benchmark interest rates (IBOR reform)
Amendments to IAS 28 “Long-Term Interests in Associates and Joint Ventures”
Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement”
IFRS 16 “Leases” Scope of application IFRS 16, which replaces IAS 17, defines new rules for In view of the Group’s activities, these principles apply recognising leases, more specifically in the financial to property leases, IT equipment leases and, very statements of the lessees, with very limited impacts for incidentally, to vehicle leases. The Group has opted not lessors. to apply the provisions of IFRS 16 to leases relating to intangible assets (e.g. software). The Group applies IFRS 16 as adopted by the European Union on October 31, 2017, as from January 1, 2019. Transition The Group did not early-apply the provisions of IFRS 16 For the first-time application of IFRS 16, the Group to the previous accounting period. Consequently, the chose to take the modified retrospective approach accounting principles applicable to leases and the proposed by the standard. information provided for these lease agreements in the notes have been modified as of January 1, 2019. At January 1, 2019, the amount of the lease liability for outstanding leases is determined by discounting residual IFRS 16 accounting principles lease payments using incremental borrowing rates for lessee entities in force at that date (rates determined in Recognition of leases in the balance sheet accordance with the procedures described in Note 7.3), For all lease agreements, the lessee will be required taking into account the estimated residual terms of the to recognise a right-of-use asset representing its right leases. The corresponding rights of use are recognised to use the underlying leased asset and a lease liability in assets for an amount equal to that of the lease liability. representing its obligation to make lease payments, with Leases with a residual term of less than 12 months and the exception of certain exemptions. leases subject to tacit renewal as of January 1, 2019 are In its income statement, the lessee will separately classified as short-term leases (contracts of less than recognise the depreciation of the right-of-use assets and 1 year) and are not recognised in the balance sheet, in the interest expense on lease liabilities. accordance with the option provided by the standard in The accounting principles applied by the Group are the transition procedures. described in Note 7.3. Pursuant to the provisions on the modified retrospective approach, comparative data for fiscal year 2018 presented with respect to data for fiscal year 2019 are not restated.
84 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
Impacts of the first-time application of IFRS 16 This first-time application has had no impact on the The first-time application of IFRS 16 resulted in the Group’s consolidated shareholders’ equity as of balance sheet total increasing by €108.6 million due January 1, 2019. to the recognition of a lease liability and a right-of-use At the initial recognition date of the right of use and the asset. lease liability, no deferred taxes are recognised since the The lease liability is recognised in “Other liabilities” and value of the deferred tax asset generated offsets that rights of use are classified under tangible assets, with of the deferred tax liability. A deferred tax is recognised the exception of leases included in a group of assets for any net time differences arising from subsequent and liabilities held for sale which are presented in specific changes in the right of use and the lease liability. sections in the consolidated balance sheet.
Impacts on the balance sheet at January 1, 2019
(in €m) 01/01/2019 Assets Other assets - Non-current assets held for sale - Tangible and intangible fixed assets (1) 108.6 TOTAL IFRS 16 IMPACTS 108.6
LIABILITIES Other liabilities (1) 108.6 Liabilities related to non-current assets held for sale - TOTAL IFRS 16 IMPACTS 108.6
(1) As of January 1, 2019, the Group has recognised rights of use and a lease liability for €108.6 million. Leasehold rights associated with leases at December 31, 2018 for €28.6 million are now treated as a component of the right of use.
Reconciliation of future minimum amounts payable recorded at December 31, 2018 with the amount of the lease liability recognised at January 1, 2019 The table below aims to reconcile: • future minimum amounts payable for operating leases • the lease liability recognised in the balance sheet at covering the tangible assets used by the Group at January 1, 2019 in accordance with IFRS 16. December 31, 2018; and
(in €m) Future minimum amounts payable for operating leases at December 31, 2018 (1) 120.8 Leases not recognised in the balance sheet (11.2) Non-discounted lease liability at January 1, 2019 (2) 109.6 Discounting effect (1) Discount rate (3) 0.92% Discounted lease liability at January 1, 2019 108.6
(1) See Note 7.1 “Other administrative costs” in the Registration Document at December 31, 2018. (2) Short-term or low-value leases. (3) The discount rate presented in the table above corresponds to the weighted average incremental borrowing rate.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 85 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
Decisions of the International Financial Reporting Annual improvements (2015-2017) Interpretations Committee (IFRIC) of November For the purposes of the annual improvements to 26, 2019 IFRS, the IASB published minor amendments to In H1 2019, the IFRS Interpretations Committee (IFRS IC) IFRS 3 “Business Combinations”, IFRS 11 “Joint received a question relating to the determination of the Arrangements”, IAS 12 “Income Tax” and IAS 23 enforceable period to be applied for the recognition of “Borrowing Cost”. leases. During its meeting of November 26, 2019, the The purpose of the amendment to IAS 12 is to clarify IFRS IC concluded that the principles and requirements the recognition of the tax consequences of remuneration of IFRS 16 provide an adequate basis to determine paid on equity instruments. It is now specified that this period, while indicating that the assessment of the recognition of these tax consequences is related the enforceable nature of the lease agreement must more to past events and transactions that generated take account of all the economic aspects of the lease the distributed amounts, than to the distributions agreement and not only the contractual termination themselves. penalties. The IFRS IC therefore decided not to include the question raised in its work plan and did not consider The application of this amendment led to the it necessary ask the IASB for an amendment in order to reclassification in the income statement (“Income tax” clarify the interpretation of IFRS 16 on the subject. item) of the tax saving related to the payment of coupons to the holders of undated subordinated notes and The potential consequences of this decision on the undated deeply subordinated notes previously allocated Group’s financial statements are currently being to consolidated reserves. This change in presentation is analysed, a process that will continue in H1 2020. As of carried out prospectively by the Group. December 31, 2019, the procedures and assumptions applied by the Group to determine the term of property The other amendments contained in the annual leases, and in particular the term of commercial leases improvements cycle (2015 – 2017) did not have an in France, have not been modified in relation to those impact on the consolidated financial statements. implemented since the first-time application of IFRS 16. Amendments to IAS 39, IFRS 7 and IFRS 9 within IFRIC 23 “Uncertainty over Income Tax the framework of the reform on benchmark Treatment” interest rates This interpretation clarifies the methods for recognising In the context of the financial crisis, the inaccuracy and and measuring income tax in the event of uncertainty lack of integrity of the indices used as benchmarks over the tax treatment applied. It is important to (EONIA, EURIBOR, LIBOR, etc.) made it necessary to determine the probability that the treatment applied reform the method for determining them. will be accepted by the competent authorities, on the At international level, the International Organisation basis that they will verify the treatment in question and of Securities Commissions (IOSCO) has established will have all the relevant information. If the probability principles for the reliable determination of benchmark of acceptance of the tax treatment is less than 50%, rates and the Financial Stability Board (FSB), mandated this uncertainty must be reflected in the amount of tax by the G20, has issued recommendations to increase assets and liabilities, based on a method reflecting the the transparency, representativeness and reliability of best forecast regarding the outcome of the uncertainty. these rates. Several reforms have been initiated, on In order to comply with these new principles, the the basis of these principles and recommendations, process for the collection, analysis and monitoring of to implement and promote the use of new overnight tax uncertainties has been reviewed. This interpretation risk-free rates (RFR) which will now be determined on has no impact on the Group’s shareholders’ equity at the basis of real transactions: ESTR (Euro Short Term January, 1 2019 but has led to the modification, as from Rate) for Euro-denominated contracts, SOFR (Secured this date, of the presentation in the balance sheet of Overnight Financing Rate) for USD-denominated tax provisions relating to income tax which have been contracts, SONIA (Sterling Overnight Index Average) for reclassified under “Tax liabilities”. GBP-denominated contracts, etc.
86 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
Within the European Union, regulation 2016/1011 (“BMR To limit these accounting consequences, in September Regulation”) has implemented these principles and 2019, the IASB published amendments to IAS 39, recommendations of the IOSCO and FSB by creating, IFRS 9 and IFRS 7 to prevent uncertainties existing as from January 1, 2018, a standard legal framework for before the transition from undermining the recognition of the provision of benchmark indices. In accordance with interest rate hedging transactions. These amendments the implementation of this regulation, the administrators introduce exemptions concerning primarily compliance of the EONIA, EURIBOR and LIBOR have been required with the highly probable character of hedged flows, to review and, if applicable, modify the methodologies compliance with the identifiable character of the hedged used for these indices in order to ensure they comply risk, the implementation of prospective and retrospective with the new BMR provisions. 12 effectiveness tests. These exemptions will be applicable The €STER has replaced the EONIA since October until the lifting of the uncertainties, i.e. until the effective 2, 2019; however, the EONIA will be published until modification of the clauses of the financial instruments December 31, 2021 and anchored on the €STER concerned. (EONIA = €STER + 8.5bps). The reform of the EURIBOR These amendments were adopted by the European was initiated in December 2018 and this index was Union on January 15, 2020, with early application from declared to be compliant with the BMR Regulation 2019. The Group has adopted this early application in its on July 3, 2019. The quotation of the EURIBOR rate financial statements as at December 31, 2019 and has is expected to continue for at least 5 years. The new therefore applied the exemptions provided for hedging SOFR and SONIA indices, intended to replace the transactions concerned by the uncertainties at that LIBOR indices, have been published since 2018, but the date, including those related to the EONIA, EURIBOR publication of the LIBOR indices will continue at least and LIBOR indices (USD, GBP, CHF, JPY). Hedging until 2021. derivatives to which these amendments have been The Group has created a project structure to monitor applied are the subject of specific information in Note the developments of the IBOR reform and anticipate the 3.2. consequences of the transition to the new benchmark The IASB is currently examining additional amendments rates. The work initiated aims, firstly, to limit the Group’s that could be made for the accounting treatment exposure to current interbank benchmark interest rates of modifications to be made to financial instrument that are unlikely to remain in the short/medium term and, contracts under the IBOR reform (replacement of the secondly, to prepare for the migration of outstanding benchmark interest rate, introduction of new fallback transactions referencing these current rates and clauses). An exposure draft is expected to be published maturing after 2021. at the end of Q2 2020. The uncertainties over the timetable and precise procedures for the transition between the current indices The amendments mentioned below have no impact and the new indices, as well as the modifications that on the Group’s consolidated financial statements. could be made to financial instruments referencing the current indices, are likely to generate consequences Amendments to IAS 28 “Long-Term Interests on the recognition of hedging transactions and in Associates and Joint Ventures” modifications that will therefore be made to these The amendments clarify that a company applies financial instruments (following the application of IFRS 9 “Financial Instruments” to long-term interests in Fallback clauses - or following the renegotiation of the an associate or joint venture that form part of the net contract). investment in the associate or joint venture but to which the equity method is not applied.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 87 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
Amendments to IAS 19 “Plan Amendment, The amendments clarify that the entity shall use Curtailment or Settlement” corrected actuarial assumptions resulting from this These amendments clarify the determination of pension revaluation to determine past service cost and net expenses in the event of the amendment, curtailment or interest. settlement of defined-benefit plans. In such cases, the standard currently calls for the net cost of plan assets and liabilities to be remeasured.
3. Accounting standards, interpretations or amendments that the Group will apply in the future
The IASB has published standards, amendments and interpretations that had not yet been adopted by the European Union as at December 31, 2019. Their application shall only be mandatory for fiscal years beginning on or after January 1, 2020 at the earliest, or upon their adoption by the European Union. Consequently, they were not applied by the Group at December 31, 2019. The projected timetable for the application of these standards and amendments is as follows:
• Amendments to IAS 1 and IAS 8 “Definitions of Material” [Adopted by the EU] 2020 • Amendments to IFRS 3 “Business Combinations”
2021 • IFRS 17 “Insurance Contracts”
Amendments to IAS 1 and IAS 8 “Definitions IFRS 17 “Insurance Contracts” of Material” Published by the IASB on May 18, 2017. Adopted by the European Union on November 29, This new standard will replace IFRS 4 “Insurance 2019 Contracts”, published in 2004 and authorising the These amendments clarify the definition of material in recognition of insurance contracts in accordance with a bid to facilitate the use of judgement in preparing the methods defined by local GAAP. financial statements, particularly for the selection of IFRS 17 defines new rules for recognising, measuring information presented in the notes. and presenting insurance contracts that fall under its Amendments to IFRS 3 “Business remit (insurance contracts, reinsurance contracts and Combinations” investment contracts with discretionary participation). Published by the IASB on October 22, 2018. Technical provisions, currently recognised as liabilities on These amendments clarify the guide for the application the balance sheet, will be replaced by a measurement of of IFRS 3 in a bid to facilitate the distinction between the insurance contracts on a current basis. acquisition of a company and the acquisition of a group of assets for which the accounting treatment is different.
88 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
The general model used to measure insurance contract liability will be based on a Building Block Approach: discounted FCF, risk adjustment and contractual service margin.
Insurance contract liability = Present value of insurance benefits (Fulfilment cash flows)
Future cash flows estimated at Discounting Risk adjustment the effective date of the contract Time value of money and financial Margin for uncertainties on Premiums, benefits, directly + risks not included in estimated + estimates of future cash flows. related costs. cash flows.
+ Contractual service margin Expected future profits, calculated at the beginning of the coverage period
Positive contractual service margins will be gradually These insurance liability measurement models shall be recognised in profit or loss over the term of the coverage applied to portfolios of insurance contracts, broken period. In the event of loss-making contracts, the loss down according to three criteria: corresponding to net cash outflow for the group of • a group of contracts subject to similar risks and contracts must be taken to profit or loss upon issuance. managed together; This general model will be applied by default to all • a breakdown by year of issuance; and insurance contracts. • a distinction between contracts that are onerous In addition, IFRS 17 has also modified the general at initial recognition, and contracts that at initial model to account for insurance contracts with direct recognition have no significant possibility of becoming participation features. This alternate approach is the onerous subsequently, and other contracts. “Variable Fee Approach” and incorporates in the measurement of the insurance liability the obligation to On June 26, 2019 the IASB published an exposure pay the policyholder an amount equal to a substantial draft containing a number of amendments to IFRS 17 share of the returns from the underlying items net of “Insurance Contracts”. The proposed amendments a variable fee deducted by the entity in exchange for are intended to facilitate the implementation of the the future service provided by the insurance contract standard. In particular, it is proposed to defer the date (changes in the value of underlying assets payable to of its first-time application by one year, which would policyholders being neutralised in the contractual service therefore be postponed until fiscal years beginning margin). on or after January 1, 2022, with a mandatory comparative period, excluding the choice of early Subject to conditions, IFRS 17 also allows the reporting application of this standard which the Group does not entity to apply a simplified approach, called the Premium intend to exercise. Moreover, the EFRAG (European Allocation Approach, to contracts with a coverage period Financial Reporting Advisory Group), in response of one year or less or if the application of the simplified to the exposure draft, believes that an additional approach produces a result similar to the general model. postponement by one year, to January 1, 2023, would be more realistic.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 89 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
4. Use of estimates and judgement
In drawing up the consolidated financial statements, the since the initial recognition of financial assets, and application of the accounting principles and methods assessing the amount of expected credit losses on described in the notes to the consolidated financial these same financial assets; statements led Management to develop assumptions • “goodwill” impairment (see Note 2.2); and make estimates that may have an impact on • provisions booked to liabilities (see Notes 5.2 and the amounts booked to the income statement or 7.4); under “Gains and losses booked directly to other comprehensive income”, the valuation of balance sheet • tax assets and liabilities recognised in the balance assets and liabilities, and the disclosures presented in sheet (see Note 6); the notes to the consolidated financial statements. • analysis of the contractual cash flow characteristics of In order to make these estimates and develop these financial instruments (see Note 3); assumptions, Management uses data available at the • assessment of the control to determine the scope date on which the consolidated accounts are prepared of consolidated entities, particularly in the case of and may be called upon to use its own judgement. By structured entities (see Note 2). nature, the valuations based on these estimates contain Moreover, the application of IFRS 16 has led the Group risks and uncertainties as to whether they will materialise to extend its use of judgement to estimate the term of in the future. Consequently, the final future results of the leases applied for the recognition of rights of use and transactions in question may differ from these estimates lease liabilities. and therefore have a significant impact on the financial statements. Brexit The use of estimates primarily concerns the following On June 23, 2016 the United Kingdom organised a valuations: referendum during which a majority of British citizens • the fair value as reported on the balance sheet of voted to leave the European Union (Brexit). financial instruments that are not quoted on an After several postponements, the agreement for the active market is recognised under “Financial assets withdrawal of the United Kingdom was approved by the or liabilities at fair value through profit or loss”, UK parliament on January 9, 2020 and subsequently “Hedging instruments” or “Financial assets at fair the European parliament on January 29, 2020. It came value through other comprehensive income” (see into force on January 31, 2020. European Union law will Notes 3.1, 3.2, 3.3 and 3.4), as well as the fair value cease to apply to the United Kingdom from January 1, of instruments measured at amortised cost for which 2021. During the 11-month transition period, the United such information must be presented in the notes (see Kingdom will retain its Member State status. Note 3.9); The Group has taken all the necessary measures to • impairments and provisions for credit risk on financial ensure the continuity of services to its customers from assets at amortised cost, financial assets at fair January 31, 2020 and will monitor developments in value through other comprehensive income and loan the negotiations due to take place during the transition and guarantee commitments whose measurement period. The short/medium/long-term consequences of depends on internal models and inputs based on Brexit have been taken into account in the assumptions historical, current and forward-looking data (see and estimates used to prepare the consolidated financial Note 3.8). The valuation concerns more specifically statements. assessing the increase in credit risk observed
90 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
NOTE 2 Consolidation
Accounting principles The aim of some rights is to protect the interests of The consolidated financial statements include the the party holding them (protective rights), though financial statements of Crédit du Nord and the entities without giving power over the entity to which the over which the Group exercises exclusive control, joint rights are related. control or significant influence. If several investors each have effective rights giving them the ability to unilaterally run different relevant Consolidated entities activities, the one effectively able to run the activities with the greatest impact on the entity is assumed to Subsidiaries hold the power. Subsidiaries are entities controlled exclusively by the Group. The Group controls an entity when the Exposure to variable returns following conditions are met: The Group only has control over an entity where it is significantly exposed to the variability of variable • the Group holds power over the entity (ability to run returns generated by its investment or involvement its relevant activities, i.e. those having a material in the entity. Variable returns include any type of impact on the entity’s profits) by holding voting exposure (dividends, interest, fees and commissions, rights or other rights; etc.); they can be only positive, only negative, or • the Group is exposed or entitled to variable returns sometimes positive and sometimes negative. as a result of its ties to the entity; • the Group is able to exercise its power over the Link between power and variable returns entity in such a way as to influence the amount of Power over relevant activities does not give the Group returns it obtains. control if this power does not give it influence over the variable returns to which the Group is exposed Power over an entity as a result of its ties with the entity. If the Group has The voting rights taken into consideration in order decision-making powers delegated by external third to determine the Group’s degree of control over an parties and it mainly exercises these powers in favour entity and the corresponding consolidation method of said third parties, it is presumed to be acting as include potential voting rights where these can be an agent of the delegating parties and, consequently, freely exercised at the control evaluation date or, at does not control the entity despite being a decision- the latest, when management decisions concerning maker. In the asset management business, an analysis the relevant activities must be taken. Potential voting is performed to determine if the asset manager is rights are instruments such as call options on ordinary acting as an agent or as the principal in managing the shares outstanding on the market or rights to convert fund’s assets. The fund is deemed to be controlled by bonds into new ordinary shares. the asset manager where the latter is acting as the Where voting rights are not relevant to determine principal. the Group’s control or lack of control over an entity, Structured entities the evaluation of said control must take all events and circumstances into account, including any A structured entity is an entity designed so that voting contractual agreements. Power can be exercised rights are not the dominant factor in deciding who through substantial rights, i.e. the practical ability to controls the entity. Such is the case, for example, run the entity’s relevant activities without obstacles or where the voting rights only concern administrative constraints. tasks and the entity’s relevant activities are run in accordance with contractual agreements.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 91 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
A structured entity often has certain features such In a joint venture, the different parties have rights to as a restricted activity, a narrow and well-defined the net assets relating to the arrangement. objective, and insufficient equity to allow it to finance its activities without subordinated financial support. Associates Structured entities can have different legal forms: Associates are entities over which the Group exercises capital companies, partnerships, securitisation significant influence. Associates are accounted for vehicles, investment funds, entities without legal using the equity method in the Group’s consolidated persons, etc. financial statements. Significant influence is the power Determination of control over the entity must take into to participate in an entity’s financial and operational account all events and circumstances, including in policies without exercising exclusive or joint control particular: over the entity. This can result from representation on governing or supervisory bodies, participation in • the entity’s activities and objective; strategic decisions, the implementation of major inter- • the entity’s structure; company transactions, interchange of managerial • the risks incurred by the entity and the Group’s personnel, or the provision of essential technical exposure to all or part of these risks; information. The Group is presumed to exercise significant influence over an entity’s financial and • the potential benefits enjoyed by the Group through operational policies if it directly or indirectly holds at its investment in the entity. least 20% of the entity’s voting rights. Unconsolidated structured entities are entities that are not exclusively controlled by the Group. When Consolidation rules and methods consolidating structured entities controlled by the The consolidated financial statements are prepared Group, the portion of the structured entities that is on the basis of the annual financial statements of all not held by the Group is recognised as Debt on the significant controlled entities that make up the Group. balance sheet. Companies that do not qualify as significant under the Group’s accounting standards have been excluded Joint arrangements from the consolidation scope. The financial statements In a joint arrangement (joint operation or joint venture), of consolidated companies are if necessary restated the Group exercises joint control over the entity in in accordance with Group principles. consideration if the decisions concerning the entity’s All significant balances, profit and transactions relevant activities require the unanimous consent of between Group companies are eliminated. the parties sharing control. Determination of joint control is based on an analysis of the rights and The results of acquired subsidiaries are included in the obligations of the partners to the agreement. consolidated financial statements from their effective acquisition date, while the results of subsidiaries sold In a joint operation, the different parties exercising joint during the fiscal year are included up to the date on control have rights to the assets and obligations for which control or significant influence was relinquished. the liabilities relating to the arrangement.
92 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
Methods of consolidation carrying value of the equity-accounted investment Subsidiaries, including structured entities controlled on the balance sheet. Allocations to and reversals of by the Group, are fully consolidated. impairments are recorded under “Share of net income of companies accounted for by the equity method” on On the consolidated balance sheet, full consolidation the consolidated income statement. consists in replacing the value of equity securities in the subsidiary held by the Group with each of the The Group’s share in the entity’s net income subsidiary’s assets and liabilities, plus the goodwill and in gains and losses booked directly to other recognised when the Group took control of the comprehensive income are recorded on separate subsidiary (see Note 2.2). On the income statement lines of the consolidated income statement and the and the statement of net income and gains and losses consolidated statement of net income and gains booked directly to other comprehensive income, and losses booked directly to other comprehensive each of the subsidiary’s income and expense items is income. If the Group’s share in the losses of an aggregated with those of the Group. equity-accounted company becomes greater than or equal to its investment in the company, the Group The share of non-controlling interests is recorded on no longer recognises its share in subsequent losses, a separate line of the consolidated balance sheet unless required to do so in accordance with the law and income statement. However, when consolidating or an implicit obligation, in which case a provision structured entities controlled by the Group, the share is recorded for these losses. Capital gains or losses of the structured entities that is not held by the Group generated during the sale of equity affiliates are is recognised as Debt on the consolidated balance recognised under “Net gains/losses on other assets”. sheet. For joint activities or joint operations, the Group Changes in equity interests in consolidated separately recognises its share in each of the assets entities and liabilities over which it holds rights and obligations If the Group increases its equity interest in a and its share of the related income and expenses. subsidiary, the difference between the acquisition Joint ventures and associates are accounted for cost of the additional equity interest and the acquired using the equity method in the Group’s consolidated portion of the acquired entity’s net assets at that date financial statements. The equity method is an is recorded under “Consolidated reserves, Group accounting method under which the acquisition cost share”. of the Group’s share in the joint venture or associate Likewise, if the Group reduces its equity interest in is initially recorded under “Investments in subsidiaries a subsidiary that remains exclusively controlled, the and affiliates accounted for by the equity method” on difference between the selling price and the book the consolidated balance sheet, including goodwill, value of the portion of assets sold is recognised under and this initial cost is subsequently adjusted to reflect “Consolidated reserves, Group share”. changes in the Group’s share in the issuing entity’s net The related costs are booked directly to shareholders’ assets that take place after the acquisition. equity. Investments in companies accounted for by the equity When control of a consolidated subsidiary is lost, any method are subject to an impairment test where there equity interest retained by the Group is remeasured is objective evidence of impairment. If the recoverable at fair value simultaneously with the recognition of the value of the investment (the higher of the value in use gain or loss on disposal under “Net gains/losses on and the market value net of disposal costs) is lower other assets” on the consolidated income statement. than its carrying value, impairment is recorded on the
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 93 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
2.1 Scope of consolidation
2.1.1 Change in scope during fiscal year 2019
The consolidation scope is presented in Note 7.5. Crédit du Nord and Société Marseillaise de Crédit The consolidation scope includes subsidiaries and provide regulated banking and financial services in structured entities controlled by the Group, joint the Principality of Monaco through two branches. The arrangements (joint activities or joint ventures) and decision was taken to see Crédit du Nord and Société associates whose financial statements are material Marseillaise de Crédit transfer the assets and liabilities relative to the Group’s consolidated financial statements, allocated to the business of these branches to a particularly with respect to total balance sheet assets, Monegasque public limited company (the SAM SOCIETE the income statement and gross operating income. DE BANQUE MONACO) established for this purpose during H1 2019. The consolidation scope at December 31, 2019 included 18 companies: This operation pursues the objective of strengthening the Crédit du Nord Group’s presence in Monaco by • 16 fully consolidated companies; combining its two brands. It is in line with the pooling • 2 companies accounted for by the equity method, initiatives implemented by the Group in Monaco since including one joint venture and one entity under 2017 and will enable the banking and financial activities significant influence. carried out in Monaco by the Crédit du Nord Group to be included in Crédit du Nord’s regional banking model.
2.1.2 Post-closing events There were no significant post-closing events to report.
94 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
2.2 Goodwill - Segment balance sheet
Accounting principles earn-out is of a contingent nature. This item is The Group uses the acquisition method to account for accounted for as an asset or a liability based on how its business combinations. the earn-out is settled. If they are classified as a debt instrument, subsequent adjustments to the earn-out In line with IFRS 3, “Business Combinations”, are recognised in profit or loss for financial liabilities identifiable assets, liabilities, off-balance sheet covered by IFRS 9 and, for liabilities not addressed items and contingent liabilities of the acquired entity by IFRS 9, in accordance with the standards that are measured individually at their fair value, at the apply; if they are classified as an equity instrument, acquisition date, regardless of their purpose. The these adjustments are not recognised. Any positive analyses and appraisals necessary for the initial difference between the acquisition cost of the acquired measurement of such items, and any adjustments entity and the acquired portion of its remeasured net to the value based on new information associated assets is recognised on the asset side of the balance with events and circumstances at the acquisition sheet as “Goodwill”. Any negative difference is directly date, must be carried out within 12 months of the recognised in profit or loss. At the date on which acquisition date. At this same date, non-controlling control of an acquired entity is obtained, the Group interests are then measured at their proportion of remeasures its pre-combination equity interest in the the fair value of identifiable assets and liabilities in acquired entity at its acquisition-date fair value and the acquired entity. However, the Group may also recognises the resulting gain or loss, if any, in profit or elect, for each business combination, to measure loss. For business combinations achieved in stages, non-controlling interests at fair value, with a fraction of goodwill is determined by reference to fair value at the such goodwill then being allocated. date control of the acquire entity is obtained. The entity’s acquisition cost is measured based on the At the acquisition date, each item of goodwill is total of the acquisition-date fair value of the identifiable allocated to a Cash-Generating Unit (CGU) expected assets acquired, the liabilities assumed and the equity to benefit from the synergies of the combination. In instruments issued in the exchange for the acquired the event the restructuring of the Group results in a entity. Costs directly associated with business change in the composition of CGUs, the goodwill combinations are recorded as income for the period, allocated to the units that were restructured is with the exception of those related to the issuance of reassigned to other existing or new units. This equity instruments. reassignment is usually pro rated according to the Earn-out is subsumed into the acquisition cost at normative capital requirements of the different parts fair value at the acquisition date even where said of the restructured CGUs.
2.2.1 Goodwill
Crédit du Nord Group is a single CGU and did not At December 31, 2019, the SG Group carried out an recognise any goodwill impairment at December 31, annual impairment test on the Crédit du Nord Group 2019. CGU to which goodwill was allocated.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 95 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
A CGU is defined as the smallest identifiable group of The annual impairment test on the Crédit du Nord assets generating cash income, independent of the cash Group CGU did not result in the recognition of goodwill income earned from other assets or groups of assets in impairment at December 31, 2019. the company. An impairment tests consists in assessing A discount rate of 7.7% was used. The long-term growth the recoverable value of a CGU and comparing it rate used was 2%. with its carrying value. An irreversible impairment loss Sensitivity tests were conducted to measure the impact is recorded on the income statement if the carrying of the change in certain assumptions on the recoverable value of a CGU, including allocated goodwill, exceeds value of the Crédit du Nord Group CGU. its recoverable value. This loss is allocated to goodwill impairment. The recoverable value of a CGU is At December 31, 2019, given the risks associated with calculated using the most appropriate method, which is the business in the current environment (market volatility, usually the discounted cash flow (DCF) method applied regulatory uncertainties), sensitivities to the change in to the entire CGU. The cash flows consist of dividends the discount rate and the long-term growth rate were that may be distributed by the entities comprising the recorded. CGU, including the target amount of Group capital The results of these sensitivity tests showed that: allocated to each entity. • a 100bp increase applied to the CGU’s discount rate Cash flows were determined over a five-year period, would result in a 8% decrease in the total recoverable based on projected four-year budgets (2020-2023) value, without requiring the recognition of additional extrapolated over 2024, which constitutes a “normative” impairment on the CGU; year over which the terminal value was calculated: • a 100bp decrease applied in the long-term growth • capital allocated to the Crédit du Nord Group rate would result in a 7.3% decrease in the total CGU comprised 10.5% of risk-weighted assets at recoverable value, without requiring the recognition of December 31, 2019; additional impairment on the CGU. • the discount rate is calculated based on a risk-free interest rate, plus a risk premium associated with the 2.2.2 Segment balance sheet underlying activity. Segment reporting is presented in accordance with The risk premium is determined using a series of equity IFRS 8 “Operating Segments”. In accordance with the risk premiums published by SG Cross Asset Research provisions of this standard, the segment breakdown and based on the specific estimated volatility of the applied by the Group corresponds to that regularly activity. Where applicable, a sovereign risk premium examined by the Executive Committee (the main is also added to the risk-free rate, representing the operational decider for the Group) and for which difference between the euro zone risk-free rate and the separate financial information is available. The Group is interest rate of liquid long-term bonds issued by the a single-segment Group due to the fact that the banks in government (in EUR); the Group all carry out retail banking activities in France • the growth rate used for the terminal value is based by offering identical products and services through on the projected growth of the economy and long- a network of branches, in the same economic and term sustainable inflation. This rate is estimated regulatory environment. using data from two main sources: the International Monetary Fund and the economic analysis performed by SG Cross Asset Research, which supplies forecasts through 2024.
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2.3 Additional information on consolidated entities and entities accounted for by the equity method
This note presents additional information relating to consolidated financial statements. Materiality is notably entities included in the consolidation scope. assessed with respect to the Group’s total consolidated This note covers entities under joint or exclusive balance sheet assets and consolidated gross operating control and entities under significant influence whose income. financial statements are material relative to the Group’s
2.3.1 Consolidated structured entities
Consolidated entities include in particular: exposures which can be divided into tranches; • investment funds (open-ended mutual funds, • financing structures for aviation, railway, maritime or mutual funds, etc.) managed by the Group’s asset real estate assets. management subsidiaries; At December 31, 2019, Crédit du Nord did not own any • securitisation funds issuing financial instruments that consolidated structured entities. can be subscribed for by investors and that bear credit risks inherent in a given exposure or basket of
2.3.2 Entities accounted for by the equity method (joint ventures and associates)
Companies consolidated using the equity method are: • associates, i.e. entities over which the Group • joint ventures, i.e. joint arrangements in which the exercises significant influence. parties exercising joint control over the operation have Summarised financial information for joint rights to the joint venture’s net assets; ventures and associates Total entities accounted (in €m) Joint ventures Associates for by the equity method Group share in: 2019 2018 2019 2018 2019 2018 Net income 34.0 40.5 -0.1 0.3 33.9 40.7 Gains and losses booked directly to other comprehensive income (net of tax) 15.3 11.3 - - 15.3 11.3 NET INCOME AND GAINS AND LOSSES BOOKED DIRECTLY TO OTHER COMPREHENSIVE INCOME 49.3 51.8 -0.1 0.3 49.2 52.0
At December 31, 2019, two entities were consolidated using the equity method: • Antarius, identified as a joint venture; • Pouyanne, identified as an associate.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 97 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
2.4 Unconsolidated structured entities
The information presented below pertains to entities Securitisation includes securitisation funds and structured by the Group and not controlled by the equivalent structures issuing financial instruments that Group. They are grouped by type of family exercising can be subscribed for by investors and that bear credit similar activities: asset financing, asset management and risks inherent in a given exposure or basket of exposures others (including securitisation and issuance structures). which can be divided into tranches. Asset financing includes economic interest groups, The Group’s interests in entities structured by third partnerships and equivalent structures carrying aviation, parties are classified under consolidated balance sheet railway, shipping or real estate financing vehicles. headings by type. Asset management brings together investment funds Crédit du Nord only includes asset financing structures (open-ended mutual funds, mutual funds, etc.) managed carrying shipping, power plant, wind farm and by the Group’s asset management subsidiaries. co-generation financing vehicles.
2.4.1 Interests in unconsolidated structured entities
The Group’s interests in an unconsolidated structured • guarantees given (guarantee commitments); entity cover the contractual or non-contractual links • derivatives that absorb some or all of the risk of a exposing it to the risk of change in returns associated change in the structured entity’s returns, excluding with the structured entity’s performance. These interests Credit Default Swaps (CDS) and options purchased include: by the Group; • equity or debt instruments of any subordination rank; • contracts earning fees based on the structured • financing contributions (loans, credit facilities, loan entity’s performance; commitments, cash facilities, etc.); • tax consolidation agreements. • credit enhancement (guarantees, subordinated shares, credit derivatives, etc.);
Asset financing (in €m) 31/12/2019 31/12/2018 ENTITIES’ TOTAL BALANCE SHEET ASSETS 261.5 279.9 Net carrying amount of the Group’s interests in these entities: Assets 93.7 100.1 Financial assets at fair value through profit or loss 0.1 0.1 Financial assets at fair value through other comprehensive income - - Available-for-sale financial assets Due from banks and customer loans 93.6 100.0 Securities at amortised cost -- Others -- Liabilities -- Financial liabilities at fair value through profit or loss - - Due to banks and customer deposits - - Others --
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At December 31, 2019, the Group had not given any • the fair value (1) of derivatives recorded as assets on financial support to these entities outside normal market the balance sheet; conditions. • the nominal value of CDS sold (maximum amount Its maximum exposure to the risk of losses linked to its payable); interests in a structured entity is equivalent to: • the nominal value of loan or guarantee commitments • the amortised cost or fair value (1), of non-derivative given. financial assets entered into with the structured entity, based on how they are measured on the balance sheet;
Asset financing (in €m) 31/12/2019 31/12/2018 Amortised cost or fair value(1), depending on how they are measured on the balance sheet, of non-derivative financial assets entered into with the structured entity -- Fair value (1) of derivatives recorded as assets on the balance sheet - - Nominal value of CDS sold (maximum amount payable) - - Nominal value of financing or guarantee commitments given - - MAXIMUM EXPOSURE TO RISK OF LOSSES - -
(1) Fair value at the balance sheet date, which may fluctuate in subsequent fiscal years.
Items reducing maximum exposure to risk of losses • the fair value (1) of assets received as collateral; include: • the carrying amount of guarantee deposits received, • the nominal amount of guarantee commitments recorded as liabilities on the balance sheet. received;
2.4.2 Information on unconsolidated structured entities sponsored by the Group
The Group cannot hold interests in a structured entity Furthermore, a structured entity is considered to be but may be considered as the entity’s sponsor if it has or sponsored by the Group where its name includes the has had a role as: name of the Group or one of its subsidiaries. • a structurer; However, entities structured by the Group in response • a promoter to potential investors; to specific needs expressed by one or more customers or investors are deemed to be sponsored by said • a third-party asset manager; customers or investors. • an implicit or explicit guarantor of the entity’s The Group does not sponsor any non-consolidated performance (in particular via capital or return structured entity. guarantees granted to fund unitholders).
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2.5 Non-current assets held for sale and associated liabilities
Accounting principles Assets and liabilities falling under this category are A non-current asset (or disposal group) is considered reclassified as “Non-current assets held for sale” and as held for sale if its carrying amount will be recovered “Liabilities directly associated with non-current assets principally through a sale transaction rather than classified as held for sale”, with no netting. through continued use. For this to be the case, Any negative differences between the fair value less the asset (or disposal group) must be available for costs to sell of non-current assets and groups of immediate sale and its sale within 12 months must be assets held for sale and their net carrying value is highly probable. recognised as an impairment loss in profit or loss. The Group must have undertaken a plan to dispose Furthermore, non-current assets held for sale are no of the asset or group of assets and liabilities and must longer amortised as from their reclassification. be actively seeking a buyer. Furthermore, the asset or disposal group must be sold at a reasonable price in relation to its present fair value.
(in €m) 31/12/2019 31/12/2018 Assets 0.2 0.2 Fixed assets and goodwill 0.2 0.2 Financial assets -- Financial assets at fair value through profit or loss -- Financial assets at fair value through other comprehensive income -- Due from banks and equivalent at amortised cost -- Customer loans at amortised cost -- Other assets -- Liabilities -- Provisions -- Financial liabilities -- Financial liabilities at fair value through profit or loss -- Due to banks and equivalent -- Customer deposits -- Other liabilities --
100 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
NOTE 3 Financial instruments
Accounting principles or loss and fair value through other comprehensive income) that determine their accounting treatment and Classification of financial assets subsequent measurement method. This classification On their initial recognition, financial assets are is based on their contractual cash flow characteristics classified on the Group balance sheet in three and how the entity manages its financial instruments categories (amortised cost, fair value through profit (business model).
The diagram below shows how financial assets are classified under IFRS 9.
Cash flow Accounting Business model characteristics + = classification
Collect business model Amortised cost SPPI FVOCI that (Solely Payments of Principal Collect and Sell will be subsequently and Interest) business model reclassified to profit or loss Vanilla debt instruments Fair value through profit Trading book or loss
+ FVPL option Fair value through profit (elimination/reduction of an accounting mismatch) or loss
Irrespective of the Fair value through profit NON-SPPI business model or loss - Complex debt instruments - Equity instruments - Derivatives FVOCI that + FVOCI option, that will not be subsequently will not be subsequently reclassified to profit or loss reclassified to profit (non-trading book equities and equity instruments) or loss
The principles applied to classify financial assets revenues from financial assets using the effective call for i) an analysis of the contractual cash flows interest method exclusively to instruments whose generated by the financial instruments and ii) an characteristics are similar to those of a basic lending analysis of the business model used to manage the arrangement, meaning their associated cash flows instrument. are highly predictable. All other financial assets not having those characteristics are measured at fair Analysis of contractual cash flow characteristics value through profit or loss, regardless of the business The purpose of the analysis of contractual cash flow model applied. characteristics is to limit the option of recognising
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Contractual cash flows that are solely payments • how managers of the business are compensated; of principal and interest on the principal amount • and also, sales of assets realised or expected (size, outstanding are consistent with a basic lending frequency, purpose). arrangement (SPPI cash flows: Solely Payment of To determine the classification and measurement of Principal and Interest). financial assets, three different business models shall In a basic lending arrangement, interest is mainly be distinguished: consideration for the time value of money and credit • a business model whose objective is to collect risk. Interest can also include consideration for contractual cash flows (“Collect” business model); liquidity risk and for administrative costs associated with holding the financial asset, and a commercial • a business model whose objective is achieved by profit margin. Negative interest is not inconsistent with both collecting contractual cash flows and selling this definition of a basic lending arrangement. financial assets (“Collect and Sell” business model); All financial assets that are not basic are mandatorily • and a separate business model for other financial measured at fair value through profit or loss, assets, and especially those that are held for regardless of the business model applied. trading purposes, where collecting contractual cash flows is only incidental. Derivative financial assets qualifying as hedging instruments for accounting purposes are presented Fair value option on a separate line of the balance sheet (see Note 3.2). A non-SPPI financial asset that is not held for trading The Group can make the irrevocable election to purposes can be designated, upon initial recognition, classify and measure an investment in an equity to be measured at fair value through profit or loss if instrument that is not held for trading purposes at such designation eliminates or significantly reduces fair value through other comprehensive income. discrepancies in the accounting treatment of certain Subsequently, the profit or loss accumulated in other financial assets and liabilities (accounting mismatch). comprehensive income may not be subsequently reclassified to profit or loss (only dividends from those Classification of financial liabilities investments shall be recognised as income). Financial liabilities are classified in one of the following two categories: Analysis of the business model The business model refers to how financial • Financial liabilities at fair value through profit or instruments are managed to generate cash flows and loss: financial liabilities held for trading, including by revenues. default derivative liabilities that are not considered to be hedging instruments, as well as non- When carrying on its different business activities, derivative financial liabilities initially designated by the Group makes use of various business models. the Group to be measured at fair value through Business models are assessed on how groups of profit or loss (fair value option); financial instruments are managed together to achieve a particular business objective. The business model is not • Debts: this category comprises other non- assessed on an instrument-by-instrument basis, but at derivative financial liabilities, which are measured a portfolio level, considering relevant evidence such as: at amortised cost. • how the performance of the portfolio is evaluated Derivative financial assets qualifying as hedging and reported to the Group’s management, instruments for accounting purposes are presented on a separate line of the balance sheet (see Note 3.2). • how risks related to financial instruments within that business model are managed;
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Reclassification of financial assets if the valuation models are not recognised by the Reclassifications of financial assets are only obligatory market, the sales margin is generally recognised in the exceptional event of a change in business differently in profit or loss. Given the complexity of model used to manage the assets in question. some instruments, this margin is only recognised at maturity or when the instruments are sold prior Fair value to maturity. Where an instrument’s valuation criteria become observable, the part of the sales margin not Fair value is the price that would be received for the yet booked is recognised on the income statement. sale of an asset or that would be paid for the transfer of a liability in an arm’s length transaction between Derecognition of financial assets and market intermediaries at the valuation date. The liabilities valuation methods used by the Group to determine The Group derecognises all or part of a financial asset the fair value of financial instruments are presented (or group of similar assets) when the contractual rights in Note 3.4. to the cash flows on the asset expire or when the Initial recognition Group has transferred the contractual rights to receive the cash flows and substantially all of the risks and Financial assets are recognised on the balance sheet: rewards of ownership of the asset. • at the settlement-delivery date for securities; The Group also derecognises financial assets over • at the trade date for derivatives; which it has maintained the contractual rights to • at the disbursement date for loans. receive the associated cash flows, but has the contractual obligation to pass these same cash For instruments measured at fair value, fair value flows on to a third party (known as a “pass-through variations between the trading date and the agreement”), and for which it has transferred settlement-delivery date are recorded under profit substantially all associated risks and rewards. or loss or under shareholders’ equity depending on the accounting category of the financial assets Where the Group has transferred the cash flows of a in question. The trade date is the date at which the financial asset but has neither transferred nor retained Group commits itself to purchase or sell the financial substantially all the risks and rewards of its ownership asset. and has not retained control of the financial asset in practice, the Group derecognises it and recognises On initial recognition, financial assets and liabilities separately an asset or liability representing any rights are measured at fair value including costs directly and obligations created or retained as a result of the attributable to their acquisition or issuance (with the asset’s transfer. If the Group has retained control of exception of financial instruments recognised at fair the asset, it continues to recognise it on the balance value through profit or loss, whose costs are taken sheet to the extent of its continuing involvement in directly to the income statement). that asset. If the fair value is primarily based on observable market When a financial asset is derecognised in its entirety, data, the difference between this fair value and the a gain or loss on disposal is recorded on the income transaction price, representative of the sales margin, statement for the difference between the carrying is directly recognised in profit or loss. However, value of the asset and the payment received for it, if the valuation inputs used are not observable or
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adjusted where necessary for any unrealised profit specified in the contract is discharged, cancelled or or loss previously recognised directly in equity and expires. for the value or any management asset or liability. A financial liability may also be derecognised in the Prepayment penalty fees charged to borrowers are event of a substantial modification in its contractual recorded on the income statement at the repayment terms and conditions or an exchange with the lender date under “Interest and similar income”. against an instrument having substantially different The Group derecognises all or part of a financial contractual terms and conditions. liability when it is extinguished, i.e. when the obligation
Analysis of contractual cash flows of financial assets
The Group has established procedures for subjecting (in France, for example, compensation for the financial assets to the SPPI test on their initial recognition prepayment of home loans by individuals is capped (issuance of loans, acquisition of securities, etc.). by the law at an amount equal to six months of All contractual terms are analysed, particularly those interest or 3% of the principal amount outstanding), that could change the timing or amount of contractual or is limited by competitive market practices; cash flows. A contractual term that permits the borrower • the amount is equal to the difference between or the lender to prepay or to put the debt instrument contractual interest that should have been received back to the issuer before maturity remains consistent until the maturity of the loan and interest that would with SPPI cash flows, provided the prepayment amount be obtained by the reinvestment of the prepaid substantially represents the principal amount outstanding amount at a rate that reflects the relevant benchmark and accrued but unpaid contractual interest, which may interest rate. include a reasonable compensation. The possibility of Some loans are prepayable at their current fair value, said compensation being negative does not necessarily while others can be prepayable at an amount that mean that the contractual cash flows fail the SPPI test. includes the fair value cost to terminate an associated Compensation is particularly considered as reasonable hedging swap. It is possible to consider such when: prepayment amounts as SPPI provided that they reflect • the amount is calculated on the principal amount the effect of changes in the relevant benchmark interest outstanding on the loan and is capped by regulations rate.
Basic financial assets (SPPI) are debt instruments, which mainly include: • fixed-rate loans, • variable-rate loans that can include caps or floors, • fixed or variable-rate debt securities (public or private bonds, other negotiable debt securities), • securities purchased under resale agreements (reverse repos), • security deposits paid, • trade receivables.
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Contractual terms that introduce exposure to risks instance, or leverage features) could not be considered or volatility in the contractual cash flows that would as being SPPI, except if their effect on the contractual be unrelated to a basic lending arrangement (such as cash flow remains de minimis. exposure to changes in equity prices or stock indexes for
Non-basic (non-SPPI) financial assets mainly include: • derivatives, • shares and other equity instruments held by the entity, • units in undertakings for collective investment (UCITS, mutual funds, etc.), • debt financial assets that can be converted or redeemed into a fixed number of shares (convertible bonds, equity-linked securities, etc.).
When the time value component of interest can be interest rate curves at the initial recognition date of the modified according to the contractual term of the financial asset, but also assesses the change in the instrument, it may be necessary to compare the curves over the life of the instrument under reasonably contractual cash flow with cash flow that would arise possible scenarios. from a benchmark instrument. Such is the case, for Groupwide, such instruments include for example example, if the interest rate of the financial instrument variable-rate home loans, whose interest rates are is periodically revised, but the frequency of revisions revised yearly based on the average 12-month Euribor does not match the period for which the interest rate is rates observed over the two months preceding the established (e.g. interest rate revised monthly according revision, or loans granted to real estate l, whose interest to the one-year interest rate) or if the interest rate of the rates are revised every three months based on the financial instrument is periodically revised according to average 1-month Euribor rates observed over the three an average of short-term and long-term interest rates. months preceding the revision. The analyses conducted If the difference between undiscounted contractual by the Group concluded that these loans qualify as basic cash flows and undiscounted benchmark cash flows lending arrangements. is significant or can become significant, then the Furthermore, a specific analysis of contractual cash instrument is not considered basic. flows is applied when financial assets are instruments Depending on the contractual terms, comparison with issued by a securitisation vehicle or a similar entity benchmark cash flow may be performed through a that prioritises payments between the holders. qualitative assessment; but in other cases, a quantitative When assessing whether contractual cash flows are test will be required. The difference between contractual SPPI or not, the entity must analyse the contractual and benchmark cash flows is considered in each terms, as well as the credit risk of each tranche and reporting period and cumulatively over the life of the the exposure to credit risk in the underlying pool of instrument. The analysis also considers factors liable to financial instruments. To that end, the entity must apply have an impact on the undiscounted amount of future a “lookthrough approach” to identify the underlying contractual cash flows. To that end, the Group uses instruments that are creating the cash flows.
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3.1 Financial assets and liabilities at fair value through profit or loss
Overview of financial instruments at fair value through profit or loss
31/12/2019 31/12/2018 (in €m) Assets Liabilities Assets Liabilities Trading book 285.7 306.5 237.6 255.8 Financial instruments measured mandatorily at fair value through profit or loss 175.6 - 206.4 - Financial instruments at fair value through profit or loss (fair value option) - 297.7 - 439.3 TOTAL 461.3 604.2 443.9 695.1 o/w securities purchased under resale agreements/sold under repurchase agreements ----
3.1.1 Trading book
Accounting principles Trading book assets and liabilities are measured at The trading book combines financial assets and fair value at the balance sheet date and recorded on liabilities which are held for market activities. the balance sheet under “Financial assets at fair value through profit or loss” and “Financial liabilities at fair This portfolio also includes, among other trading value through profit or loss”. Changes in their fair value assets, physical inventories of commodities that the and the associated revenues of these instruments are Group may hold for the purposes of its market making booked on the income statement under the heading activities in commodity derivatives. “Net gains or losses on financial instruments at fair Derivative financial instruments are classified as value through profit or loss”. trading financial derivatives by default, unless they are designated as hedging instruments (see Note 3.2).
Trading activities • or acquired or held for a specialised trading Financial assets held for trading purposes are acquired: book management purpose, including derivative instruments, securities or other financial instruments • with the intention of selling or repurchasing them in managed together, and showing indications of a the short term; recent short-term profit-taking profile. • or held for market making purposes;
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Assets
(in €m) 31/12/2019 31/12/2018 Bonds and other debt securities - 0.2 Shares and other equity securities 2.1 1.6 Loans, receivables and repurchase agreements - - Trading derivatives (1) 283.6 235.7 Other trading assets -- TOTAL 285.7 237.6 o/w loaned securities --
(1) see Note 3.2 “Derivative financial instruments”.
Liabilities
(in €m) 31/12/2019 31/12/2018 Debt securities -- Amounts payable on borrowed securities - - Bonds and other debt securities sold short - - Shares and other equity securities sold short 0.7 - Borrowings and repurchase agreements - - Trading derivatives (1) 305.8 255.8 Other trading liabilities -- TOTAL 306.5 255.8
(2) see Note 3.2 “Derivative financial instruments”.
3.1.2 Financial assets measured mandatorily at fair value through profit or loss
Accounting principles book at fair value through profit or loss, instruments “Financial assets measured mandatorily at fair value designated by the Group to be measured at fair through profit or loss” include: value through other comprehensive income that will not be subsequently reclassified to profit or loss. • loans, bonds and other fixed-income securities not held for trading purposes and whose contractual The fair value of these assets is recorded on the cash flows are not solely payments of principal and balance sheet under “Financial assets at fair value interest on the principal outstanding (non-basic or through profit or loss” and changes in their fair value non-SPPI instruments); are recorded on the income statement under “Net gains/losses on financial instruments at fair value • equities and other variable-income securities that through profit”. are not classified in another sub-category: trading
Breakdown of financial assets measured mandatorily at fair value through profit or loss
(in €m) 31/12/2019 31/12/2018 Bonds and other debt securities 7.7 5.2 Shares and other equity securities 167.8 201.1 Loans, receivables and repurchase agreements - - TOTAL 175.6 206.4 o/w loaned securities --
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Breakdown of loans, receivables and repurchase agreements Crédit du Nord Group did not hold any loans, receivables and repurchase agreements measured mandatorily at fair value through profit or loss at December 31, 2019.
3.1.3 Financial instruments at fair value through profit or loss (fair value option)
Accounting principles booked directly to other comprehensive income” and In addition to financial assets and liabilities held for then reclassified at the beginning of the following fiscal trading and financial assets measured mandatorily at year under “Consolidated reserves”. fair value through profit or loss, the same headings For financial assets, the application of this option in the financial statements include non-derivative is only allowed to eliminate or significantly reduce financial assets and liabilities that the Group has discrepancies in the accounting treatment of certain designated at fair value through profit or loss. related financial assets and liabilities. Changes in fair value (interest included) are booked on For financial liabilities, this option is only applied in the the income statement under the heading “Net gains following cases: or losses on financial instruments at fair value through • to eliminate or reduce discrepancies in the profit or loss”, with the exception of the component accounting treatment of certain related financial representing the Group’s own credit risk for financial assets and liabilities; liabilities which is booked under the heading “Gains and losses booked directly to other comprehensive • when it applies to a hybrid financial liability with one income”. or more embedded derivatives, which should be recognised separately; Moreover, in the event of the derecognition of a financial liability classified at fair value through profit or • when a group of financial assets and/or liabilities loss (fair value option) before its contractual maturity, is managed together and its performance is any gains and losses attributable to the Group’s own measured at fair value. credit risk are recorded under “Gains and losses
Assets The Crédit du Nord Group did not hold any financial assets measured at fair value through profit or loss under the FVPL option at December 31, 2019.
Liabilities 2019, booked directly to other comprehensive income, Fair value through profit or loss (fair value option) bringing total gains and losses attributable to own credit predominantly consist of Crédit du Nord Group risk to -€1.5 million (see Note 7.7). structured issues. At December 31, 2019, the difference between the fair Revaluation differences linked to the Group’s issuer value of financial liabilities at fair value through profit or credit risk are measured using models incorporating the loss (fair value option) (€297.7 million vs. €439.3 million Crédit du Nord Group’s most recent actual refinancing at December 31, 2018) and their amount repayable at terms and conditions on the markets and the residual maturity (€297.2 million vs. €478.6 million at December maturity of the relevant liabilities. 31, 2018) amounted to +€0.5 million (vs. -€39.3 million at December 31, 2018). The change in fair value attributable to own credit risk generated a loss of -€0.1 million at December 31,
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3.1.4 Net gains/losses on financial instruments at fair value through profit or loss
(in €m) 2019 2018 Net income from trading book 0.2 0.4 Net income on financial instruments measured mandatorily at fair value through profit or loss (1) 19.1 71.2 Net gain/loss on financial instruments at fair value (fair value option) -0.4 -5.9 Gain/loss on derivative financial instruments held for trading 8.8 5.8 Net gain/loss on hedging transactions (2) 4.0 -6.5 Net gain/loss on fair value hedging derivatives 16.5 -104.7 Revaluation of hedged items attributable to hedged risks (3) -12.5 98.2 Ineffective portion of cash flow hedge -- Net income from foreign exchange transactions 31.2 35.0 TOTAL 62.9 100.0 o/w dividend income on financial instruments at fair value through profit or loss 1.7 2.2
(1) This item records unrealised and realised gains and losses on debt and equity instruments, excluding the revenue component of debt instruments representing an interest rate which is recorded in net interest income (see Note 3.7.) (2) This item only contains income from hedging transactions involving financial instruments. For hedging transactions involving non-financial assets or liabilities, net income from fair value hedging derivatives is recorded on the income statement line impacted by the hedged item. (3) This item contains the revaluation of hedged items at fair value including changes in the value of revaluation differences on portfolios hedged against interest rate risk.
Since income and expenses presented on the income as a whole. It is worth noting that the above earnings statement are categorised by type and not by purpose, do not include the cost of refinancing these financial net income on transactions in financial instruments instruments, which is included in interest income and at fair value through profit or loss must be assessed expense.
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3.2 Derivative financial instruments
Accounting principles Where the host contract is a financial asset, the hybrid Derivatives are instruments that meet the following contract is measured entirely at fair value through criteria: profit or loss because its contractual cash flows do not pass the SPPI test. • their value fluctuates according to changes in the underlying (interest rates, exchange rates, equities, Where the host contract is a financial liability and it indices, commodities, credit ratings, etc.); is not measured at fair value through profit or loss, the embedded derivative is separated from its host • they require little to no initial investment; instrument where, on initiation of the transaction, the • they are settled at a future date. economic characteristics and risks associated with All derivative financial instruments are recognised at the embedded derivative are not closely linked to their fair value under financial assets or liabilities on the characteristics and risks of the host contract that the balance sheet. By default they are recognised as meets the definition of a derivative instrument. trading instruments, unless they are designated as Once separated, the derivative financial instrument hedging instruments. is booked at fair value on the balance sheet under “Financial assets at fair value through profit or loss” or Recognition of embedded derivatives “Financial liabilities at fair value through profit or loss” An embedded derivative is a component of a hybrid under the terms described above. The host contract contract that also includes a non-derivative host is classified and measured as a financial liability based instrument. on its accounting category.
3.2.1 Trading derivatives
Accounting principles defaulting are booked under “Net gains or losses Trading derivatives are recorded on the balance sheet on financial instruments at fair value through profit at their fair value under “Financial assets or liabilities or loss” until the date the instruments are cancelled at fair value through profit or loss”. Changes in fair and recognised on the balance sheet, for the fair value are booked on the income statement under the value at this same date of the receivable or debt vis- heading “Net gains or losses on financial instruments à-vis the counterparties in question. Any subsequent at fair value through profit or loss”. impairment on these receivables is recorded under “Cost of risk” on the income statement. Changes in the fair value of derivative contracts entered into with counterparties which end up
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Breakdown of the fair value of trading derivatives
31/12/2019 31/12/2018 (in €m) Assets Liabilities Assets Liabilities Interest rate instruments 239.7 266.6 192.6 222.6 Foreign exchange instruments 43.9 39.2 43.1 33.1 Equity and index instruments ---- Commodity instruments ---- Credit derivatives ---- Other forward financial instruments ---- TOTAL 283.6 305.8 235.7 255.8
Breakdown of trading derivative commitments (notional amounts)
(in €m) 31/12/2019 31/12/2018 Interest rate instruments Firm instruments Swaps 11,155.9 13,594.6 Options Caps, floors, collars 1,361.3 807.4 Foreign exchange instruments Firm instruments Swaps 166.3 171.1 Futures 6.4 - Options Foreign exchange options 1,282.4 792.7 Other forward financial instruments Instruments on organised markets 2,627.7 1,795.3 TOTAL 16,600.0 17,161.0
3.2.2 Hedging derivatives
In accordance with IFRS 9 transition guidance, the Group elected to continue applying the provisions of IAS 39 on hedge accounting. Consequently, the equity instruments held by the Group (equities and other variable-income securities) are not eligible for hedge accounting, regardless of their accounting classification.
Accounting principles documentation indicates the asset, liability or future In order to guard against certain market risks, the transaction hedged, the risk to be hedged and the Group sets up hedges using derivative financial associated risk management strategy, the type of instruments. From an accounting standpoint, they derivative used and the evaluation method applied to may be designated as fair value hedges, cash flow measure the effectiveness of the hedge. hedges or hedges of a net investment in a foreign The hedge must be highly effective, such that changes operation, depending on the risks or instruments to in the fair value or cash flows are offset. The hedge is be hedged. deemed effective if changes in the fair value or cash To qualify as hedges for accounting purposes, the flows of the hedged item are almost fully offset by Group produces detailed documentation covering changes in the fair value or cash flows of the hedging the hedging relationship from its inception. This instrument, i.e. the ratio between the two changes
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is expected to be in the 80%-125% range. This a statistical relationship (correlation) between certain effectiveness is measured when the hedge is first set components of the hedged item and the hedging up and throughout its life. It is measured prospectively instrument. Retrospective effectiveness is assessed each quarter (expected effectiveness over future by comparing the variations in fair value of the periods) and retrospectively (actual effectiveness). hedging instrument with the variations in fair value of If the effectiveness falls outside the aforementioned the hedged item. rate, hedge accounting is discontinued. The Group discontinues the hedge, on a forward- Derivative hedging instruments are recognised on looking basis, if the effectiveness criteria for the the balance sheet at their fair value under “Hedging hedging instrument are no longer met, or the derivatives”. derivative is sold or terminated. As a result, the balance sheet value of the hedged item is no longer Fair value hedge adjusted to reflect change in fair value attributable to The aim of this hedging relationship is to guard the hedged risk, and cumulative gains or losses on against an adverse change in the fair value of an item the previously hedged item are amortised over the liable to affect the income statement if the hedged remaining life of the item. Hedge accounting is also item is removed from the balance sheet. discontinued if the hedged item is sold before maturity or terminated early. Changes in the fair value of the hedging derivative are taken to the income statement under “Net gains or Cash-flow hedges losses on financial instruments at fair value through profit or loss”. For interest rate derivatives, however, Interest rate cash flow hedges are used to hedge the corresponding accrued interest income or items exposed to future cash flow fluctuations expenses on the hedging derivative are booked to the linked to a financial instrument recorded on the income statement under “Interest and similar income/ balance sheet (loans, securities, variable-rate debt) expenses” with a corresponding entry under interest or to a highly probable future transaction (future fixed income or expenses related to the hedged item. rates, future prices, etc.). The aim of this hedging relationship is to guard against an adverse change in On the balance sheet, the carrying value of the the future cash flows of an item liable to affect the hedged item is adjusted for gains or losses income statement. attributable to the hedged risk, which are recognised on the income statement under “Net gains or losses The effective portion of changes in the fair value on financial instruments at fair value through profit of derivative financial instruments are recorded or loss”. Where the hedging relationship is highly under “Gains and losses booked directly to other effective, changes in the fair value of the hedged item comprehensive income”, while the ineffective portion are offset on the income statement by changes in the is booked to the income statement under “Net gains fair value of the hedging derivative, with the difference or losses on financial instruments at fair value through comprising a gain or loss on ineffectiveness. profit or loss”. For interest rate derivatives, accrued interest income or expenses on the hedging derivative The future effectiveness of the hedge is determined are booked to profit or loss under “Interest and similar using a sensitivity analysis that includes probable income/expenses” with a corresponding entry under scenarios for changes in market inputs, or a interest income or expense related to the hedged regression analysis through an analysis drawn from item.
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The effectiveness of the hedge is measured using sold or redeemed prior to the projected maturity or the hypothetical derivative method, which consists if the hedged future transaction is no longer highly in creating a hypothetical derivative that exactly probable, the unrealised gains and losses booked replicates the characteristics of the hedged items (in to other comprehensive income are immediately terms of notional value, the date the interest rates reclassified to profit or loss. are reset, interest rates, etc.), taking the opposite approach to the hedged item, and whose value is nil Macro fair value hedge at the inception of the hedging relationship. Then the In this type of hedge, interest rate derivatives are expected changes in the fair value of the hypothetical used to hedge the Group’s overall structural interest derivative are compared with those of the hedging rate risk, mainly arising from retail banking activities. instrument (sensitivity analysis) or a regression analysis Crédit du Nord Group has elected to use the carveout is conducted to examine the future effectiveness of provisions of IAS 39 as adopted by the European the hedge. Union, which facilitates: Amounts booked to other comprehensive income • the use of fair value hedge accounting for macro in respect of the revaluation of cash flow hedges hedges used in Asset & Liability Management, are recorded under “Interest and similar income/ including customer demand deposits in the fixed expenses” on the income statement at the same rate rate positions being hedged; as the hedged cash flows. • the performance of the hedge effectiveness The Group discontinues the hedge, on a forward- tests provided for by IAS 39, as adopted by the looking basis, if the effectiveness criteria for the European Union. hedging instrument are no longer met, or the derivative The accounting treatment of derivatives used for is sold or terminated. Amounts previously booked to macro fair value hedges is similar to that of derivatives other comprehensive income are reclassified under used in fair value hedges. Changes in the fair value “Interest and similar income/expenses” on the income of portfolios of macro-hedged financial assets and statement during the periods in which the interest liabilities are booked under “Revaluation differences margin is impacted by the variability of cash flows on portfolios hedged against interest rate risk” through arising from the hedged item. If the hedged item is profit or loss.
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Breakdown of the fair value of hedging derivatives
31/12/2019 31/12/2018
(in €m) Assets Liabilities Assets Liabilities Fair value hedge (1) Interest rate instruments 1,418.7 485.7 1,147.6 241.3 Foreign exchange instruments ---- Equity and index instruments ---- Other financial instruments ---- Cash-flow hedges Interest rate instruments ---- Foreign exchange instruments ---- Equity and index instruments ---- Other financial instruments - 0.4 - 0.7 TOTAL 1,418.7 486.1 1,147.6 242.0
(1) Including Macro Fair Value Hedge derivatives.
The Group sets up hedging positions classified for accounting purposes as fair value hedges to hedge fixed-rate financial assets and liabilities (predominantly loans/borrowings, security issues and fixed-rate securities) against long- term interest rate fluctuations. Interest rate swaps are the main hedging instruments used.
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3.3 Financial assets at fair value through other comprehensive income
Overview of financial assets at fair value through other comprehensive income
31/12/2019 31/12/2018 (in €m) Balance sheet value Balance sheet value Debt instruments 4,069.3 4,377.4 Bonds and other debt securities (1) 4,069.3 4,377.4 Loans, receivables and repurchase agreements - - Shares and other equity securities (2) 43.9 52.7 TOTAL 4,113.1 4,430.1 o/w loaned securities --
(1) At December 31, 2019, bonds and other debt securities at fair value through other comprehensive income comprised: - €1,631.1 million in treasury notes and equivalent (versus €2,057.4 million at January 1, 2019); - €2,438.1 million in bonds, negotiable debt securities and equivalent (versus €2,320 million at January 1, 2019). (2) At December 31, 2019, shares and other equity securities at fair value through other comprehensive income exclusively consisted of Crédit Logement shares.
3.3.1 Debt instruments
Accounting principles money market assets denominated in local currencies, Debt instruments (loans and receivables, bonds and which are recorded on the income statement. other fixed-income securities) are recorded under Furthermore, as these financial assets are subject to “Fair value through other comprehensive income” the credit risk impairment model, changes in expected where their contractual cash flows are representative credit losses are taken to profit or loss under “Cost of of basic lending arrangements (SPPI) and they are risk” with a corresponding entry to “Gains and losses managed under a Collect and Sell business model. booked directly to other comprehensive income”. The applicable impairment rules are described in Note 3.8. Accrued or earned income on fixed-income securities is recorded in profit or loss based on the effective If these instruments are sold, the associated interest rate under “Interest and similar income”. impairments for credit risk are reversed with a corresponding entry to “Cost of risk” on the At the balance sheet date, these instruments are income statement, and the unrealised gains and measured at their fair value, and changes in fair losses booked to other comprehensive income value (excluding income) are recorded under “Gains are reclassified to profit or loss under “Net gains or and losses booked directly to other comprehensive losses on financial assets at fair value through other income”, except for foreign exchange differences on comprehensive income”.
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“Collect and Sell” business model of financial assets are not incidental or exceptional, but The aim of this business model is to generate cash they are integral to achieving the business’s objectives. flows by collecting contractual cash flows and selling financial assets. In this type of business model, the sales
Cash management activities Within the Group, the “Collect and Sell” business model is mainly applied by cash management activities for managing HQLA securities (High Quality Liquid Assets) included in the liquidity reserve.
Changes in debt instruments at fair value through other comprehensive income
(in €m) 2019 Balance at January 1 4,377.4 Acquisitions/disbursements 747.4 Disposals/redemptions -1,037.6 Transfers subsequent to reclassification to (or from) another accounting category - Changes in scope and other changes -28.0 Changes in fair value over the period 12.6 Change in related receivables -2.6 Foreign exchange differences - BALANCE AT DECEMBER 31 4,069.3
Breakdown of unrealised gains and losses booked directly to other comprehensive income that will be subsequently reclassified to profit or loss
(in €m) 31/12/2019 31/12/2018 Unrealised capital gains 33.0 25.4 Unrealised capital losses -27.4 -11.7 TOTAL 5.6 13.7
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3.3.2 Equity instruments
Accounting principles comprehensive income” without any subsequent If they are not held for trading, equity instruments reclassification to profit or loss. If these instruments (shares and other variable-income securities) may be are sold, the associated gains and losses are designated by the Group at initial recognition to be reclassified to “Consolidated reserves” at January 1 measured at fair value through other comprehensive of the fiscal year following the sale. Dividend income, income. This choice, made on a line by line basis, is where it represents a return on investment, is recorded irreversible. under “Net gains or losses on financial assets at fair value through other comprehensive income” on the These equity instruments are therefore measured income statement. at fair value and changes in fair value are recorded under “Gains and losses booked directly to other
3.3.3 Net gains or losses on financial instruments at fair value through other comprehensive income
(in €m) 2019 2018 Capital gains or losses on disposal of debt instruments 3.5 15.9 Dividend income on financial assets at fair value through other comprehensive income 7.4 7.9 TOTAL 10.9 23.8
3.4 Fair value of financial instruments measured at fair value
Accounting principles market data, by taking assumptions that market participants would use to set the price of the Definition of fair value instrument in question. Fair value is the price that would be received for the sale of an asset or that would be paid for the transfer Fair value hierarchy of a liability in an arm’s length transaction between For information purposes, in the notes to the market intermediaries at the valuation date. consolidated financial statements, the fair value of In the absence of observable prices for an identical financial instruments is presented as a hierarchy of asset or liability, the fair value of the financial fair values, which reflects the importance of the data instruments is determined using another valuation used to measure these values. The fair value hierarchy technique that maximises the use of observable comprises the following levels:
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Level 1 (L1): Instruments measured using Level 2 (L2): Instruments measured using data unadjusted prices quoted on active markets for other than the quoted prices referred to in Level 1 identical assets or liabilities. and which are observable for the asset or liability in question, either directly (i.e. prices) or indirectly Instruments measured at fair value on the balance (i.e. data derived from prices). sheet, classified as Level 1, notably include equities Financial instruments listed on markets considered listed on an active market, government or corporate to be insufficiently active and financial instruments bonds with direct external ratings (by brokers/dealers), traded over the counter are included in this level. derivatives traded on organised markets (futures, Prices published by an external source, derived from options) and units of funds (including UCITS) whose the valuation of similar instruments, are considered to net asset value is available at the balance sheet date. be data derived from prices. A financial instrument is regarded as quoted in an L2 includes in particular financial instruments active market if quoted prices are readily and regularly measured at fair value on the balance sheet that available from an exchange, dealer, broker, business are not directly quoted (e.g. corporate bonds, sector, pricing service or regulatory agency, and mortgage-backed securities, units of funds), as well those prices represent real and regularly occurring as derivatives and options traded over the counter: transactions on an arm’s length basis. interest rate swaps, caps, floors, swaptions, options A market is considered to be inactive on the basis on equities, indices, exchange rates, commodities of indicators such as a significant decline in trading and credit derivatives. The maturities of these volumes and the level of activity on the market, high instruments meet the terms generally used in the disparity between prices available over time and market, and can be simple or present more complex between the different market operators mentioned remuneration profiles (e.g. barrier options, products above, or how much time has transpired since the with multiple underlyings), though this complexity is most recent transactions took place on the market on limited. The Level 2 valuation techniques used rely an arm’s length basis. on the usual methods shared by the principal market Where the financial instrument is traded on different participants. markets and the Group has immediate access to these markets, the financial instrument’s fair value is Level 3 (L3): Instruments for which the valuation data are not based on observable market data represented by the price on the market where trading (unobservable data). volumes and levels are the highest for the instrument This category primarily includes financial instruments in question. measured at fair value on the balance sheet, for which the sales margin is not immediately booked to profit or loss.
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3.4.1 Financial assets measured at fair value on the balance sheet
31/12/2019 31/12/2018 (in €m) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Trading book 2.1 - - 2.1 1.8 - - 1.8 Bonds and other debt securities ----0.2--0.2 Loans, receivables and repurchase agreements ------Shares and other equity securities 2.1 - - 2.1 1.6 - - 1.6 Other trading assets ------Trading derivatives - 283.6 - 283.6 - 235.7 - 235.7 Interest rate instruments - 239.7 - 239.7 - 192.6 - 192.6 Foreign exchange instruments - 43.9 - 43.9 - 43.1 - 43.1 Equity and index instruments ------Commodity instruments ------Credit derivatives ------Other forward financial instruments ------Financial assets measured mandatorily at fair value through profit or loss - 8.5 167.1 175.6 - 5.2 201.1 206.4 Bonds and other debt securities - 7.7 - 7.7 - 5.2 - 5.2 Loans and receivables ------Shares and other equity securities - 0.8 167.1 167.8 - - 201.1 201.1 Financial assets at fair value through profit or loss (fair value option) ------Bonds and other debt securities ------Loans, receivables and repurchase agreements ------Other financial assets ------Separate assets for employee benefit plans ------Financial assets at fair value through other comprehensive income 3,032.1 1,037.1 43.9 4,113.1 4,205.0 172.4 52.7 4,430.1 Debt instruments 3,032.1 1,037.1 - 4,069.3 4,205.0 172.4 - 4,377.4 Equity instruments - - 43.9 43.9 - - 52.7 52.7 Loans and receivables ------Hedging derivatives - 1,418.7 - 1,418.7 - 1,147.6 - 1,147.6 Interest rate instruments - 1,418.7 - 1,418.7 - 1,147.6 - 1,147.6 Foreign exchange instruments ------Equity and index instruments ------Other financial instruments ------TOTAL FINANCIAL INSTRUMENTS AT FAIR VALUE - ASSETS 3,034.2 2,747.9 211.0 5,993.1 4,206.8 1,560.9 253.8 6,021.6
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3.4.2 Financial liabilities measured at fair value on the balance sheet
31/12/2019 31/12/2018 (in €m) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Trading book 0.7 - - 0.7 ---- Debt securities ------Amounts payable on borrowed securities ------Bonds and other debt securities sold short ------Shares and other equity securities sold short 0.7 - - 0.7 ---- Borrowings and repurchase agreements ------Other trading liabilities ------Trading derivatives - 305.8 - 305.8 - 255.8 - 255.8 Interest rate instruments - 266.6 - 266.6 - 222.6 - 222.6 Foreign exchange instruments - 39.2 - 39.2 - 33.1 - 33.1 Equity and index instruments ------Commodity instruments ------Credit derivatives ------Other forward financial instruments ------Financial liabilities at fair value through profit or loss (fair value option) - 297.7 - 297.7 - 439.3 - 439.3 Hedging derivatives - 486.1 - 486.1 - 242.0 - 242.0 Interest rate instruments - 485.7 - 485.7 - 241.3 - 241.3 Foreign exchange instruments ------Equity and index instruments ------Other financial instruments - 0.4 - 0.4 - 0.7 - 0.7 TOTAL FINANCIAL INSTRUMENTS AT FAIR VALUE - LIABILITIES 0.7 1,089.6 - 1,090.3 - 937.1 - 937.1
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3.4.3 Change in Level 3 financial instruments
Financial assets measured at fair value on the balance sheet
Changes Foreign in scope Balance at Disposals/ Transfers to Transfers Gains and exchange and other Balance at (in €m) 31/12/2018 Acquisitions redemptions Level 2 from Level 2 losses differences changes 31/12/2019 Trading book ------Bonds and other debt securities ------Loans, receivables and repurchase agreements ------Shares and other equity securities ------Other trading assets ------Trading derivatives ------Interest rate instruments ------Foreign exchange instruments ------Equity and index instruments ------Commodity instruments ------Credit derivatives ------Other forward financial instruments ------Financial assets measured mandatorily at fair value through profit or loss 201.1 9.5 -44.5 - - 0.1 0.9 - 167.1 Bonds and other debt securities ------Loans and receivables ------Shares and other equity securities 201.1 9.5 -44.5 - - 0.1 0.9 - 167.1 Financial assets at fair value through profit or loss (fair value option) ------Bonds and other debt securities ------Loans, receivables and repurchase agreements ------Other financial assets ------Separate assets for employee benefit plans ------Financial assets at fair value through other comprehensive income 52.7 -----8.8 - - 43.9 Debt instruments ------Equity instruments 52.7 -----8.8 - - 43.9 Hedging derivatives ------Interest rate instruments ------Foreign exchange instruments ------Equity and index instruments ------Other financial instruments ------TOTAL FINANCIAL INSTRUMENTS AT FAIR VALUE - ASSETS 253.8 9.5 -44.5 - - -8.7 0.9 - 211.0
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 121 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
Financial liabilities measured at fair value on the balance sheet
Changes Foreign in scope Balance at Transfers to Transfers Gains and exchange and other Balance at (in €m) 31/12/2018 Issues Redemptions Level 2 from Level 2 losses differences changes 31/12/2019 Trading book ------Debt securities ------Amounts payable on borrowed securities ------Bonds and other debt securities sold short ------Shares and other equity securities sold short ------Borrowings and repurchase agreements ------Other trading liabilities ------Trading derivatives ------Interest rate instruments ------Foreign exchange instruments ------Equity and index instruments ------Commodity instruments ------Credit derivatives ------Other forward financial instruments ------Financial liabilities at fair value through profit or loss (fair value option) ------Hedging derivatives ------Interest rate instruments ------Foreign exchange instruments ------Equity and index instruments ------Other financial instruments ------TOTAL FINANCIAL INSTRUMENTS AT FAIR VALUE - LIABILITIES ------
3.4.4 Valuation methods for financial instruments measured at fair value on the balance sheet
For financial instruments measured at fair value on the For these products, fair value is determined using balance sheet, fair value is mainly determined using valuation techniques commonly used by market prices quoted on an active market. These prices can participants to measure the value of financial be adjusted if necessary if they are not available at the instruments. closing date or if the clearing price does not reflect the Where applicable, reservations or adjustments (notably transaction prices. bid-ask or liquidity), determined conservatively and However, given the multitude of characteristics of appropriately after reviewing available information, are financial instruments traded over the counter, a large added to these valuations. number of financial products traded by the Group are For derivatives and repurchase agreements at fair value, not directly quoted on the markets. a value adjustment is also made for counterparty risk
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(CVA/DVA - Credit Valuation Adjustment/Debt Valuation • valuation based on a recent transaction relative to Adjustment). The Group includes all customers and the issuing company’s sector of operation (earnings clearing houses in this adjustment, which also takes multiple, asset multiple, etc.); into account the netting agreements existing for each • share of net asset value held. counterparty. The valuations of significant unlisted securities are The CVA is determined on the basis of the Group entity’s based on the aforementioned methods, in addition to expected positive exposure to the counterparty, the methodologies based on the discounting of future cash counterparty’s probability of default on the condition of flows generated by the issuing company’s activity and the lack of default by the entity in question, and the loss determined using business plans or on the valuation given default. The DVA is calculated symmetrically based multiples of equivalent companies. on the expected negative exposure. These calculations are performed over the life of the potential exposure and Debt (fixed-income) instruments held in favour the use of observable, relevant market data. portfolio, issues of structured securities measured at fair value and financial Similarly, an adjustment reflecting the costs or benefits derivatives associated with the funding of these transactions (FVA, Funding Valuation Adjustment) is also carried out. The fair value of these financial instruments is determined relative to their closing quoted prices or prices provided Observable data must meet the following characteristics: by brokers at the closing date, where available. The fair non-proprietary (data independent of the bank), value of unlisted financial instruments is determined available, distributed publicly, based on a narrow using valuation techniques. For financial liabilities consensus and backed by transaction prices. measured at fair value, the valuations used incorporate For example, consensus data supplied by external the impact of the Group’s issuer credit risk. counterparties are considered observable if the underlying market is liquid and the prices supplied are confirmed by Other debts real transactions. At high maturities, these consensus For listed financial instruments, fair value is taken as data are not considered as observable, as is the case their quoted price on the balance sheet date. The fair for the implied volatilities used to measure equity options value of unlisted financial instruments is determined by with maturities of more than 5 years. However, when the discounting the market rate (including counterparty, non- residual maturity of the instrument falls below 5 years, it performance and liquidity risks) of future cash flows. becomes sensitive to observable inputs. In the event of strong tensions on the markets, causing Loans and receivables the usual data used as a reference to measure a financial In the absence of an active market, the fair value of instrument to be unavailable, the Risk Division may need loans and receivables is calculated by discounting to implement a new model incorporating the available expected cash flows at a discount rate based on market relevant data, much like the methods also used by other interest rates in force at the closing date for loans with market participants. substantially the same conditions and maturities, with these interest rates adjusted to take account of the Equities and variable-income securities borrower’s credit risk. The fair value of listed securities is their market price at the closing date. The fair value of unlisted securities is determined according to the financial instrument and using one of the following valuation methods: • valuation based on a recent transaction relative to the issuing company (third party having recently purchased a stake, valuation based on expert opinion, etc.);
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 123 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
3.5 Loans, receivables and securities at amortised cost
Overview of financial assets at amortised cost
31/12/2019 31/12/2018 (in €m) Balance sheet value o/w impairment Balance sheet value o/w impairment Due from banks 10,087.3 -0.2 10,196.9 -0.2 Customer loans 46,602.7 -1,279.4 42,925.1 -1,397.1 Debt securities 8.8 - 8.7 - TOTAL 56,698.8 -1,279.6 53,130.8 -1,397.3 o/w securities purchased/sold under resale/repurchase agreements 0.1 - 0.6 -
Accounting principles terms and conditions replace the previous loans Loans and receivables include non-derivative fixed- or and receivables on the balance sheet at this same determinable-income financial assets which are not date. These new loans are subsequently measured listed on an active market and which are not held for at amortised cost, based on the effective interest trading purposes or held for sale from the time of their rate resulting from the new contractual terms and acquisition or issuance, nor initially designated to be conditions. measured at fair value through profit or loss (fair value Customer loans and receivables include lease option). receivables where they are considered to be finance Loans and receivables are presented on the balance lease receivables. Leases granted by the Group sheet under the line item “Due from banks” or are considered to be finance leases if their impact “Customer loans”, depending on the counterparty. is to transfer to the lessees virtually al the risks and After their initial recognition, they are measured at rewards associated with ownership of the leased amortised cost, based on the effective interest rate, asset. Otherwise, they are classified as operating and may be subject to impairment if appropriate on an leases (see Notes 4.2 and 7.1). individual or collective basis (see Note 3.8). Finance lease receivables represent the Group’s net Loans and receivables may be subject to commercial investment as a fund provider in the lease, calculated renegotiations where the borrowing customer is not as the present value of the minimum lease payments experiencing financial difficulties or insolvency. Such to be received from the lessee, plus any unguaranteed efforts are undertaken for customers for which the residual value, discounted at the interest rate implicit Group agrees to renegotiate their debt in the interest in the lease. In the event of a subsequent decline in of preserving or developing a business relationship, unguaranteed residual value, used in calculating the in accordance with the credit approval procedures lessor’s investment in the lease financing contract, in force and without relinquishing any principal or the discounted value of this decline is booked to accrued interest. Renegotiated loans and receivables “Expenses from other activities” on the income are derecognised at the renegotiation date, and the statement, offset by a reduction in the lease receivable new loans contractualised under the renegotiated on the asset side of the balance sheet.
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“Collect” business model Other asset sales may also be compatible with the This model is based on holding financial assets in order aims of the collect model if they are not frequent (even to generate cash flows by collecting contractual cash if the unit value is significant) or if their unit values are flows over the lifetime of these instruments. individually and cumulatively not significant (even if they are frequent). These other asset sales include It is not essential to hold all the financial assets until their in particular those carried out to manage the credit maturity in order to achieve the aim of this business concentration risk, in the absence of an increase in the model. Asset sales are therefore compatible with the credit risk on the financial assets in question. The Group aims of the collect business model in the following has implemented disclosure and analysis procedures cases: prior to any significant project for the sale of financial • the sale of the financial asset is in response to the assets held for the purpose of collecting contractual increased credit risk of the counterparty; cash flows, as well as periodic monitoring of sales. • the financial asset is sold shortly before its maturity and for an amount close to the remaining contractual cash flows receivable.
3.5.1. Due from banks and equivalent
(in €m) 31/12/2019 31/12/2018 Current accounts 371.6 441.0 Loans and accounts 9,613.2 9,666.4 Subordinated and participating loans 56.6 58.1 Securities purchased under resale agreements - 0.5 Related receivables 46.2 31.1 Due from banks and equivalent before impairment 10,087.6 10,197.1 Impairment for credit risk -0.2 -0.2 Revaluation of hedged items -- TOTAL 10,087.3 10,196.9
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 125 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
3.5.2. Customer loans
(in €m) 31/12/2019 31/12/2018 Overdrafts 1,969.5 1,890.3 Other customer loans 43,305.6 39,958.6 Finance leases 2,542.1 2,416.1 Related receivables 64.8 57.1 Securities purchased under resale agreements 0.1 0.1 Customer loans before impairment (1) 47,882.1 44,322.2 Impairment for credit risk -1,279.4 -1,397.1 Revaluation of hedged items -- CUSTOMER LOANS 46,602.7 42,925.1
(1) At December 31, 2019, individual loans classified in Stage 3 for impairment (doubtful loans) amounted to €2,035.3 million versus €2,273.6 million at December 31, 2018.
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Breakdown of other customer loans
(in €m) 31/12/2019 31/12/2018 Trade notes 294.0 323.8 Short-term loans 5,968.5 5,571.3 Export loans 39.2 40.2 Capital expenditure loans 8,855.2 8,196.8 Housing loans 26,254.3 23,698.3 Loans secured by notes and securities - - Other loans 1,894.4 2,128.3 TOTAL 43,305.6 39,958.6
Additional disclosures on finance leases
(in €m) 31/12/2019 31/12/2018 Gross investment 2,667.2 2,533.5 Less than one year 772.5 736.5 From 1 to 5 years 1,527.5 1,456.6 More than five years 367.2 340.4 Present value of minimum payments receivable 2,429.0 2,314.9 Less than one year 739.4 703.7 From 1 to 5 years 1,386.5 1,317.8 More than five years 303.1 293.4 Unearned financial income 121.8 113.8 Non-guaranteed residual values receivable by the lessor 119.3 107.6
3.5.3. Securities
(in €m) 31/12/2019 31/12/2018 Treasury notes -- Negotiable debt securities, Bonds and other fixed-income securities 8.8 8.7 Related receivables -- Debt securities before impairment 8.8 8.7 Impairment -- Revaluation of hedged items -- TOTAL 8.8 8.7
At December 31, 2019, securities at amortised cost consisted exclusively of certificates of association.
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3.6 Debt
Accounting principles cost using the effective interest rate method. As a Debts comprise non-derivative financial liabilities that result, bond issuance and redemption premiums are not measured at fair value through profit or loss. are amortised over the lifetime of the instruments in question. They are presented on the balance sheet under “Amounts due to banks”, “Customer deposits”, “Debt Outstanding debts related to home savings securities” and “Subordinated debt”. Subordinated accounts and home savings plans are included in debt covers all dated or undated subordinated regulated savings accounts and recorded under borrowings which, in the event of the liquidation of “Customer deposits”. A provision is recorded for the the borrower, may only be redeemed after all other commitments generated by these instruments, where creditors have been paid. applicable (see Note 3.8). Debts are initially recorded at cost, i.e. at the fair value of the borrowed amounts net of transaction costs. At the closing date, they are measured at amortised
3.6.1 Due to banks
(in €m) 31/12/2019 31/12/2018 Current accounts 201.9 223.6 Overnight deposits 172.8 221.3 Term accounts 16,033.5 13,270.3 Related payables 6.3 8.1 Revaluation of hedged items -- Securities sold under repurchase agreements - 801.4 TOTAL 16,414.6 14,524.7
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3.6.2 Customer deposits
(in €m) 31/12/2019 31/12/2018 Regulated savings accounts 13,859.2 13,435.6 Demand 11,107.6 10,780.6 Term 2,751.6 2,655.0 Other demand deposits 28,801.0 26,235.9 Other term deposits 3,993.5 3,406.4 Related payables 49.8 29.7 Revaluation of hedged items -- TOTAL CUSTOMER DEPOSITS 46,703.5 43,107.6 Borrowings secured by notes and securities - - Securities sold to customers under repurchase agreements 180.5 402.0 TOTAL 46,884.0 43,509.5
Breakdown of other demand deposits by type of customer
(in €m) 31/12/2019 31/12/2018 Other demand deposits Companies and individual entrepreneurs 16,966.8 15,737.2 Individual customers 9,805.7 8,959.3 Financial customers 73.3 39.9 Others (1) 1,955.2 1,499.5 SUB-TOTAL 28,801.0 26,235.9
(1) This line includes deposits related to governments and central administrations.
3.6.3 Debt securities
(in €m) 31/12/2019 31/12/2018 Short-term notes 0.1 0.5 Bonds -- Money market and negotiable debt securities 2,544.2 5,260.4 Related payables 2.0 1.3 Revaluation of hedged items 0.3 - TOTAL 2,546.6 5,262.3 o/w amount of variable-rate debt 2,352.8 5,194.7
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 129 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
3.7 Interest income and expenses
Accounting principles the contractual provisions of the financial instrument Interest income and expenses are booked to the without taking account of possible future loan income statement under “Interest and similar income” losses. The calculation includes commissions paid and “Interest and similar expenses” for all financial or received between the parties where these can be instruments using the effective interest method assimilated to interest, transaction costs and all types (instruments at amortised cost and debt instruments of premiums and discounts. at fair value through other comprehensive income) as Where a financial asset is classified in Stage 3 for well as for instruments measured mandatorily at fair impairment, subsequent interest income is taken to value through profit or loss and derivative instruments profit or loss by applying the effective interest rate to used to hedge interest rate risk in the amount of the net carrying amount of the financial asset with income and expenses representing an effective a corresponding entry to the financial asset before interest rate. Negative interest on financial assets impairment. is included under “Interest and similar expenses”; In addition, provisions that are booked as balance negative interest on financial liabilities is included sheet liabilities, except for those related to employee under “Interest and similar income”. benefits, generate interest expenses for accounting The effective interest rate is taken to be the rate purposes. This expense is calculated using the risk- that discounts the future cash inflows and outflows free interest rate to discount to present value the over the expected life of the instrument to the book expected outflow of resources that gave rise to the value of the financial asset or liability. The rate is provision. calculated using the estimated cash flows based on
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2019 2018 (in €m) Income Expense Net Income Expense Net Financial instruments at amortised cost 915.4 -214.1 701.3 853.3 -107.9 745.4 Central banks - -0.1 -0.1--- Bonds and other debt securities held/issued - 1.1 1.1 -0.2 -1.7 -1.9 Due from banks 59.0 -74.6 -15.6 -22.2 15.4 -6.8 Customer loans 856.4 -135.6 720.8 875.7 -114.3 761.4 Subordinated debt - -4.9 -4.9 - -7.3 -7.3 Securities lending/borrowing ------Securities purchased under resale/sold under repurchase agreements ------Hedging derivatives 247.9 -131.7 116.2 259.8 -158.3 101.5 Financial instruments at fair value through other comprehensive income 22.8 - 22.8 34.2 - 34.2 Lease transactions (1) 50.8 -0.4 50.4 51.4 - 51.4 Real estate leases 17.9 -0.4 17.5 17.7 - 17.7 Equipment leases 32.9 - 32.9 33.7 - 33.7 Financial instruments measured mandatorily at fair value through profit or loss ------TOTAL INTEREST INCOME/EXPENSES 1,236.8 -346.1 890.7 1,198.8 -266.2 932.6 o/w interest income related to doubtful financial assets 30.2 - 30.2 27.7 - 27.7
(1) Lease transactions include interest on lease finance receivables under income. As from January 1, 2019, following the entry into force of IFRS 16 “Leases”, lease transactions also include interest on lease liabilities under expenses.
These interest expenses include the refinancing costs of and expenses presented on the income statement are financial instruments at fair value through profit or loss, categorised by type and not by purpose, net income on whose income is recorded under net gains and losses transactions in financial instruments at fair value through on these instruments (see Note 3.1). Since income profit or loss must be assessed as a whole.
Breakdown of interest income on customer loans
(in €m) 2019 2018 Trade notes 6.9 7.7 Other customer loans 733.6 753.8 Short-term loans 133.0 143.4 Export loans 0.5 0.5 Capital expenditure loans 160.7 154.8 Housing loans 437.4 453.1 Other loans 2.0 2.0 Overdrafts 85.9 88.2 Doubtful loans (Stage 3) 30.0 27.6 TOTAL 856.4 877.2
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 131 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
3.8 Provisions and impairments
Accounting principles receivables, trade receivables and income receivable under “Other assets”, and loan and guarantee Recognition of expected credit losses commitments given, are systematically subject to Debt instruments (loans, receivables, bonds and other impairment or a provision for expected credit losses. fixed-income securities) classified as financial assets This impairment or provision is recognised as soon as at amortised cost or as financial assets at fair value loans are granted, a soon as commitments are issued through other comprehensive income, operating lease or as soon as debt securities are acquired, without waiting for objective evidence of impairment to occur. To determine the amount of impairments or provisions to be recorded at each balance sheet date, these assets and commitments are divided into three categories, based on the increase in credit risk observed since their initial recognition. An impairment or provision for credit risk shall be recorded on the outstanding amount of each category as follows:
Increase in credit risk observed since initial recognition of the financial asset
Stage 3 Stage 1 Stage 2 Non-performing/ Risk category Performing Underperforming exposures credit-impaired exposures exposures
If evidence that the Initial recognition If significant increase in credit risk instrument is becoming in Stage 1 since initial recognition on the Transfer criteria credit-impaired identified/ balance sheet/payment more than Remains in this category if no payment more than 90 days significant increase in credit risk 30 days past due past due
Measurement 12-month expected Lifetime expected Lifetime expected of credit risk credit losses credit losses credit losses
Interest income Gross carrying amount Net carrying amount Gross carrying amount calculation of the asset before of the asset of the asset before impairment basis impairment after impairment
Stage 1 exposures Stage 2 exposures At the date of their initial recognition, exposures are To identify exposures classified in Stage 2, the systematically classified in Stage 1, except for non- significant increase in credit risk compared with the performing loans (doubtful loans/loans in default) on initial recognition date is identified within the Group by acquisition. examining all available historical and forward-looking information (behavioural scores, rating, loan-to-value indicators, macro-economic forecasts, etc.).
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The assessment of the increase in credit risk examines that there is no distortion relative to any comparison the following three criteria: made with lifetime probability of default curves. Counterparty rating Payment more than 30 days past due The Group analyses the change in the counterparty’s There is a rebuttable presumption on a significant rating and the change in its business sector, increase in credit risk where payment on a financial macroeconomic conditions and the counterparty’s asset is more than 30 days past due. behaviour which may, in addition to the rating review, Where any one of these three criteria is met, the reflect an increase in credit risk. exposure in question is transferred from Stage 1 to After the review, if a counterparty is determined to be Stage 2, and the related impairments or provisions are “at-risk” (placed on the watchlist), all contracts entered adjusted accordingly. into by the Group with that counterparty before the The first two criteria are symmetrical; if there is a transfer to “at-risk” are transferred to Stage 2 (insofar sufficient improvement in rating, or the counterparty as this approach does not generate any distortion in is removed from the watchlist, the relevant exposures relation to an analysis of the credit quality at issuance are reclassified in Stage 1, without any probation of each instrument) and the related impairments and period in Stage 2. provisions are enhanced in the amount of lifetime For exposures without a counterparty rating (retail expected credit losses. After the counterparty is customers and a restricted scope of the Corporate placed on the watchlist, any new exposures to that segment), the transfer to Stage 2 is based: counterparty are classified in Stage 1. • on the Basel behavioural score or the existence of Magnitude of the change in the counterparty’s payments more than 30 days past due for the retail rating customer scope; The magnitude of the rating change is examined on • on the transfer to “at-risk” and the existence a contract-by-contract basis, from the date of initial of payments more than 30 days past due for recognition to the balance sheet date. Corporate customers. To determine if the downgrade or upgrade in the rating between the date of initial recognition of a contract Stage 3 exposures and the balance sheet date is significant enough to To identify exposures classified in Stage 3 (doubtful call for a Stage transfer, thresholds are established loans), the Group determines whether or not there is each year by the Risk Division. Stage 1/Stage 2 objective evidence of impairment (default events): transfer thresholds are determined for a portfolio of similar contracts (notion of risk segment that takes • payments more than 90 days past due (with the account of the type of customer and the credit quality) exception of restructured loans removed from and calculated using probability of default curves for default, which are re-transferred to Stage 3 when each portfolio (the threshold is different for a portfolio there is a payment more than 30 days past due of Sovereign debts versus a portfolio of loans to Large for a 2-year probation period), whether or not a Corporates, for example). These thresholds may be collection procedure is instigated. To assess this an absolute or relative increase in the probability of criterion, the Group does not apply any materiality default. threshold to the amount of outstanding payments, except in the case of a particular requirement As from 2019, the thresholds are differentiated by by local supervisory authorities. Moreover, only lifetime probability of default curve on the Group’s outstanding payments arising from commercial main portfolios. The transfer from a 1-year probability disputes, specific contractual clauses or IT failures of default to a lifetime probability of default is currently cannot be transferred to default after 90 days; in progress for residual portfolios, it being understood
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 133 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
• the identification of other criteria which, even in the current conditions and reasonable economic and absence of missed payments, reflect a probable macroeconomic forecasts over the life of the contract. risk of partial or total non-collection of outstanding The amount of the impairment is the difference loans such as: between the gross carrying amount of the asset and – a significant deterioration in the counterparty’s the present value of estimated recoverable future cash financial situation creates a strong probability flows, including the impact of collateral called up or that it will not be able to meet all of its likely to be called up and the probability of a default commitments and thus represents a risk of loss event occurring over the life of the contract. for the Group; Collateral is taken into account in estimated – concessions are granted to the clauses of recoverable future cash flows when it forms an integral the loan agreement, in light of the borrower’s part of the contractual terms of the loans to which financial difficulties, that would not have been this collateral refers and it is not subject to separate granted in other circumstances (restructured recognition. loans); When the collateral does not meet these criteria – the existence of litigious proceedings (ad hoc and its effects cannot be included in the impairment mandate, safeguard proceedings, court-ordered calculation (e.g.: financial guarantee aimed at receivership, compulsory liquidation or their compensating the initial losses incurred on a given equivalent in the jurisdictions concerned). loan portfolio), it results in the recognition of a separate asset recorded in the balance sheet under The Group applies the contagion principle to all of “Other assets”. The carrying amount of this asset the defaulting counterparty’s outstanding loans. represents the amount of expected credit losses, When a debtor belongs to a group, all of the group’s recorded under asset impairment, for which the Group outstanding loans may be impaired as well. is virtually certain to receive compensation. Changes If the counterparty is reclassified in Stage 2, the in the carrying amount of this asset are recorded contracts are held in Stage 2 for a minimum period under “Cost of risk” on the income statement. before being considered for reclassification in Stage Regardless of the stage of impairment for credit risk, 1. This minimum period ranges from 6 months to cash flows are discounted using the initial effective 2 years, depending on the type of risk portfolios to interest rate of the financial asset. The amount of this which the contracts belong. impairment is included in the net carrying amount of the impaired financial asset. Impairment allowances Assessment of impairments and provisions and reversals are recorded on the income statement Stage 1 exposures are impaired for 12-month under “Cost of risk”. expected credit losses based on historical data and For operating lease receivables and trade current conditions. The amount of the impairment is receivables, the Group uses the “simplified” the difference between the gross carrying amount approach: impairments are recorded in the amount of the asset and the present value of estimated of lifetime expected credit losses on initial recognition, recoverable future cash flows, including the impact of regardless of the increase in the counterparty’s credit collateral called up or likely to be called up and the risk. Impairments are measured primarily on the basis probability of a default event occurring in the following of historically observed default and loss rates in the year. event of default. Adjustments intended to take into Stage 2 and 3 exposures are impaired for lifetime account forward-looking information on changes in expected credit losses, based on historical data,
134 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
the economic environment and macro-economic maintained for at least one year, or longer if the Group factors are based on expert opinion. is uncertain as to the borrowers’ ability to meet their commitments. Once the loan is loan is no longer Restructured loans and receivables classified in Stage 3, the assessment of the significant Loans issued or acquired by the Group may be increase in credit risk will be performed by comparing restructured due to financial hardship. Restructuring the instrument’s characteristics at the balance sheet involves contractual changes to the initial terms of the date with those at the initial recognition date of the transaction (e.g. reduced interest rate, rescheduled loan before restructuring by following the procedures payments, partial debt write-offs or additional for classification in Stages 1 and 2 mentioned in this collateral requirements). This change in the contractual note, it being understood that outstanding loans are terms of the instrument is exclusively related to the reclassified in Stage 3 when there is a payment more borrower’s financial hardship and insolvency (whether than 30 days past due during the 2 years following the insolvency has already occurred or is certain to their removal from default. occur without restructuring). The criteria for the return to Stage 1 of restructured If they still pass the SPPI test, restructured loans are outstanding loans are similar to those for all still recorded on the balance sheet. Their amortised outstanding loans, after the probation period in Stage cost before impairment is corrected for a discount 3 of at least one year. representing the lost revenue resulting from the If, based on the new contractual terms resulting from restructuring operation. This discount, recorded under the restructuring operation, the restructured loans “Cost of risk” on the income statement, is the negative no longer pass the SPPI test, they are derecognised difference between the present value of the new and replaced with new financial assets resulting from contractual cash flows resulting from the restructuring the new contractual terms. The new loans are then operation and the amortised cost before impairment, recognised as “Financial assets measured at fair value less any partial debt write-offs. The amount of interest through profit or loss”. income taken to profit or loss is still calculated using Restructured exposures exclude loans and the initial effective interest rate of the loans and based receivables that have already undergone commercial on the net carrying amount of the impaired asset for renegotiations and that concern customers whose at least the first year following the restructuring. debt the Group has agreed to renegotiate in the Once restructured, the financial assets are interest of preserving or developing a business systematically classified in Stage 3 for impairment relationship, in accordance with the credit approval (non-performing exposures), as the borrowers are procedures in force and without relinquishing any deemed to be in default. Classification in Stage 3 is principal or accrued interest.
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Presentation of the statistical provisioning Provisioning inputs model The statistical provisioning model is applied to the entire portfolio in default (doubtful and disputed loans). Description and principles of operation Provisioning inputs are determined by observing past Crédit du Nord uses a statistical method to determine data and are: provisions for loans in default in its retail banking book (individual and professional customer markets). Use of a • the probability of being transferred from doubtful to statistical model to determine provisions for these loans disputed (LGD1); in these particular markets is justified by the high volume • the loss given default (LGD) rate, where the loan is of loans issued for relatively low individual amounts. disputed (LGD2). The loans are divided up into six classes of These rates are determined for classes of homogeneous homogeneous assets in terms of risk, defined in assets and reflect how long the loans have been accordance with Basel asset classes: classified as doubtful or disputed. • Home loans to individuals and “SCI Patrimoniales” (family-owned non-trading real estate company); Calculation of impairments on doubtful loans • Revolving loans to individuals; The impairment rate on doubtful loans is calculated for classes of homogeneous assets by multiplying the LGD1 • Consumer loans to individuals; and LGD2 rates. • Current accounts and overdrafts extended to individuals and “SCI Patrimoniales”; Calculation of impairments on disputed loans • MLT loans to professional customers and “SCI” (non- The impairment rate on disputed loans is the LGD2 rate, trading real estate company); which is separate, based on the class of homogeneous assets to which the loan belongs. • ST loans to professional customers and “SCI Commerciales” (commercial non-trading real estate Classes of homogeneous disputed loans are divided company); up into quarterly generations (according to their date of transfer to the disputed loans category), each of which Upon defaulting, the most substantial loans are is subject to a different LGD rate. For each generation, excluded from this statistical provisioning approach, the LGD2 rate is calculated on the basis of collections in favour of impairment determined on the basis of an and losses observed in past quarters. Collections may expert opinion. These loans are identified by applying be observed in as many as 50 quarters. operational thresholds defined for each asset class. They account for approximately 1% of all retail loans in default. Updating of inputs used in the statistical model Home loans guaranteed by Crédit Logement and Collections actually observed over the fiscal year are signed commitments are excluded from the statistical compared with collections predicted in the model in provisioning approach and are thus not subject to order to assess the model’s predictive capacity. a provision. For home loans guaranteed by Crédit The inputs used in the statistical provisioning model are Logement, the lack of provision is justified because updated twice a year to factor in any recent trends in Crédit Logement covers all losses in the event of default, collections. and for signed commitments by the exceptional nature of the losses recognised for this type of off-balance sheet commitment.
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Overview of impairments and provisions
(in €m) 31/12/2019 31/12/2018 Impairment of financial assets at fair value through other comprehensive income - - Impairment of financial assets at amortised cost -1,279.9 -1,397.5 Loans, receivables and securities at amortised cost -1,279.6 -1,397.3 Other assets at amortised cost -0.3 -0.2 Total impairment of financial assets -1,279.9 -1,397.5 Provisions for loan commitments 17.3 18.7 Provisions for guarantee commitments 26.8 27.2 Total provisions for credit risk 44.1 45.9
3.8.1 Impairment of financial assets Breakdown of impairment on financial assets
Provisions at Reversals Net Reversals Provisions at (in €m) 31/12/2018 Allocations available allocations used Others 31/12/2019 Financial assets at fair value through other comprehensive income ------Impairments of performing exposures (Stage 1) ------Impairments of credit-impaired exposures (Stage 2) ------Impairments of doubtful exposures (Stage 3) ------Financial assets at amortised cost -1,397.5 -366.9 341.9 -25.0 139.5 3.1 -1,279.9 Impairments of performing exposures (Stage 1) -86.4 -46.3 45.9 -0.4 - - -86.8 Impairments of credit-impaired exposures (Stage 2) -72.9 -44.6 49.5 4.9 - - -68.0 Impairments of doubtful exposures (Stage 3) -1,238.2 -275.9 246.4 -29.5 139.5 3.1 -1,125.1 o/w Lease financing and similar agreements -75.8 -23.3 23.9 0.6 4.2 3.2 -67.9 Impairments of performing exposures (Stage 1) -7.2 -3.2 2.2 -1.0 - - -8.3 Impairments of credit-impaired exposures (Stage 2) -3.4 -2.1 2.1 - - - -3.4 Impairments of doubtful exposures (Stage 3) -65.3 -18.0 19.6 1.6 4.2 3.2 -56.3
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Change in impairments based on changes in financial asset exposures
Newly Transfers created and between Provisions at acquired Derecognised impairment Changes in Provisions at (in €m) 31/12/2018 exposures (1) stages scope 31/12/2019 Financial assets at fair value through other comprehensive income ------Impairments of performing exposures (Stage 1) ------Impairments of credit-impaired exposures (Stage 2) ------Impairments of doubtful exposures (Stage 3) ------Financial assets at amortised cost -1,397.5 -99.8 329.7 -112.2 - -1,279.9 Impairments of performing exposures (Stage 1) -86.4 -29.1 32.3 -3.6 - -86.8 Impairments of credit-impaired exposures (Stage 2) -72.9 -10.6 14.6 0.9 - -68.0 Impairments of doubtful exposures (Stage 3) -1,238.2 -60.1 282.8 -109.6 - -1,125.1 o/w Lease financing and similar agreements -75.9 -1.4 9.5 -0.1 - -68.0 Impairments of performing exposures (Stage 1) -7.2 -1.0 -0.2 0.1 0 -8.3 Impairments of credit-impaired exposures (Stage 2) -3.4 -0.1 -0.1 0.2 0 -3.4 Impairments of doubtful exposures (Stage 3) -65.3 -0.3 9.8 -0.4 0 -56.3
(1) This column includes redeemed exposures, disposals and debt write-offs.
3.8.2 Breakdown of provisions for credit risk Breakdown of provisions Provisions at Reversals Net Reversals Other Provisions at (in €m) 31/12/2018 Allocations available allocations used changes 31/12/2019 Loan commitments 18.7 11.4 -12.9 -1.5 - - 17.3 Impairments of performing exposures (Stage 1) 10.8 7.3 -8.3 -1.0 - - 9.9 Impairments of credit-impaired exposures (Stage 2) 1.9 2.1 -1.6 0.5 - - 2.3 Impairments of doubtful exposures (Stage 3) 6.1 2.0 -3.0 -1.0 - - 5.1 Guarantee commitments 27.2 8.0 -11.6 -3.6 - 3.2 26.8 Impairments of performing exposures (Stage 1) 2.1 0.7 -1.0 -0.3 - - 1.8 Impairments of credit-impaired exposures (Stage 2) 1.1 0.6 -0.9 -0.3 - - 0.8 Impairments of doubtful exposures (Stage 3) 24.0 6.7 -9.6 -2.9 - 3.2 24.2
Change in provisions based on changes in loan and guarantee commitments
Newly Transfers created and between Provisions at acquired Derecognised impairment Changes in Provisions at (in €m) 31/12/2018 exposures (1) stages scope 31/12/2019 Loan commitments 18.7 10.0 -14.2 2.7 - 17.3 Impairments of performing exposures (Stage 1) 10.8 4.7 -6.7 1.1 - 9.9 Impairments of credit-impaired exposures (Stage 2) 1.9 0.7 -0.7 0.4 - 2.3 Impairments of doubtful exposures (Stage 3) 6.1 4.5 -6.7 1.2 - 5.1 Guarantee commitments 27.2 1.0 -5.9 4.5 - 26.8 Impairments of performing exposures (Stage 1) 2.1 0.5 -0.8 -0.0 - 1.8 Impairments of credit-impaired exposures (Stage 2) 1.1 0.0 -0.3 -0.0 - 0.8 Impairments of doubtful exposures (Stage 3) 24.0 0.5 -4.8 4.5 - 24.2
(1) This column includes redeemed exposures, disposals and debt write-offs.
138 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
3.8.3 Home savings agreement commitments
Accounting principles are outstanding at the date of calculation. Provisions Home savings accounts and plans are savings are calculated for each generation of housing savings schemes for individual customers (in accordance with plans (PEL), with no netting between different PEL Law No. 65-554 of July 10, 1965), which combine generations, and for all housing saving accounts an initial deposit phase in the form of an interest- (CEL) which constitute a single generation. earning savings account with a lending phase where During the savings phase, provisions are calculated the deposits are used to provide property loans. The according to the difference between average latter phase is subject to the previous existence of the expected outstanding savings and minimum expected savings phase and is therefore inseparable from it. outstanding savings, both of which are determined The deposits collected and loans granted are booked statistically based on historic observations of actual at amortised cost. customer behaviour. These instruments generate two types of During the lending phase, provisions are calculated commitments for the Group: the obligation to according to loans already issued but not yet due subsequently lend to the customer at an interest at the balance sheet date, as well as future loans rate established upon the signing of the agreement, considered as statistically probable on the basis of and the obligation to pay interest on the customer’s customer savings deposits on the balance sheet at savings in the future at an interest rate set upon the the date of calculation and on historic observations of signing of the agreement, for an indefinite period. actual customer behaviour. Commitments with future adverse effects for the Group A provision is booked if the discounted value of are subject to loss allowances booked as balance- expected future earnings for a given generation of sheet liabilities, any changes in which are recorded as home savings products is negative. These results are interest income under “Net banking income”. These measured on the basis of interest rates available to provisions relate exclusively to commitments under individual customers for equivalent savings and loan home savings accounts and schemes existing at the instruments, with similar estimated life and date of date of the provision’s calculation. These provisions inception. only relate to commitments arising from PEL/CEL that
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Outstanding deposits in PEL/CEL accounts
(in €m) 31/12/2019 31/12/2018 PEL home savings plans 2,236.4 2,198.3 Less than 4 years old 155.8 435.4 Between 4 and 10 years old 1,469.4 1,222.3 More than 10 years old 611.2 540.5 CEL home savings accounts 201.0 205.0 TOTAL 2,437.3 2,403.3
Outstanding housing loans granted in respect of PEL/CEL accounts
(in €m) 31/12/2019 31/12/2018 Less than 4 years old 0.1 0.1 Between 4 and 10 years old 1.9 3.6 More than 10 years old 1.2 1.0 TOTAL 3.1 4.7
Provisions for commitments linked to PEL home savings plans and CEL home savings accounts
(in €m) 31/12/2018 Allocations Reversals 31/12/2019 PEL home savings plans 17.0 14.7 -0.0 31.7 Less than 4 years old 0.0 -0.0 0.0 Between 4 and 10 years old 0.0 2.5 2.5 More than 10 years old 17.0 12.2 29.2 CEL home savings accounts 3.1 -1.4 1.7 Drawn down loans 0.1 -0.0 0.1 TOTAL 20.3 14.7 -1.4 33.6
Given that long rates (to which provision level is sensitive) The values of the different market inputs used, notably were low in 2019, the provision was mainly linked to the interest rates and margins, are calculated on the basis risks associated with the commitment to pay a given of observable data and constitute a best estimate, at the rate of return on deposits. The provision level was 1.38% valuation date, of the future value of these items for the of total deposits at December 31, 2019. relevant period, in line with the retail banking division’s policy of interest rate risk management. Determination of inputs for measuring provisions The discount rates used are derived from zero coupon The inputs used to estimate future customer behaviour swaps vs. the Euribor yield curve at the valuation date, are derived from historical observations of customer averaged over a 12-month period. behaviour patterns over long periods (more than ten years). The value of these inputs can be adjusted if any changes are subsequently made to regulations with the potential to undermine the reliability of past data as an indicator of future customer behaviour.
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3.8.4 Cost of risk
Accounting principles by a competent authority or a history of established indicators (age of default, provision recorded on “Cost of risk” exclusively comprises net reversals 100% of the exposure, no recent collections or other of impairment losses and provisions for credit risk, characteristics specific to the exposure). losses on bad debts and amounts recovered on amortised loans. Even if there is no expectation of residual collection, the collection process is not permanently The Group records bad debts as losses and discontinued, particularly in the event the subsequently reverses the associated impairments counterparty’s financial situation improves. In the in “Cost of risk” when loans are written off or where event funds are collected or recovered on a previously there is no expectation of residual collection. For the written-off loan, the amounts received are recorded Group to have no expectation of residual collection, under “Amounts recovered on bad debts” during the it shall obtain a non-recoverability certified issued fiscal year in question.
(in €m) 2019 2018 Net allocation for impairment -25.0 -50.0 Of financial assets at fair value through other comprehensive income - - On financial assets at amortised cost -25.0 -50.0 Net allocation to provisions 5.0 1.1 For loan commitments 1.5 -2.4 For guarantee commitments 3.5 3.5 Uncovered losses on bad debts -35.8 -29.1 Amounts recovered on bad debts 4.5 8.0 Income from guarantees not included in impairment (1) 6.7 - TOTAL -44.6 -70.0
(1) The income from guarantees not included in impairments corresponds for 2019 to financial guarantees received with respect to a transfer of credit risk to entities outside the Group. This transfer related to a portfolio of €1.4 billion of loans granted to corporate customers (SMEs and Large Corporates).
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3.9 Fair value of financial instruments measured at amortised cost
Accounting principles participants would use to set the price of the instrument in question. Definition of fair value This note presents the fair value of financial Fair value is the price that would be received for the instruments not measured at fair value on the balance sale of an asset or that would be paid for the transfer sheet, broken down according to the fair value of a liability in an arm’s length transaction between hierarchy described in Note 3.4. Fair value should not market intermediaries at the valuation date. be taken as an estimate of the amount that would be In the absence of observable prices for an identical collected if all such financial instruments were settled asset or liability, the fair value of the financial immediately. instruments is determined using another valuation The fair values of financial instruments include any technique that maximises the use of observable accrued interest as applicable. market data, by taking assumptions that market
3.9.1 Financial assets measured at amortised cost
31/12/2019 (in €m) Carrying amount Fair value Level 1 Level 2 Level 3 Due from banks 10,087.3 10,087.3 - 82.8 10,004.5 Customer loans 46,602.7 47,076.4 - - 47,076.4 Debt securities 8.8 8.8 - - 8.8 TOTAL 56,698.8 57,172.5 - 82.8 57,089.7
31/12/2018 (in €m) Carrying amount Fair value Level 1 Level 2 Level 3 Due from banks 10,196.9 10,089.2 - - 10,089.2 Customer loans 42,925.1 43,183.2 - - 43,183.2 Debt securities 8.7 8.7 - - 8.7 TOTAL 53,130.7 53,281.1 - - 53,281.1
3.9.2 Financial liabilities measured at amortised cost
31/12/2019 (in €m) Carrying amount Fair value Level 1 Level 2 Level 3 Due to banks 16,414.6 16,414.1 3.8 16,405.7 4.6 Customer deposits 46,884.0 46,928.8 - 46,892.5 36.3 Debt securities 2,546.6 2,546.9 - 2,546.9 - Subordinated debt 450.2 736.4 - 736.4 - TOTAL 66,295.4 66,626.2 3.8 66,581.5 40.9
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31/12/2018 (in €m) Carrying amount Fair value Level 1 Level 2 Level 3 Due to banks 14,524.7 14,525.0 2.0 14,465.7 57.3 Customer deposits 43,509.5 43,568.8 - 43,565.5 3.3 Debt securities 5,262.3 5,258.8 - 5,258.8 - Subordinated debt 450.2 710.9 - 710.9 - TOTAL 63,746.7 64,063.5 2.0 64,000.9 60.6
3.9.3 Valuation methods for financial instruments measured at amortised cost Loans, receivables and lease finance Debt transactions In the absence of an active market for these debts, In the absence of an active market, the fair value of their fair value is presumed to be the value of the future loans, receivables and lease finance receivables to cash flows discounted at the market rate in force at the credit institutions and large corporates is calculated closing date. by discounting expected cash flows at a discount rate If the debt is represented by a listed instrument, its fair based on market interest rates (reference actuarial value is its market price. rate published by the Banque de France and zero- coupon rate) in force at the closing date for loans with The fair value of variable-rate debts and those whose substantially the same conditions and maturities, with initial maturity is less than or equal to one year is these interest rates adjusted to take account of the presumed to be their carrying amount. Similarly, the borrower’s credit risk. individual fair value of current accounts is their carrying amount. The fair value of loans, receivables and lease financing transactions for retail banking customers, essentially Securities comprised of individuals and small- or medium-sized If the debt is an instrument quoted on an active market, companies, is determined, in the absence of an its fair value is its market price. actively-traded market for these loans, by discounting the associated future cash flows to present value at the In the absence of an active market, the fair value of market rates in force on the balance sheet date for each securities is calculated by discounting future cash flows type of loan and each maturity. at the market rate prevailing at the balance sheet date. For variable-rate securities and fixed-rate securities For variable-rate loans, receivables and lease finance with an initial maturity of one year or less, fair value is receivables, and fixed-rate loans whose initial maturity presumed to be the net carrying amount of impairments, is less than or equal to one year, fair value is presumed where there has not been a significant fluctuation in to be the net carrying value of impairments, where there credit spreads for the counterparties in question since has not been a significant fluctuation in credit spreads these items were recorded on the balance sheet. for the counterparties in question since these items were recorded on the balance sheet.
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3.10 Commitments and assets pledged and received as collateral
Accounting principles evidence of impairment, provisions are set aside for financial guarantees given and recognised as balance Loan commitments sheet liabilities (see Note 3.8). Loan commitments that are neither considered as derivative financial instruments nor measured at fair Security commitments value through profit or loss in respect of a trading Purchases and sales of securities classified as activity are initially recognised at fair value. They are “Financial assets at fair value through profit or subsequently subject to provisions, if necessary, in loss”, “Financial assets at fair value through other accordance with the accounting principles governing comprehensive income” and “Financial assets at “Impairments and provisions” (see Note 3.8). amortised cost” are recognised on the balance sheet at the settlement-delivery date. Between the trade Guarantee commitments date and the settlement-delivery date, commitments The Group initially recognises financial guarantees on receivable or deliverable securities are not recorded given as non-derivative financial instruments at their on the balance sheet. Changes in the fair value of fair value on the balance sheet. The guarantees are securities measured at fair value through profit or loss subsequently measured at the higher of the best between the trade date and the settlement-delivery estimate of the obligation and the amount initially date are taken to profit or loss or booked to other recognised less, where appropriate, amortisation of comprehensive income depending on the accounting the guarantee commission. Where there is objective classification of the securities in question.
3.10.1 Commitments
Commitments given
(in €m) 31/12/2019 31/12/2018 Loan commitments To banks 98.2 256.2 To customers 5,026.6 4,368.8 Guarantee commitments On behalf of banks 121.5 162.5 On behalf of customers 2,284.5 2,201.7 Others 18,658.0 16,106.4 Security commitments Securities to be delivered 316.2 289.2 Forward foreign exchange transaction commitment Currency to be delivered 1,841.4 2,065.0
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Commitments received
(in €m) 31/12/2019 31/12/2018 Loan commitments From banks 2,685.2 2,104.1 Guarantee commitments From banks 20,457.9 18,016.7 Others (1) 139.4 104.2 Security commitments Securities to be received 2.2 0.1 Forward foreign exchange transaction commitments Currency to be received 1,849.0 2,078.1
(1) o/w guarantees received from the government, other authorised organisations and customers for €87.4 million at December 31, 2019 versus €88.9 million at December 31, 2018.
3.10.2 Financial assets pledged and received as collateral
Financial assets pledged as collateral
(in €m) 31/12/2019 31/12/2018 Carrying amount of assets pledged as collateral for liabilities (1) 6,711.2 16,106.4 Net book value of assets pledged as collateral for securities transactions (2) 26.7 6.3 Carrying amount of assets pledged as collateral for off-balance sheet commitments 54.6 43.9 TOTAL 6,792.5 16,156.6
(1) Assets pledged as collateral for liabilities mainly consist of receivables pledged as collateral for liabilities (notably with central banks). (2) Assets pledged as collateral for securities transactions mainly consist of security deposits.
Financial assets received as collateral and available to the entity
(in €m) 31/12/2019 31/12/2018 FAIR VALUE OF SECURITIES PURCHASED UNDER RESALE AGREEMENTS 0.1 0.6
The Group generally purchases securities under resale or their equivalents to the counterparty to the repo agreements in accordance with standard market agreement at the term of said agreement. These terms and conditions. The Group may reuse securities securities are not recognised on the balance sheet. The purchased under resale agreements by selling them, fair value of these securities presented above includes selling them under repurchase agreements or pledging securities sold or pledged as collateral. them as collateral, provided that it returns the securities
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 145 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
3.11 Transferred financial assets
Accounting principles balance sheet. For securities purchased under resale Financial assets which have been transferred but agreements, the amounts delivered by the Group remain fully recognised on the balance sheet include are recorded under “Customer loans” or “Due from temporary sales of securities (securities lending and banks” on the assets side of the balance sheet, with securities with repurchase or resale options) and the exception of transactions conducted as part of certain debt waivers to consolidated securitisation trading activities which are recorded under “Financial vehicles. assets at fair value through profit and loss”. In the event that borrowed securities are subsequently sold, The temporary sale transactions (securities lending an obligation to return these securities to their lender and securities sold under repurchase agreements) is recorded under “Financial liabilities at fair value shown in the tables below relate only to securities through profit and loss” in the balance sheet. recognised under assets on the balance sheet. Securities borrowing and lending transactions backed Securities that are borrowed or lent under a by cash are considered equivalent to repurchase repurchase agreement remain booked under their agreements and are recorded and recognised as such original heading under assets in the Group’s balance on the balance sheet. sheet. For borrowed securities, the obligation to recover disbursed amounts is recorded under In the case of temporary security sales, the Group “Debt” on the balance sheet, with the exception of is exposed to the risk of default by the issuer of the transactions conducted as part of trading activities security (credit risk) and to increases or decreased which are recorded under “Financial liabilities at fair in the value of the securities (market risk). Securities value through profit and loss”. purchased or sold under resale/repurchase agreements cannot simultaneously be used as Securities that have been purchased as part of a collateral for another transaction. resale agreement are not recorded in the Group’s
3.11.1. Financial assets transferred but not derecognised
Repurchase agreements 31/12/2019 31/12/2018 Carrying amount Carrying amount Carrying amount Carrying amount (in €m) of assets of related debt of assets of related debt Securities at fair value through profit or loss ---- Securities at fair value through other comprehensive income 187.1 180.5 1,203.4 1,203.4 TOTAL 187.1 180.5 1,203.4 1,203.4
Securities lending 31/12/2019 31/12/2018 Carrying amount Carrying amount Carrying amount Carrying amount (in €m) of assets of related debt of assets of related debt Securities at fair value through profit or loss ---- Securities at fair value through other comprehensive income ---- TOTAL ----
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3.11.2. Partially transferred or fully derecognised financial assets The Group has no significant amount of transferred financial assets that are partly or fully derecognised.
3.12 Contractual maturities of financial liabilities
Less than From 3 months From 1 More than (in €m) 3 months to 1 year to 5 years 5 years 31/12/2019 Due to central banks - - - - - Financial liabilities measured at fair value through profit or loss excluding derivatives 312.0 - 204.5 87.7 604.2 Due to banks 5,368.7 881.8 6,943.8 3,220.2 16,414.6 Customer deposits 46,802.3 30.2 33.5 17.9 46,884.0 Debt securities 876.1 1,216.2 451.7 2.4 2,546.6 Subordinated debt -0.0 - 30.0 420.2 450.2 Other liabilities 1,011.8 25.2 93.2 65.8 1,196.0 TOTAL LIABILITIES 54,370.9 2,153.4 7,756.7 3,814.2 68,095.6 Loan commitments given 5,097.8 15.8 11.2 - 5,124.9 Guarantee commitments given - - - 2,406.0 2,406.0 TOTAL COMMITMENTS GIVEN 5,097.8 15.8 11.2 2,406.0 7,530.9
The run-offs presented in this note are based on The maturities of guarantee commitments given are contractual maturities. Conventions may be applied for based on the best possible run-off estimate (by default certain balance sheet items, however. in the first tranche - less than 3 months). In the absence of contractual items, or for financial instruments related to the trading book (e.g. derivatives), the maturities are recorded in the first tranche (less than 3 months).
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 147 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
NOTE 4 Other activities
4.1 Fee income and expenses
Accounting principles • fees for one-off services, such as fund transfer “Fee income and expenses” comprises fees on fees, fees on contributions received, arbitrage services and commitments that cannot be assimilated fees and penalties for payment incidents are fully to interest. Fees assimilated to interest are an integral booked to income when the service is provided. part of the effective interest rate of the associated The amount representing the consideration for financial instrument and are booked to “Interest and the service provided comprises fixed and variable similar income” and “Interest and similar expenses” remuneration provided for in the associated contracts, (see Note 3.7). less any payments owed to customers (e.g. for Transactions with customers consist of fees received promotional offers). Variable remuneration (e.g. from customers in the course of the Group’s retail discounts based on volumes of services provided banking activities (including in particular debit card over a given period or fees receivable subject to fees, account administration fees and administrative meeting a performance target) are included in the fees not assimilated to interest). amount representing the consideration for the service provided if and only if it is highly probable that this Other services include fees received from customers remuneration will not be subsequently subject to in the course of the Group’s other banking activities a significant adjustment resulting in decreased (including in particular interchange fees, fund revenues. management fees and fees on insurance products sold in the network). Any differences between the date of payment for the service and the service provision date generates The Group books fee income and expenses to profit assets or liabilities, depending on the type of contract or loss for an amount representing the consideration and whether the difference is positive or negative, for the service provided and based on the rate at which are recorded under “Other assets” and “Other which control of the service is transferred: liabilities” (see Note 4.3): • fees for ongoing services, such as payment • contracts with customer generate trade services, custody fees, or subscriptions for digital receivables, income receivable or deferred income; services, are spread out over the duration of the service; • contracts with providers generate trade payables, expenses payable or prepaid expenses.
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2019 2018 (in €m) Income Expense Net Income Expense Net Transactions with banks 11.1 -0.2 10.9 12.3 -0.2 12.1 Transactions with customers 303.0 - 303.0 305.3 - 305.3 Transactions in financial instruments 28.4 -7.4 21.0 27.9 -4.2 23.7 Securities transactions 4.1 -7.2 -3.1 3.8 -4.1 -0.3 Primary market transactions 22.5 - 22.5 22.5 - 22.5 Foreign exchange and financial derivatives transactions 1.8 -0.2 1.6 1.6 -0.1 1.5 Loan and guarantee commitments 27.7 -0.7 27.0 26.5 -0.5 26.0 Services 602.2 -114.8 487.4 588.5 -96.6 491.9 Asset management fees 89.7 - 89.7 94.9 - 94.9 Fees on payment instruments 259.4 - 259.4 253.9 - 253.9 Fees on insurance products 182.0 - 182.0 173.7 - 173.7 Investment fees - UCITS and similar vehicles 6.9 - 6.9 6.1 - 6.1 Other services 64.3 -114.8 -50.5 60.0 -96.6 -36.6 TOTAL 972.3 -123.1 849.2 960.4 -101.5 858.9
4.2 Income and expenses from other activities
Accounting principles Income and expenses, and capital gains or losses on disposals of investment property and assets under Leasing activities operating leases, as well as income and expenses Leases granted by the Group that do not transfer associated with maintenance services related to virtually all the risks and rewards associated with operating lease activities, are booked to “Income and ownership of the leased asset to the lessees are expenses from other activities” under the headings designated as operating leases. “Real estate leasing” and “Equipment leasing” in the table below. The assets held under operating leases, including investment property, are presented on the balance These same headings also include losses incurred in sheet under “Tangible and intangible fixed assets” at the event of a decline in the non-guaranteed residual their acquisition cost less depreciation and impairment values of finance leases, in addition to impairment (see Note 7.3). income and expenses and capital gains or losses related to non-leased assets after the termination of Leased assets are depreciated excluding any residual finance leases. value over the term of the lease. Income from rent is recognised on the income statement on a straight- The lease agreements proposed by entities in the line basis over the life of the lease. The purpose of Group can provide for maintenance services for the the accounting treatment of income invoiced on leased equipment. In this case, the portion of lease maintenance services related to operating lease payments corresponding to these services is spread activities is to reflect a constant margin over the life over the duration of the service (generally, the term of the lease between this income and the expenses of the lease). If applicable, the spreading process incurred to provide the service. takes into account the service provision rate when the service is not linear.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 149 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
2019 2018 (in €m) Income Expense Net Income Expense Net Real estate development 0.1 - 0.1 - - - Real estate leasing (1) 2.5 -2.6 -0.1 2.9 -2.5 0.4 Equipment leasing 0.7 - 0.7 0.7 - 0.7 Other activities 20.8 -26.2 -5.4 22.6 -30.3 -7.7 TOTAL 24.1 -28.8 -4.7 26.2 -32.8 -6.6
(1) o/w rent on investment property: €0.6 million at December 31, 2019 versus €0.6 million at December 31, 2018.
4.3 Other assets and liabilities
4.3.1 Other assets
(in €m) 31/12/2019 31/12/2018 Security deposits paid (1) 55.4 43.9 Settlement accounts on securities transactions 0.1 1.4 Prepaid expenses 37.7 33.6 Other sundry debtors (2) 185.5 178.1 TOTAL GROSS 278.6 257.0 Impairment -0.3 -0.2 TOTAL NET 278.3 256.8
(1) This line predominantly consists of security deposits paid on financial instruments; their fair value is presumed to be their carrying amount. (2) Other sundry debtors primarily include trade receivables and income receivable from fees and other activities.
4.3.2 Other liabilities
(in €m) 31/12/2019 31/12/2018 Security deposits received (1) 199.0 99.9 Settlement accounts on securities transactions 16.5 12.4 Expenses payable on employee benefits 114.1 119.1 Deferred income 67.3 69.0 Other sundry creditors (2) 703.3 545.8 Lease liabilities (3) 95.8 TOTAL 1,196.0 846.3
(1) This line predominantly consists of security deposits received on financial instruments; their fair value is presumed to be their carrying amount. (2) Other sundry creditors primarily include trade payables and expenses payable in fees and other activities. (3) This line consists of lease liabilities booked with regard to leases recognised in the balance sheet since January 1, 2019 through the application of IFRS 16 (see Note 1).
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NOTE 5 Personnel expenses and employee benefits
Accounting principles • defined benefit or defined contribution post- Employee benefits are broken down into four employment benefits, such as pension plans and categories: end-of-career benefits; • short-term benefits expected to be paid out within • long-term benefits not expected to be paid out 12 months of the end of the fiscal year during which within the twelve months of the end of the period, the staff members rendered the corresponding such as non-indexed cash-settled deferred variable services, such as wages, bonuses, paid annual compensation, long-service awards or flexible leave, social security charges and payroll taxes, working provisions; and employee profit-sharing; • employment termination benefits.
5.1 Personnel expenses and related-party transactions
Accounting principles The accounting principles applied to post- “Personal expenses” cover all expenses related employment benefits and long-term benefits are to employees and accordingly includes expenses presented in Note 5.2. associated with employee benefits and Societe Personnel expenses include transactions with related Generale share-based payments. parties, within the meaning of IAS 24. The expense representing the short-term benefits Crédit du Nord Group does not issue listed equity vested by staff members is recorded under “Personnel instruments. Consequently, the equity instruments expenses” where said staff members have rendered granted to Group employees are shares issued by its the services rewarded by said benefits. shareholder, Societe Generale.
5.1.1 Personnel expenses
(in €m) 2019 2018 Employee compensation -414.0 -422.1 Social security charges and payroll taxes -165.0 -166.9 Net retirement expenses - defined contribution plans -65.8 -65.1 Net retirement expenses - defined benefit plans 9.6 15.1 Profit-sharing, incentives, contributions and discounting -61.9 -63.5 Reinvoiced personnel expenses 5.3 10.5 TOTAL -691.9 -692.0 o/w net expenses in respect of share-based payment plans -3.4 -3.4
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 151 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
5.1.2 Transactions with related parties
Accounting principles Officer) and their spouses and children living in Personnel expenses include transactions with related their family home, and ii) the following subsidiaries: parties, within the meaning of IAS 24. subsidiaries under its exclusive or joint control, and companies over which Crédit du Nord exercises The Group recognises the following parties as related significant influence. parties: i) directors, corporate officers (the Chairman, Chief Executive Officer and Deputy Chief Executive
Remuneration of senior managers This includes amounts effectively paid by Crédit du Nord Group to its directors and corporate officers as remuneration (including employer charges), and other benefits under IAS 24, paragraph 17, as indicated below.
(in €m) 2019 2018 Short-term benefits 1.6 1.5 Post-employment benefits -- Long-term benefits -- Termination benefits -- Share-based payments -- TOTAL 1.6 1.5
Transactions with individual related parties discussed in this note consist solely of loans and Transactions with members of the Board of Directors, guarantees outstanding at December 31, 2019 and corporate officers and members of their families securities transactions. These transactions are not material.
152 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
5.2 Breakdown of provisions for employee benefits
Group entities can grant their employees: • long-term benefits, such as deferred variable • post-employment benefits, such as pension plans remunerations, long-service awards or flexible and end-of-career benefits; working provisions; • employment termination benefits.
Breakdown of provisions for employee benefits
Provisions Provisions at Reversals Net Reversals Actuarial at (in €m) 31/12/2018 Allocations available allocations used gains/losses Other (1) 31/12/2019 Post-employment benefits 16.7 4.4 -12.9 -8.5 - 3.5 3.7 15.5 Other long-term benefits 43.2 5.5 -0.4 5.1 -4.4 - 0.2 44.2 Employment termination benefits 6.6 0.9 -1.3 -0.4 ---6.2 TOTAL 66.6 10.9 -14.6 -3.7 -4.4 3.5 4.0 65.9
(1) Other changes refer to €3.7million reclassified as a plan surplus, due to overfunding of the IFC plan.
5.2.1 Post-employment benefits
Accounting principles the above pension commitments. It is valued on a regular basis by independent actuaries using the Post-employment benefits projected credit unit method. This valuation method Post-employment benefits are broken down into two takes account of assumptions on demographics, categories: defined contribution plans and defined early retirement, wage increases, discount rates and benefit plans. inflation. Where these plans are financed using external funds Post-employment defined contribution plans meeting the definition of plan assets, the fair value Defined benefit pension plans commit the Group, on of these funds is deducted from the amount of the a formal or implied basis, to pay a certain amount provision recorded to cover the related commitments. or level of future benefits and the Group therefore Differences arising from changes in calculation bears the medium-and long-term risk. Said plans assumptions (early retirement, discount rate, etc.) cover several types of benefits, notably any residual as well as differences observed between actuarial complementary benefits afforded by specialist assumptions and actual actuarial differences (gains pension funds. or losses). These actuarial gains or losses, as well Post-employment defined benefit plans as the return on plan assets, from which the amount already expensed for net interest on net liabilities (or Defined benefit pension plans commit the Group, on assets) is deducted, and the change in the asset a formal or implied basis, to pay a certain amount or ceiling are items used to re-estimate (or re-measure) level of future benefits and the Group therefore bears net liabilities (or net assets). They are immediately the medium-and long-term risk. booked in full to “Gains and losses booked directly to A provision is recorded on the liabilities side of the other comprehensive income”. These items cannot be balance sheet under “Provisions” to cover all of subsequently reclassified to profit or loss.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 153 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
In the Group’s consolidated financial statements, • the financial cost corresponding to the impact these items which cannot be subsequently reclassified of reverse discounting and the interest income to profit or loss, are shown under “Consolidated generated on plan assets (net interest on net plan reserves” on the liabilities side of the balance sheet assets or liabilities); and on a separate line of the “Statement of net • the effect of any plan settlements. income and gains and losses booked directly to other comprehensive income”. Other long-term benefits Where a new plan (or amendment) is being Other long-term benefits are benefits, other than established, the past service cost is immediately post-employment benefits and employee termination booked to profit or loss. benefits, that are not paid to employees within 12 The annual expense recognised as personnel months of the end of the fiscal year during which the expenses for defined benefit plans includes: corresponding services were rendered. • additional benefits vested by each employee Long-term benefits are measured and recognised (current service cost); in the same way as post-employment benefits, with the exception of actuarial gains or losses which are • a change in obligation arising from a plan immediately taken to income. modification or curtailment (past service cost);
Post-employment defined contribution plans For Crédit du Nord, following the Branch agreement of The main defined contribution plans provided to February 25, 2005, which provided for the amendment employees of the Group are based in France. They of the provisions relating to complementary benefits, an include State pension plans and national retirement internal agreement was signed in 2006 setting out the plans such as ARRCO and AGIRC, as well as pension following provisions: schemes set up by certain Group entities for which • for beneficiaries of complementary benefits still the only commitment is to pay contributions (PERCO employed with Crédit du Nord, the value of the contribution). complementary benefits was transferred to a supplementary savings plan outsourced to an insurer; Post-employment defined benefit plans • retirees and beneficiaries of a survivor’s pension Since January 1, 1994, pursuant to an agreement signed were given a choice of opting for a single lump-sum by all French banks on September 13, 1993, all banking payment of their complementary benefits. institutions in France are affiliated with the private-sector employee pension funds. This agreement gave rise to The Group’s residual pension commitments are thus residual commitments with respect to retirees and all attributable to i) retirees and beneficiaries of a survivor’s employees of French banks for periods of employment pension currently receiving benefits and ii) active staff in the banking sector until December 31, 1993 for which that are no longer employees of Crédit du Nord and the banks are liable. SMC and employees struck off from Crédit du Nord and SMC before December 31, 1993. This residual commitment is still borne by Crédit du Nord and SMC. The other entities of the Group were affiliated with CRPB and as such, the corresponding commitment is borne by CRPB.
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1. Reconciliation of assets and liabilities recorded on the balance sheet
(in €m) 31/12/2019 31/12/2018 A - Present value of defined benefit obligation 112.9 121.4 B - Fair value of plan assets 130.2 133.7 C - Fair value of separate assets D - Effect of asset ceiling 0.5 0.5 A - B - C + D = NET BALANCE -16.9 -11.8 On the liabilities side of the balance sheet 10.5 10.8 On the asset side of the balance sheet -27.3 -22.6
2. Components of the cost of defined benefits
(in €m) 2019 2018 Current service cost for the year, including social security contributions 4.8 6.7 Employee contributions -- Past service cost/curtailments (1) -12.5 -19.8 Transfer via expenses -- Net interest -0.3 0.0 A - Components recognised on the income statement -8.1 -13.1 Actuarial gains and losses related to assets -1.7 2.8 Actuarial gains and losses due to changes in demographic assumptions - - Actuarial gains and losses due to changes in economic and financial assumptions 6.7 -3.0 Experience gains and losses -1.5 - Impact of asset ceiling - 0.3 B - Components recognised in gains and losses booked directly to other comprehensive income 3.5 0.1 C = A + B TOTAL COMPONENTS OF COST OF DEFINED BENEFITS -4.6 -13.0
(1) Related to changes in pension benefits.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 155 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
3. Changes in net liabilities of post-employment plans booked to the balance sheet
3.1 Changes in the present value of defined benefit obligations
(in €m) 2019 2018 BALANCE AT JANUARY 1 121.4 144.2 Current service cost for the year, including social security contributions 4.8 6.7 Past service cost/reductions -12.5 -19.8 Impact of settlements - Net interest 1.4 1.9 Actuarial gains and losses due to changes in demographic assumptions - - Actuarial gains and losses due to changes in economic and financial assumptions 6.7 -2.2 Experience gains and losses -1.5 -0.8 Foreign currency exchange adjustment - - Benefit payments -7.3 -8.6 Changes to consolidation scope -- Transfers and others -- BALANCE AT DECEMBER 31 112.9 121.4
3.2 Changes in fair value of funding assets (plan assets and separate assets)
Plan assets Separate assets (in €m) 2019 2018 2019 2018 VALUE AT JANUARY 1 133.7 138.8 - - Interest expenses related to plan assets 1.7 1.9 - - Actuarial gains and losses related to assets 1.7 -2.8 - - Foreign currency exchange adjustment ---- Employee contributions ---- Employer contributions - 4.0 - - Benefit payments -7.0 -8.2 - - Acquisition of subsidiaries ---- Transfers, settlements and others ---- BALANCE AT DECEMBER 31 130.2 133.7 - -
156 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
4. Information on funding of pension plans and plan funding conditions
4.1 General information on funding assets (all plans combined and future contributions)
The fair value of plan assets, excluding assets linked to Overall, 115% of plans are hedged, but depending on Crédit du Nord complementary benefits, is comprised the entity and the plan, hedging rates range from 0% of 72.2% bonds, 26.9% equities and 1% other assets. to 148%. The employer contributions for the defined benefit post- employment plans in 2019 will be determined after the year-end evaluations.
4.2 Actual returns on funding assets Actual returns on plan assets and separate assets can be broken down as follows:
(in €m) 31/12/2019 31/12/2018 Plan assets 3.4 -0.9 Separate assets --
5. Main actuarial assumptions used for post-employment plans
31/12/2019 31/12/2018 Discount rate 0.77% 1.40% Long-term inflation rate 1.17% 1.50% Future growth rate of salaries Aged under 30 2.7% 2.7% Aged 30 to 50 1.9% - 1.5% 1.9% - 1.5% Over age 50 0.7% 0.7% Average remaining working life of employees (in years) 14.9 14.6 Duration (in years) 12.6 12.3
The discount rate is determined using the yield curves The inflation rate is based on the duration of the plan: for AA-rated corporate bonds (source Merrill Lynch): (1.0% at 3 years; 1.1% at 5 years; 1.2% at 10 years). (0.0% at 3 years; 0.1% at 5 years; 0.5% at 10 years; Average remaining working life is determined by plan 0.8% at 15 years). The rate used for the valuation is and factors in turnover assumptions. based on the estimated future benefits of the plan in question.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 157 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
6. Analysis of post-employment defined benefit plan obligation sensitivity to changes in the main actuarial assumptions
(as a % of the item measured) 31/12/2019 31/12/2018 Variation of +0.50% in discount rate Impact on present value of defined benefit obligations at December 31, N -6.0% -5.7% Variation of +0.50% in long-term inflation rate Impact on present value of defined benefit obligations at December 31, N 3.2% 6.3% Variation of +0.50% in future salary increases net of inflation Impact on present value of defined benefit obligations at December 31, N 5.3% 5.1%
5.2.2 Long-term benefits
Other long-term benefits granted to Group employees The net balance of other long-term benefits was €17.9 include deferred bonuses, such as flexible working million. provisions and long-service awards. Other benefits The total amount of expenses on other long-term besides post-employment benefits and end-of-career benefits was -€0.2 million. benefits are not due in full in the 12 months following the end of the year in which the members of staff provided the corresponding services.
158 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
5.3 Detailed information on performance share grants
As Crédit du Nord Group does not issue listed shares, its employees are entitled to the equity instruments of its shareholder, Societe Generale.
Accounting principles Generale’s share price), the amount payable is Societe Generale share-based payments include: expensed under “Personnel expenses” over the vesting period with an offsetting entry on the • payments in equity instruments; liabilities side of the balance sheet under “Other • cash payments whose amount depends on liabilities - Expenses payable on employee benefits”. changes in the value of equity instruments. Until settlement, this date is re-assessed to factor Share-based payments are systematically expensed in performance and presence conditions as well under “Personnel expenses” for an amount equal to as changes in the value of the underlying shares. the fair value of the share-based payment granted For hedging derivatives, the change in their value is to the employee and according to conditions that recorded on the same line of the income statement in depend on method used to settle these payments. the amount of the effective portion. For share-based payments unwound through equity Societe Generale Group may offer certain employees instruments (free shares and options to purchase or the option of purchasing or subscribing for Societe subscribe to Societe Generale shares), the value of Generale shares, free shares or compensation these instruments, as calculated at the notification indexed to the Societe Generale share price and date, is spread out over the vesting period as a settled in cash. charge to shareholders’ equity, offsetting “Bonuses The options are valued at their fair value at the date on and associated reserves”. At each period-end, the which the employee is notified of the award, without number of instruments is revised to take performance waiting for the conditions that trigger the award to be and presence conditions into account, and to adjust met, or for the beneficiaries to exercise their options. the overall cost of the original plan. The cost from If the Group has adequate statistics on the behaviour the beginning of the plan, booked under “Personnel of option beneficiaries, Group stock option plans are expenses”, is adjusted accordingly. valued by using a binomial model, failing which the For share-based payments unwound through Black-Scholes or Monte-Carlo model is used. This is cash settlement (remuneration indexed to Societe conducted by an independent actuary.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 159 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
Actual expenses recorded on the income statement
2019 2018 Portion settled Portion settled Total plan Portion settled Portion settled Total plan (in €m) in cash in shares assets in cash in shares assets Net expenses from stock option plans, share purchase plans and free share allocation plans -0.6 -2.7 -3.4 -0.7 -2.7 -3.4
The expense indicated above relates to equity-settled stock-option plans and to cash-settled plans. The description of the Societe Generale stock option and free share allocation plans is presented below.
Description of Societe Generale’s free share allocation programmes
Date of Shareholders’ meeting 23/05/2018 18/05/2016 18/05/2016 18/05/2016 20/05/2014 22/05/2012 Date of Board of Directors’ meeting 13/03/2019 14/03/2018 15/03/2017 18/05/2016 12/03/2015 13/03/2014 Total number of shares awarded 177,725 110,665 113,849 149,210 97,032 79,302 see table see table see table see table Vesting date below below below below 31/03/2017 31/03/2016 see table see table see table see table End date of holding period below below below below 31/03/2019 31/03/2018 Performance-based (1) yes yes yes yes yes yes see table see table see table see table Fair value (in €) (2) below below below below 36.4 37.8 Number of shares vested at 31/12/2019 0 0 8,712 112,411 95,209 77,698 Total number of cancelled or expired shares 928 2,239 3,503 4,447 1,823 1,604 Performance shares outstanding at year-end 176,797 108,426 101,634 32,352 0 0
(1) The applicable performance conditions are described in the chapter on Corporate Governance in Societe Generale Group’s Universal Registration Document. (2) Fair value is measured using the arbitrage method.
Detailed information on the 2017 performance share plan (1)
Date of Shareholders’ Meeting 18/05/2016 Date of Board Meeting 15/03/2017 Total number of shares awarded 113,849 29/03/2019 31/03/2021 31/03/2020 31/03/2022 (First tranche) (First tranche) Vesting date 31/03/2020 31/03/2023 (Second tranche) (Second tranche) 30/09/2019 01/04/2022 End date of holding period N/A 02/10/2022 02/10/2020 01/04/2024 Performance-based (2) yes yes yes yes 42.17 (First tranche) 27.22 (First tranche) Fair value (in €) (3) 41.05 43.75 40.33 (Second tranche) 26.34 (Second tranche) (1) Under the annual long-term employee incentive and performance share plan, in accordance with the retention and compensation policy for regulated categories of employees within the meaning of banking regulations (including corporate officers and members of the Executive Committee). (2) The applicable performance conditions are described in the chapter on Corporate Governance, under “Employee share plans”. (3) Fair value is measured using the arbitrage method.
160 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
Detailed information on the 2018 performance share plan (1)
Date of Shareholders’ Meeting 18/05/2016 Date of Board Meeting 14/03/2018 Total number of shares awarded 110,665 31/03/2020 31/03/2022 31/03/2021 31/03/2023 (First tranche) (First tranche) Vesting date 31/03/2021 29/03/2024 (Second tranche) (Second tranche) 01/10/2020 01/04/2023 End date of holding period N/A 01/10/2023 01/10/2021 31/03/2025 Performance-based (2) yes yes yes yes 40.39 (First tranche) 26.40 (First tranche) Fair value (in €) (3) 39.18 39.17 38.59 (Second tranche) 24.43 (Second tranche) (1) Under the annual long-term employee incentive and performance share plan, in accordance with the retention and compensation policy for regulated categories of employees within the meaning of banking regulations (including corporate officers and members of the Executive Committee). (2) The applicable performance conditions are described in Chapter 3, Corporate Governance, in the Societe Generale Group Universal Registration Document. (3) Fair value is measured using the arbitrage method.
Detailed information on the 2019 performance share plan (1)
Date of Shareholders’ Meeting 23/05/2018 Date of Board Meeting 13/03/2019 Total number of shares awarded 177,725 31/03/2021 31/03/2023 31/03/2023 31/03/2022 (First tranche) (First tranche) (First tranche) Vesting date 31/03/2022 31/03/2025 29/03/2024 (Second tranche) (Second tranche) (Second tranche) 01/10/2021 01/04/2024 01/10/2023 End date of holding period N/A 01/10/2022 31/03/2026 01/10/2024 Performance-based (2) yes yes yes yes 22.32 (First tranche) 8.53 (First tranche) 10.86 (First tranche) Fair value (in €) (3) 21.4 20.93 (Second tranche) 9.45 (Second tranche) 11.35 (Second tranche) (1) Under the annual long-term employee incentive and performance share plan, in accordance with the retention and compensation policy for regulated categories of employees within the meaning of banking regulations (including corporate officers and members of the Executive Committee). (2) The applicable performance conditions are described in the chapter on Corporate Governance, under “Employee share plans”. (3) Fair value is measured using the arbitrage method.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 161 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
NOTE 6 Taxes
Accounting principles are adjusted in the event of a change in the tax rate. Their calculation is not subject to discounting. Current taxes Deferred tax assets may result from temporary The current tax expense is based on the taxable deductible differences or tax loss carry-forwards. profits of each consolidated tax entity according to the Deferred tax assets are only recognised if it is likely tax rates in force in the entity’s country of operation. that the tax entity in question is likely to recover them It also includes net provisions for income-tax related over a given time period, particularly by deducting risks. these differences and tax loss carry-forwards from Tax credits arising in respect of revenues from future taxable profits. receivables and security portfolios, where they are Tax loss carry-forwards are subject to an annual used for the settlement of corporate tax due for the review, taking into account the tax scheme applicable fiscal year, are booked under the same line item as to each relevant tax entity and a realistic projection the related revenues. The corresponding income tax of its taxable income: deferred tax assets which had expense is recognised under “Income Tax” in the previously not been recognised are then recognised income statement. on the balance sheet if it becomes probable that the entity’s future taxable profit makes recovery of said Deferred taxes assets possible. However, the carrying amount of Deferred taxes are recognised whenever there is deferred tax assets already appearing on the balance a temporary difference between the book values of sheet is reduced where there is a risk of partial or total assets and liabilities on the balance sheet and their non-recovery. respective tax base, where said differences will have Current and deferred tax is recognised as income an impact on future tax payments. or an expense and included in consolidated profit Deferred taxes are calculated for each tax entity or loss for the period under “Income Tax”. However, by applying the tax rules in force in the country of deferred tax related to income or expenses recorded operation and using the enacted (or nearly enacted) under “Gains and losses booked directly to other tax rate, which must be in force at the time the comprehensive income” are recorded under the same temporary difference reverses. These deferred taxes OCI heading.
Since January 1, 2010, Crédit du Nord has been Crédit du Nord and some of the subsidiaries in which included in Societe Generale’s tax consolidation scope. it holds a direct or indirect ownership interest of at least A tax consolidation sub-group was set up between 95%. The convention adopted is that of neutrality.
162 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
6.1 Breakdown of the tax expense
(in €m) 2019 2018 Current tax expense -156.4 -165.1 Deferred taxes 1.0 -7.8 TOTAL -155.4 -172.9
Reconciliation of the Group’s normative tax rate and the effective tax rate
(in €m) 2019 2018 Earnings before tax and excluding net income from companies accounted for by the equity method 449.7 551.3
Standard tax rate applicable to French companies (including the 3.3% contribution) 34.43% 34.43% Permanent differences 0.07% 0.16% Differential on exempt items or items taxed at a reduced rate - -2.98% Tax differential on profits taxed outside France 0.04% -0.25% Effect of non-deductible losses for the period and of the use of tax loss carry-forwards - - GROUP EFFECTIVE TAX RATE 34.56% 31.36%
In France, the standard corporate tax rate is 33.33%. and by the Finance Act for 2020 in the case of corporate In addition, companies pay a 3.3% social security tax rates for 2020 and 2021). contribution on profits (after a deduction of €0.76 million), The standard corporate tax rate of 33.33% will be introduced in 2000. reduced to 25% by 2022. In addition, companies will still Long-term capital gains on equity investments are be required to pay the 3.3% social security contribution tax-exempt, subject to taxation of a share of fees on profits. and expenses equivalent to 12% of the gross capital The deferred taxes for which French companies are gain only if the company generates a net long-term liable are calculated by applying the tax rate that will be capital gain in respect of the year in which the equity in force until the temporary difference is reversed. Given investments are sold. the gradual reduction in rates from now through 2022, In addition, under the parent companies/subsidiaries deferred taxes (including the social security contribution scheme, dividends received from companies in which on profits) will be: the equity investment is at least 5% are tax-exempt, • for taxable income taxed at the standard rate: from subject to taxation on a share representing fees and 34.43% or 32.02% in 2019 to 25.83% in 2022 and expenses. beyond; The 2018 Finance Act, published in the “Journal Officiel” • for taxable income taxed at the reduced rate: from on December 31, 2017, calls for a gradual reduction in 4.13% or 3.84% in 2019 to 3.10% in 2022 and the tax rate in France (amended by law 2019-759 of July beyond. 24, 2019 with regard to the corporate tax rate for 2019
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 163 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
6.2 Breakdown of tax assets and liabilities
Tax assets
(in €m) 2019 2018 Current tax assets 25.0 42.3 Deferred tax assets 1.4 1.4 o/w deferred tax on tax loss carry-forwards - - o/w deferred tax on temporary differences 1.4 1.4 TOTAL 26.4 43.7
Tax liabilities
(in €m) 2019 2018 Current tax liabilities 149.6 165.4 Provisions for tax risks (1) 0.7 - Deferred tax liabilities 107.5 113.8 TOTAL 257.8 279.2
(1) Since January 1, 2019, tax provisions relating to income tax are presented under “Tax liabilities” following the entry into force of IFRIC 23 “Uncertainty over Income Tax Treatment” (see Note 1).
6.3 Tax provisions
Accounting principles The amount of the expected outflow is then Tax provisions represent liabilities with no precisely discounted to present value to determine the size of defined amount or due date. They are only booked the provision, where this discounting has a significant where: impact. Allocations to and reversals of provisions for tax risks are booked to “Current tax expense” under • the Group has an income tax obligation to a “Income tax” on the income statement. tax authority third party that makes it probable or certain that it will incur a cash outflow to that Information pertaining to the category and amount authority, without expecting to receive at least an of risks involved is not provided if the Group deems equivalent consideration from that authority; that it could result in substantial prejudice in a legal dispute against third parties concerning the object of • and a reliable estimate of the probable cash the provision. outflow is available.
Crédit du Nord Group had not recorded any tax provisions at December 31, 2018.
164 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
NOTE 7 Other disclosures
7.1 Other operating expenses
Accounting principles “Taxes” include all contributions levied by a The Group books administrative costs to expenses government authority, including contributions paid to according to the type of related service and their rate the Single Resolution Fund and the Deposit Guarantee of use. and Resolution Fund (FGDR), the systemic risk tax and contributions for ACPR audit expenses, which are “Rent” includes real estate and equipment lease booked to the income statement at January 1. The expenses, which do not result in the recognition of a Social Security Solidarity Contribution (C3S), based lease liability and a right of use (see Note 7.3). on revenues for the previous fiscal year, is taken to “Taxes and other contributions” are only booked income in its entirety at January 1 of the fiscal year in when the triggering event provided for by law takes progress. place. If the obligation to pay the tax arises from the “Others” primarily include maintenance costs and gradual completion of the activity, the expense must other expenses on buildings, travel and other be recorded gradually over the same period. Finally, if business expenses, and advertising expenses. the obligation to pay is triggered by reaching a given threshold, the expense is only recorded once the threshold is reached.
(in €m) 2019 2018 Rent (1) -28.1 -40.0 Taxes and other contributions -45.4 -38.3 IT, telecom and other (excl. rent) -388.1 -393.8 Fees and external providers (excl. IT and telecom) -54.4 -48.8 TOTAL -516.2 -520.7
(1) Decline related to the first-time application of IFRS 16 “Leases” (see Note 1).
Contribution to bank resolution mechanisms Resolution Fund (SRF). This system is supplemented by The European regulatory framework aimed at preserving National Resolution Funds (NRF) for institutions subject financial stability was supplemented by Directive to the resolution mechanism but not falling within the 2014/49/EU of April 16, 2014 on deposit guarantee scope of the SRF. schemes and Directive 2014/59/EU of May 15, 2014 The SRF, set up in January 2016, is comprised of annual establishing a framework for the recovery and resolution contributions made by credit institutions in participating of credit institutions and investment firms (Bank Member States within the Banking Union. The fund is Recovery and Resolution Directive). expected to total at least 1% of the amount of covered European Regulation No. 806/2014 of July 15, 2014 deposits of all member institutions by the end of 2023. established a resolution financing mechanism in A fraction of the annual contributions may be made in the European Banking Union in the form of a Single irrevocable payment commitments.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 165 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
7.2 Foreign exchange transactions
Accounting principles At the balance sheet date, non-monetary assets At the year-end date, monetary assets and liabilities and liabilities denominated in foreign currencies and denominated in foreign currencies are converted measured at fair value (e.g. shares and other equity into the entity’s operating currency at the prevailing instruments) are translated into the entity’s functional spot rate. Realised or unrealised foreign exchange currency at the prevailing spot rate. Foreign exchange differences are recorded on the income statement gains and losses on these assets are either taken under “Net gains or losses on financial instruments at to profit or loss (“Net gains or losses on financial fair value through profit or loss” (see Note 3.1). instruments at fair value through profit or loss”) or to other comprehensive income (“Gains and losses Forward contracts are valued at fair value using the booked directly to other comprehensive income”) with forward exchange rate for the remaining maturity. a corresponding entry to relative gains and losses on Spot contracts are valued at the official spot rate said assets. of the balance sheet date. The resulting revaluation differences are booked to the income statement At the balance sheet date, non-monetary assets under “Net gains or losses on financial instruments at and liabilities denominated in foreign currencies fair value through profit or loss” (see Note 3.1), except and measured at historical cost are translated into in cases where hedge accounting is applied in respect the entity’s functional currency at the historical rate of a hedge of a net investment in a foreign operation prevailing at the initial recognition date. denominated in a foreign currency or a cash flow hedge (see Note 3.2).
31/12/2019 31/12/2018 Currencies to Currencies to Currencies to Currencies to (in €m) Assets Liabilities be received be delivered Assets Liabilities be received be delivered EUR 72,246.9 72,230.5 41.9 43.5 69,258.3 69,259.2 135.8 42.8 CHF 1,128.4 734.9 0.7 4.4 1,131.9 703.5 1.2 2.2 GBP 35.7 75.4 0.4 0.6 23.3 61.0 0.3 1.2 USD 206.5 587.2 40.2 34.9 205.5 595.4 41.9 131.3 JPY 7.9 2.6 0.1 0.3 0.9 2.5 1.3 0.3 Other currencies 31.4 26.2 2.0 1.7 31.9 30.2 4.8 7.4 TOTAL 73,656.8 73,656.8 85.3 85.4 70,651.8 70,651.8 185.3 185.2
166 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
7.3 Tangible and intangible fixed assets
Accounting principles Fixed assets, which are grouped by Cash-Generating Unit (CGU), are subject to impairment tests whenever Tangible and intangible fixed assets there is an indication that their value may have Tangible and intangible fixed assets comprise diminished. Impairment allowances and reversals operating and investment fixed assets. Fixed assets are recorded on the income statement under held in relation to operating lease transactions are “Depreciation, amortisation and impairment on shown with operating tangible assets under “Tangible intangible and tangible fixed assets”. and intangible assets”, while buildings held for leasing Capital gains or losses on disposals of operating purposes are presented with investment property. tangible assets is booked to “Net gains or losses on Tangible and intangible fixed assets are recorded other assets”. on the balance sheet at their acquisition cost less Investment property is depreciated using the depreciation, amortisation and impairment. component method. Each component is depreciated The acquisition cost of fixed assets includes over its useful life, ranging from 10 to 50 years. borrowing expenses incurred to fund a lengthy Earnings from assets under operating leases and construction period for fixed assets, along with other investment property is recorded under “Income from directly attributable expenses. Investment subsidies other activities” and “Expenses from other activities” received are deducted from the cost of the relevant (see Note 4.2). assets. Software developed in-house is recorded on the asset side of the balance sheet at its direct Right to use assets leased by the Group development cost. Lease As soon as they are fit for use, fixed assets are Definition of a lease depreciated over their useful life using the component method. Each component is depreciated over its own A contract is a lease or contains a lease component useful life. For operating property, the depreciation if the contract conveys the right to control the use of periods used by the Group range from 10 to 50 years. an identified asset for a period of time in exchange for Depreciation periods for other categories of operating consideration: fixed assets depend on their useful life, usually • controlling the use of an asset assumes the right estimated between 3 and 20 years. to obtain substantially all of the economic benefits Where applicable, the residual value of each asset or from use of the asset over the entire term of the component is reduced by its depreciable value. In the lease and the ability for the lessee to direct the use event of a subsequent reduction or increase in the of the asset; initially recorded residual value, adjustments are made • the existence of an identified asset will be subject to the depreciable amount with a view to making in particular to the lack of substantive rights to prospective changes to the asset’s depreciation substitute the leased asset for the lessor, this schedule. condition being assessed in light of the facts and Depreciation is recorded on the income statement circumstances existing at the start of the lease. under “Depreciation, amortisation and impairment on If the lessor has the practical ability to readily intangible and tangible fixed assets”. substitute the leased asset, the contract does not contain a lease, as the purpose of the contract is to provide a capacity and not an asset;
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 167 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
• an identified asset may consist of a physically observable information). If the lessee is not able to distinct portion of a larger asset (e.g. a floor of a separate lease components within the same contract building). However, a capacity or other portion of from non-lease components, the contract will be an asset that is not physically distinct is not an accounted for as a single lease component. identified asset (e.g. leasing of co-working spaces in a larger workspace that were not predefined as Term of the lease such). Definition of the term of a lease In determining the lease term used for the present Distinction between lease and non-lease components value of the lease payments, the lease period is the A contract may relate to the leasing of an asset by non-cancellable period of a lease, together with both: the lessor including additional services provided the • periods covered by an option to extend the lease lessor. In this case, the lessee may separate the lease if the lessee is reasonably certain to exercise that and non-lease components of the contract and treat option; them separately. The lessee must divide the lease payments between the two types of components • periods covered by an option to terminate the lease based on their individual price (indicated directly in if the lessee is reasonably certain not to exercise the contract or estimated by maximising the use of that option.
Non-cancellable Optional renewal Optional periods according to TERM = period + periods* + the possibility of termination**
* if the lessee is reasonably certain to exercise the renewal option ** if the lessee is reasonably certain not to exercise the termination option
In assessing whether a lessee is reasonably certain asset, the location of the underlying asset and to exercise an option to extend a lease, or not to the availability of suitable alternatives (particularly exercise an option to terminate a lease, the lessee for branches located in strategic areas from a shall consider all relevant facts and circumstances commercial standpoint, for example due to their that create an economic incentive to exercise the accessibility, expected foot traffic or prestige); option to extend the lease, or not to exercise the • history of similar contract renewals, in addition option to terminate the lease, including in particular: to the strategy for the future use of the assets • contractual terms and conditions for the optional (based on the prospects for redeployment periods compared with market rates (e.g. the or reorganisation of a commercial network of amount of payments for the lease in any optional branches, for example). period or the amount of early termination penalties); When the lessee and the lessor each has the right • significant leasehold improvements undertaken to terminate the lease without permission from the (special arrangements such as a safety deposit other party with no more than an insignificant penalty, box room); the lease is no longer enforceable and no longer • costs relating to the termination of the lease generates a lease liability. (e.g. negotiation costs, relocation costs, costs of In France, most commercial property leases are identifying another underlying asset suitable for the 9-year commercial leases with early termination lessee’s needs, etc.); options at 3 and 6 years (“3/6/9 leases”). At the end • the importance of that underlying asset to the of the 9-year period, if no new contract has been lessee’s operations, considering, for example, signed, the initial lease is tacitly renewed. 3/6/9 leases whether the underlying asset is a specialised are generally enforceable for a 9-year period, with an initial non-cancellable period of 3 years.
168 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
Modification of the term of a lease to be payable by the lessee under residual value The term of a lease may be modified, particularly in guarantees, the exercise price of a purchase option the case of a change in circumstances causing the and payments of penalties for terminating the lease. lessee to re-consider the exercise of options provided However, variable lease payments are not included in for in the contact or in the event of events obliging the measurement of the lease liability, such as those the lessee to exercise (or not exercise) an option not based on a use model (index based on turnover provided (or provided) for in the contract. or kilometres covered). These variable leases are In this case, the lease obligation must be re-assessed recognised on the income statement over time to reflect these changes in the term by using a revised according to fluctuations of the contractual index. discount rate that takes into account the estimated The lease payments are recorded on the basis of remaining term of the contract. their amount without VAT. For property leases, the housing and property taxes reinvoiced by the lessors Accounting treatment by the Group as lessee are usually excluded from lease liabilities insofar as When the leased asset is made available, the Group their amount, determined by the competent public shall record a lease liability under its liabilities and authorities, is variable. a right of use for the leased asset under its assets, except in the case of the exemptions described Recognition of a lease liability below. The initial amount of the lease liability is the present On the income statement, the lessee books an value of the lease payments payable over the term of interest expense calculated on the lease liability under the lease. “Interest and similar expenses” and a depreciation Subsequently, this lease liability is measured at expense on the right-of-use asset under “Amortisation amortised cost using the effective interest rate and depreciation expense on intangible and tangible method: each lease payment is recognised, for one fixed assets”. part, in Interest and similar expense and, for the other The amount of lease payments will partially reduce the part, as an amortisation of the lease liability on the lease liability and partially remunerate this debt in the balance sheet. form of interest expenses. The amount of the lease liability shall be adjusted subsequently in case of a change in the lease Exemptions and exclusions contract, change in the lease term or change in future In accordance with the exemptions proposed by the lease payments resulting from a change in an index standard, the Group recognises neither a lease liability or a rate. nor an associated right of use for contracts with a And, if any, the lessee shall recognise a provision for term less than or equal to 12 months (renewal options costs in dismantling or restoring the underlying asset included) as well as for contracts involving assets with to the conditions required by the terms of the lease. a low unit value by applying the exemption threshold of USD 5,000 (threshold to be assessed in light of the Recognition of a right-of-use new unit value of the leased asset). At the time that the asset is made available for use, the lessee shall recognise the right of-use asset for Lease amounts an initial amount equal to the initial measurement of The lease payments included in the measurement the lease liability, plus any lease payments made at or of the lease liability comprise fixed lease payments, before the commencement date, and any initial direct variable lease payments that depend on an index costs (e.g. drafting of notarised lease, registration (consumer price index or index of construction costs, fees, negotiation fees, entry fees, leasehold rights, etc.), as well as, if applicable, amounts expected key money, etc.).
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 169 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
This asset is subsequently amortised on a straight- Discount rate of leases line basis over the same term of the lease as the one The Group uses the lessee’s incremental borrowing defined to measure the lease liability. rate to discount lease payments and thus determine The accounting value of the asset can be adjusted the amount of lease liabilities. For entities that have subsequently if the lease is modified, in symmetry with the capacity to obtain refinancing directly in the local the treatment of the lease liability. market, the incremental borrowing rate is determined at the level of the lessee legal entity and not at Group Rights of use are presented in the lessee’s balance level, taking into account the entity’s borrowing sheet on the same fixed assets lines as other conditions and own credit risk. For entities that obtain properties of the same nature held in full ownership. refinancing with the Group, the incremental borrowing When lease contracts call for the initial payment of rate is determined at Group level for the lessee entity. leasehold rights to a former lessee, the amount of said rights shall be treated as a separate component of the Discount rates are determined by currency and by right of use and presented under the same heading. country of operation of lessee entities, according to the estimated maturity of leases.
Table of changes in tangible and intangible fixed assets
Impact of first- Change in time application Increase/ Decrease/ scope and (in €m) 31/12/2018 of IFRS 16 Allocations Reversals reclassifications 31/12/2019 Intangible assets Gross values 592.2 -28.6 55.7 -0.2 -0.2 619.0 Amortisation, depreciation and impairment -371.7 -37.9 0.2 0.2 -408.8 Sub-total 220.5 -28.6 17.8 0.0 0.0 210.2 Tangible operating fixed assets (excluding operating lease assets) Gross values 967.9 48.1 -9.0 -8.6 998.4 Amortisation, depreciation and impairment -613.1 -49.5 8.8 7.9 -646.0 Sub-total 354.8 0.0 -1.4 -0.2 -0.8 352.4 Operating lease assets of specialised financing companies Gross values - - - - - Amortisation, depreciation and impairment - - - - - Sub-total 0.0 0.0 0.0 0.0 0.0 - Investment property Gross values 5.8 - -0.5 0.4 5.7 Amortisation, depreciation and impairment -3.3 -0.1 0.5 -0.3 -3.3 Sub-total 2.5 0.0 -0.1 0.0 0.1 2.4 Rights of use assets Gross values - 115.7 9.8 -1.3 -0.0 124.2 Amortisation, depreciation and impairment - - -22.6 0.2 -0.3 -23.2 Sub-total 0.0 115.7 -12.8 -1.1 -0.3 101.0 TOTAL 577.8 87.1 3.6 -1.5 -1.0 665.9
170 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
Breakdown of minimum lease payments receivable on operating lease assets
(in €m) 2019 2018 Less than one year 30.8 31.3 From 1 to 5 years 60.7 69.0 More than five years 16.4 20.5 TOTAL 107.9 120.8
7.4 Breakdown of provisions
Accounting principles instruments, provisions for disputes, provisions for Provisions are recognised as liabilities on the income employee benefits and tax provisions in respect of statement and include provisions for financial income tax.
Breakdown of provisions
Provisions Provisions at Reversals Net Reversals Other at (in €m) 31/12/2018 Allocations available allocations used changes (1) 31/12/2019 Provisions for credit risk on off-balance sheet commitments 45.9 19.4 -24.4 -5.0 - 3.2 44.1 Provisions for employee benefits 66.6 10.9 -14.6 -3.8 -4.4 7.5 65.9 Tax provisions - 0.7 - 0.7 --0.7 Provisions for disputes 5.2 0.9 -0.3 0.6 -0.5 -2.8 2.5 Provisions for commitments linked to home savings accounts and plans 20.3 20.0 -6.5 13.5 --33.8 Other provisions 29.2 1.5 -0.1 1.3 -3.4 2.8 29.9 TOTAL 167.2 53.3 -46.0 7.4 -8.3 10.7 176.9
(1) Other changes comprise: - a reclassification between lease impairments and provisions for credit risk on off-balance sheet commitments for €3.2 million; - actuarial gains/losses on employee benefits for €3.7 million and the reclassification of over-funded pension plans to surplus assets for €3.3 million.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 171 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
7.5 Detailed consolidation scope
7.5.1 Entities included in the consolidation scope The consolidation scope includes subsidiaries and structured entities controlled by the Group, joint arrangements (joint activities or joint ventures) and associates whose financial statements are material relative to the Group’s consolidated financial statements, particularly with respect to total balance sheet assets and gross operating income.
31/12/2019 31/12/2018 Consolidation Interest Controlling Consolidation Interest Controlling method rate interest method rate interest Crédit du Nord 28, place Rihour Consolidating Consolidating Consolidating Consolidating 59800 Lille Full company company Full company company Banque Rhône-Alpes 20-22, boulevard Edouard Rey 38000 Grenoble Full 99.99 99.99 Full 99.99 99.99 Banque Tarneaud 2-6, rue Turgot 87000 Limoges Full 100.00 100.00 Full 100.00 100.00 Banque Courtois 33, rue de Rémusat 31000 Toulouse Full 100.00 100.00 Full 100.00 100.00 Banque Kolb 1-3, place du Général-de-Gaulle 88500 Mirecourt Full 99.97 99.97 Full 99.97 99.97 Banque Laydernier 10, avenue du Rhône 74000 Annecy Full 100.00 100.00 Full 100.00 100.00 Banque Nuger 5, place Michel-de-L’Hospital 63000 Clermont-Ferrand Full 100.00 100.00 Full 100.00 100.00 Société Marseillaise de Crédit 75, rue Paradis 13006 Marseille Full 100.00 100.00 Full 100.00 100.00 Norbail Immobilier 50, rue d’Anjou 75008 Paris Full 100.00 100.00 Full 100.00 100.00 Star Lease 59, boulevard Haussmann 75008 Paris Full 100.00 100.00 Full 100.00 100.00 Etoile ID 59, boulevard Haussmann 75008 Paris Full 100.00 100.00 Full 100.00 100.00 Gilbert Dupont (brokerage firm) 50, rue d’Anjou 75008 Paris Full 100.00 100.00 Full 100.00 100.00
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31/12/2019 31/12/2018 Consolidation Interest Consolidation Interest Controlling method rate Controlling interest method rate interest Kolb Investissement 59, boulevard Haussmann 75008 Paris Full 100.00 100.00 Full 100.00 100.00 Norbail Sofergie 59, boulevard Haussmann 75008 Paris Full 100.00 100.00 Full 100.00 100.00 Sfag 59, boulevard Haussmann 75008 Paris Full 100.00 100.00 Full 100.00 100.00 Société de Banque Monaco 59, boulevard Haussmann 75008 Paris Full 100.00 100.00 - - - Banque Pouyanne 12, place d’Armes 64300 Orthez Equity 35.00 35.00 Equity 35.00 35.00 Antarius (1) 59, boulevard Haussmann 75008 Paris Equity 50.00 50.00 Equity 50.00 50.00
(1) Including sub-consolidated insurance mutual funds.
The following companies, wholly-owned by the Group, Starvingt, Snc Starvingt trois, Snc Starvingt six, Sas were not included in the consolidation scope: Snc Starvingt huit, Snc Obbola, Snc Wav II.
7.5.2 Entities not included in the consolidation scope
Subsidiaries, partnerships and associates whose The list of entities not included in the consolidation financial statements are not material relative to the scope is presented below, except for the small number consolidated financial statements of the Group, of entities that might be adversely affected by the particularly in terms of balance sheet total and gross disclosure of this information. operating income, are not included in the consolidation scope.
Name of entity held Controlling interest City SCI du 4 allée Rebsomen 20.00% Paris HLM du Foyer du Toit Familial 20.00% Sotteville-lès-Rouen SCI Aigue Marine 20.00% Dijon Domo7Enr 20.70% La Valette-du-Var Prisméa 100.00% Paris Provençale de Participations 100.00% Marseille Massilia Participations Immobilières 100.00% Marseille Manufacture Alsacienne de Denrées Alimentaires 24.21% Cernay Capital Provence Business Angles 39.60% Marseille
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 173 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
7.5.3 Material non-consolidated equity investments Equity investments representing a material carrying amount and not included in the consolidation scope are listed below.
Company name City Controlling interest Shareholders’ equity Net income Crédit Logement Paris 3.00% 1,709 102 Sicovam Holding Paris 8.14% 556 19
7.6 Statutory Auditors’ fees
The consolidated financial statements of Crédit du For Crédit du Nord Group, every year, the fees paid to Nord Group are jointly certified by audit firms Deloitte et Statutory Auditors are presented to Societe Generale’s Associés, represented by Marjorie Blanc Lourme, and Audit and Internal Control Committee by type of service Ernst & Young et Autres, represented by Vincent Roty. provided by the networks to which the Statutory Subsequent to the publication of European texts on Auditors belong. the audit reform, a new policy was established in 2016 Finally, the Finance Divisions of the Societe Generale governing the approval of non-audit-related services Group entities or activities issue an annual opinion on performed by Statutory Auditors and their networks the quality of audits performed by Deloitte and Ernst (Services Other than Financial Statement Certification) & Young. Their conclusions are presented to Societe to ensure that these services comply with the new Generale’s Audit and Internal Control Committee. regulation before validated by the Audit Committee.
Amount of Statutory Auditors’ fees recorded on the income statement
ERNST & YOUNG DELOITTE & ASSOCIÉS ET AUTRES OTHER AUDITORS TOTAL (in €k) 2019 2018 2019 2018 2019 2018 2019 2018
Statutory Auditors, Issuer 262.0 261.0 262.0 261.0 - - 524.0 522.0 certification, audit of the annual and consolidated Fully consolidated 375.0 360.0 289.0 202.0 26.1 41.0 690.1 603.0 financial statements subsidiaries SUB-TOTAL - AUDIT 637.0 621.0 551.0 463.0 26.1 41.0 1,214.1 1,125.0
Services other than the Issuer 52.0 25.0 78.0 38.0 - - 130.0 63.0 certification of the financial Fully consolidated ------statements subsidiaries TOTAL 689.0 646.0 629.0 501.0 26.1 41.0 1,344.1 1,188.0
174 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Notes to the consolidated fi nancial statements 4
7.7 Gains and losses booked directly to other comprehensive income
Breakdown of changes in total gains and losses booked directly to other comprehensive income
31/12/2019
o/w
(in €m) Gross Tax Net of tax Net, Group share Translation gain (loss) - - - - Revaluation of debt financial assets at fair value through other comprehensive income 5.7 -1.5 4.2 4.2 Revaluation of hedging derivatives - - - - Share of gains and losses of entities accounted for by the equity method 19.5 -4.2 15.3 15.3 Sub-total of gains and losses booked directly to other comprehensive income that will subsequently be reclassified to profit or loss 25.1 -5.7 19.4 19.4 Actuarial gains/losses in respect of post-employment benefits (1) -3.5 1.0 -2.5 -2.5 Revaluation of credit risk of financial liabilities measured at fair value through profit or loss (2) -1.5 0.4 -1.1 -1.1 Revaluation of equity instruments at fair value through other comprehensive income that will not subsequently be reclassified to profit or loss 5.0 -1.3 3.7 3.7 Share of gains and losses of entities accounted for by the equity method - - - - Sub-total of gains and losses booked directly to other comprehensive income that will not subsequently be reclassified to profit or loss - 0.1 0.1 0.1 TOTAL 25.1 -5.6 19.5 19.5
Change 2018 - 2019 o/w
(in €m) Gross Tax Net of tax Net, Group share Translation gain (loss) - - - - Revaluation of debt financial assets at fair value through other comprehensive income -8.1 2.1 -6.0 -6.0 Revaluation of hedging derivatives 0.3 -0.1 0.2 0.2 Share of gains and losses of entities accounted for by the equity method 5.7 -1.7 4.0 4.0 Sub-total of gains and losses booked directly to other comprehensive income that will subsequently be reclassified to profit or loss -2.1 0.2 -1.9 -1.9 Actuarial gains/losses in respect of post-employment benefits (1) -3.4 1.0 -2.4 -2.4 Revaluation of credit risk of financial liabilities measured at fair value through profit or loss (2) -0.1 - -0.1 -0.1 Revaluation of equity instruments at fair value through other comprehensive income that will not subsequently be reclassified to profit or loss -8.9 2.3 -6.6 -6.6 Share of gains and losses of entities accounted for by the equity method - - - - Sub-total of gains and losses booked directly to other comprehensive income that will not subsequently be reclassified to profit or loss -12.4 3.3 -9.1 -9.1 TOTAL -14.4 3.5 -10.9 -10.9
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 175 Financial statements | Consolidated fi nancial statements 4 Notes to the consolidated fi nancial statements
2018 o/w
(in €m) Gross Tax Net of tax Net, Group share Translation gain (loss) - - - - Revaluation of debt financial assets at fair value through other comprehensive income 13.8 -3.6 10.2 10.2 Revaluation of hedging derivatives -0.3 0.1 -0.2 -0.2 Share of gains and losses of entities accounted for by the equity method 13.8 -2.5 11.3 11.3 Sub-total of gains and losses booked directly to other comprehensive income that will subsequently be reclassified to profit or loss 27.2 -5.9 21.3 21.3 Actuarial gains/losses in respect of post-employment benefits (1) -0.1 - -0.1 -0.1 Revaluation of credit risk of financial liabilities measured at fair value through profit or loss (2) -1.4 0.4 -1.0 -1.0 Revaluation of equity instruments at fair value through other comprehensive income that will not subsequently be reclassified to profit or loss 13.9 -3.6 10.3 10.3 Share of gains and losses of entities accounted for by the equity method - - - - Sub-total of gains and losses booked directly to other comprehensive income that will not subsequently be reclassified to profit or loss 12.4 -3.2 9.2 9.2 TOTAL 39.5 -9.1 30.4 30.4
(1) Gains and losses presented in these items are transferred at the beginning of the following fiscal year to “Consolidated Reserves”. (2) When a financial liability is derecognised, any realised gains and losses attributable to the Group’s own credit risk are transferred to the Group’s “Consolidated Reserves” at the beginning of the following fiscal year (see Note 3.1).
176 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Statutory Auditors’ report on the consolidated fi nancial statements 4
Statutory Auditors’ report on the consolidated financial statements Year ended December 31, 2019
This is a translation into English of the statutory auditors’ report on the consolidated financial statements of the Company issued in French and it is provided solely for the convenience of English-speaking users. This statutory auditors’ report includes information required by European regulations and French law, such as information about the appointment of the statutory auditors or verification of the information concerning the Group presented in the management report. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.
To the Annual General Meeting of Crédit du Nord,
Opinion Independence In compliance with the engagement entrusted to us by your We conducted our audit engagement in compliance Annual General Meeting, we have audited the accompanying with independence rules applicable to us, for the period consolidated financial statements of Crédit du Nord for the from January 1, 2019 to the date of our report, and year ended December 31, 2019. These financial statements specifically we did not provide any prohibited non-audit were approved by the Board of Directors on February 26, services referred to in Article 5(1) of Regulation (EU) 2020, on the basis of the information available at that date in No. 537/2014 or in the French Code of Ethics (Code de the evolving context Covid-19 health crisis. déontologie) for Statutory Auditors. In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the Emphasis of Matter financial position of the Group as at December 31, 2019 Without qualifying the opinion expressed above, we and of the results of its operations for the year then ended draw your attention to: in accordance with International Financial Reporting • Notes 1 “Main valuation and presentation rules for the Standards as adopted by the European Union. consolidated financial statements” and 7.3 “Tangible The audit opinion expressed above is consistent with our and intangible fixed assets” to the consolidated report to the Audit Committee. financial statements that present the impacts of the first-time application of IFRS 16 “Leases” Basis for Opinion • Notes 1 “Main valuation and presentation rules for the consolidated financial statements” and 6 “Taxes” to Audit Framework the consolidated financial statements that present the We conducted our audit in accordance with professional impacts of the interpretation of IFRIC 23 “Uncertainty standards applicable in France. We believe that the audit over Income Tax Treatments”. evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Justification of Assessments - Key Audit Our responsibilities under those standards are further Matters described in the Statutory Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements In accordance with the requirements of Articles section of our report. L. 823-9 and R. 823-7 of the French Commercial Code
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 177 Financial statements | Consolidated fi nancial statements 4 Statutory Auditors’ report on the consolidated fi nancial statements
(Code de Commerce) relating to the justification of our These matters were addressed in the context of our audit assessments, we inform you of the key audit matters of the consolidated financial statements as a whole, and relating to risks of material misstatement that, in our in forming our opinion thereon, and we do not provide a professional judgment, were of most significance in our separate opinion on specific items of the consolidated audit of the consolidated financial statements of the financial statements. current period, as well as how we addressed those risks.
Assessment of impairment losses on loans and customer commitments
Risk identified Our response
Loans and receivables to customers carry a credit We have reviewed the system and analyses conducted risk which exposes the Crédit du Nord Group to a by your Group in application of IFRS 9, including in our potential loss if its client or counterparty is unable audit team experts in credit risk modelling. to meet its financial commitments. Crédit du Nord Regarding the impairment losses relating to loans recognizes impairment to cover this risk. classified in stages 1 and 2, our work consisted in The application of IFRS 9 leads your Group to particular of: recognize provisions for depreciation of performing • examining the compliance with IFRS 9 of the principles loans and performing loans under surveillance followed by your Group; (corporate, professional and retail markets). The • reviewing the governance system and the key controls qualitative and quantitative information is mainly applied at Group level; detailed in Note 3 “Financial instruments” to the • conducting tests on a selection of models that consolidated financial statements. contribute to the preparation of financial information; The determination of those impacts, including the • carry-out a counter-calculation of expected losses on nature of the information in the notes, required a selection of corporate loans at December 31, 2019; the implementation of numerous assumptions • examining the main parameters used by your Group and judgments, in particular on the credit risk to classify outstanding loans within steps 1 and 2, and deterioration criteria for allocation in the different assess impairment, in particular by takin into account stages 1 and 2, the methods for taking into account the assumptions of macroeconomic scenarios and macroeconomic projections that are integrated also by taking into account the results of back-testing; both in the criteria for classification in strata/classes • reviewing the qualitative and quantitative information and in the measurement of expected losses, and disclosed in the notes to the consolidated financial the measures of expected losses according to the statements.. different stages. For stage 3 loans in the retail and professional markets Your Group uses individual expert judgment and for which impairment is determined using a statistical makes accounting estimates to assess the level of method, our work consisted in: impairment losses on doubtful corporate customers • conducting interviews during the year with the people loans. in charge of risk monitoring in order to become acquainted with the governance and the procedures implemented to assess these impairments and ensure their correct accounting; • we submit to the Audit Committee a report which includes in particular a description of the scope of the audit and the audit program implemented, as well as the results of our audit. We also report, if any, significant deficiencies, in internal control regarding the accounting and financial reporting procedures that we have identified.
178 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Statutory Auditors’ report on the consolidated fi nancial statements 4
In the retail and professional markets, impairments • our report to the Audit Committee includes the risks on doubtful loans (classified in stage 3) are of material misstatement that, in our professional determined according to the principles described judgment, were of most significance in the audit of the in Note 3.8 «Depreciations and provisions» of the consolidated financial statements of the current period notes to the consolidated financial statements: and which are therefore the key audit matters that we are required to describe in this report. • according to a statistical method, for loans below • we also provide the Audit Committee with the certain operational thresholds. For statistically declaration provided for in Article 6 of Regulation impaired loans, some of the parameters used are (EU) No. 537/2014, confirming our independence based on management estimates; within the meaning of the rules applicable in France • according to expert analysis, for loans exceeding such as set in particular by Articles L. 822-10 to these operational thresholds. For these loans, L. 822-14 of the French Commercial Code (Code management uses judgment to determine these de Commerce) and in the French Code of Ethics impairments. (Code de Déontologie) for Statutory Auditors. Where appropriate, we discuss with the Audit Committee the We considered that the assessment of impairments risks that may reasonably be thought to bear on our on loans and commitments to customers is a key independence, and the related safeguards audit matter due to the application of numerous • analysing the sensitivity of the impairment amounts assumptions and judgements. calculated using this method to certain parameters considered important. • reviewing the qualitative and quantitative information disclosed in the notes to the consolidated financial statements. For stage 3 loans in the retail, professional and corporate markets, for which the impairments are determined based on expert analysis, we have: • acknowledged with the procedures applied to determine these impairments and the related documentation; • reviewed the data and assumptions used by management to determine the amount of impairments on a sample of loans; • reviewed the qualitative and quantitative information disclosed in the notes to the consolidated financial statements.
Specific verifications
As required by law, we have also verified in accordance We have no matters to report as to its fair presentation with professional standards applicable in France the and its consistency with the consolidated financial information pertaining to the Group presented in the statements. management report of the group approved by the Board We attest that the consolidated non-financial statement of Directors on February 26, 2020. With regard to the provided for by Article L. 225-102-1 of the French events which occurred and the facts known after the Commercial Code (Code de commerce) is included date the financial statements were approved by Board in the information pertaining to the Group presented of Directors relating to the impact of the Covid-19 crisis, in the management report, it being specified that, in we have been informed by the management that a communication will be provided at the general annual accordance with the provisions of Article L. 823-10 of meeting called to approve the financial statements. said Code, we have verified neither the fair presentation
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 179 Financial statements | Consolidated fi nancial statements 4 Statutory Auditors’ report on the consolidated fi nancial statements
nor the consistency with the consolidated financial Statutory Auditors’ Responsibilities for statements of the information contained in this statement the Audit of the Consolidated Financial which has to be subject to a report by an independent third party. Statements Objectives and audit approach Informations résultant d’autres Our role is to issue a report on the consolidated obligations légales et réglementaires financial statements. Our objective is to obtain reasonable assurance about whether the consolidated Appointment of the Statutory Auditors financial statements as a whole are free from material We were appointed as statutory auditors of Crédit du misstatement. Reasonable assurance is a high level Nord by your Annual General Meeting held in 1982 for of assurance, but is not a guarantee that an audit DELOITTE & ASSOCIES and on May 4, 2000 for ERNST conducted in accordance with professional standards & YOUNG et Autres. will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are As at December 31, 2019, DELOITTE & ASSOCIES considered material if, individually or in the aggregate, was in the thirty-eighth year of total uninterrupted they could reasonably be expected to influence the engagement and ERNST & YOUNG et Autres in the economic decisions of users taken on the basis of these twentieth year. consolidated financial statements. As specified in Article L. 823-10-1 of the French Responsibilities of Management and Commercial Code (Code de Commerce), our statutory Those Charged with Governance for the audit does not include assurance on the viability of the Consolidated Financial Statements Company or the quality of management of the affairs of the Company. Management is responsible for the preparation and fair presentation of the consolidated financial statements As part of an audit conducted in accordance with in accordance with International Financial Reporting professional standards applicable in France, the Standards as adopted by the European Union and for statutory auditor exercises professional judgment such internal control as management determines is throughout the audit and furthermore: necessary to enable the preparation of consolidated • identifies and assesses the risks of material financial statements that are free from material misstatement of the consolidated financial statements, misstatement, whether due to fraud or error. whether due to fraud or error, designs and performs In preparing the consolidated financial statements, audit procedures responsive to those risks, and management is responsible for assessing the Company’s obtains audit evidence considered to be sufficient and ability to continue as a going concern, disclosing, appropriate to provide a basis for his opinion. The risk as applicable, matters related to going concern and of not detecting a material misstatement resulting from using the going concern basis of accounting unless fraud is higher than for one resulting from error, as fraud it is expected to liquidate the Company or to cease may involve collusion, forgery, intentional omissions, operations. misrepresentations, or the override of internal control; The Audit Committee is responsible for monitoring • obtains an understanding of internal control relevant the financial reporting process and the effectiveness to the audit in order to design audit procedures that of internal control and risk management systems and are appropriate in the circumstances, but not for the where applicable, its internal audit, regarding the purpose of expressing an opinion on the effectiveness accounting and financial reporting procedures. of the internal control; The consolidated financial statements were approved by • evaluates the appropriateness of accounting policies the Board of Directors. used and the reasonableness of accounting estimates and related disclosures made by management in the consolidated financial statements;
180 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Consolidated fi nancial statements Statutory Auditors’ report on the consolidated fi nancial statements 4
• assesses the appropriateness of management’s use Report to the Audit Committee of the going concern basis of accounting and, based We submit to the Audit Committee a report which on the audit evidence obtained, whether a material includes in particular a description of the scope of the uncertainty exists related to events or conditions that audit and the audit program implemented, as well as may cast significant doubt on the Company’s ability the results of our audit. We also report, if any, significant to continue as a going concern. This assessment deficiencies, in internal control regarding the accounting is based on the audit evidence obtained up to the and financial reporting procedures that we have date of his audit report. However, future events or identified. conditions may cause the Company to cease to Our report to the Audit Committee includes the risks of continue as a going concern. If the statutory auditor material misstatement that, in our professional judgment, concludes that a material uncertainty exists, there is were of most significance in the audit of the consolidated a requirement to draw attention in the audit report to financial statements of the current period and which are the related disclosures in the consolidated financial therefore the key audit matters that we are required to statements or, if such disclosures are not provided or describe in this report. inadequate, to modify the opinion expressed therein; We also provide the Audit Committee with the • evaluates the overall presentation of the consolidated declaration provided for in Article 6 of Regulation (EU) financial statements and assesses whether these No. 537/2014, confirming our independence within the statements represent the underlying transactions and meaning of the rules applicable in France such as set events in a manner that achieves fair presentation; in particular by Articles L. 822-10 to L. 822-14 of the • obtains sufficient appropriate audit evidence regarding French Commercial Code (Code de Commerce) and in the financial information of the entities or business the French Code of Ethics (Code de Déontologie) for activities within the Group to express an opinion on Statutory Auditors. Where appropriate, we discuss with the consolidated financial statements. The statutory the Audit Committee the risks that may reasonably be auditor is responsible for the direction, supervision thought to bear on our independence, and the related and performance of the audit of the consolidated safeguards. financial statements and for the opinion expressed on these consolidated financial statements.
Paris-La Défense, April 22, 2020
The Statutory Auditors French original signed by
DELOITTE & ASSOCIES ERNST & YOUNG et Autres Marjorie BLANC LOURME Vincent ROTY
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 181 Financial statements | Annual fi nancial statements s 4 2019 Management Report
4.2 Annual financial statements
2019 Management Report
Growth continued to slow in 2019 due to various on home loans subsequent to substantial home loan factors (weak exports, decreased investments, social renegotiations in recent years. Net fee income dipped movements weighing on consumption). On the financial -6.4% despite provision reversals related to the front, the low interest rate environment did not change exemption of VAT on notices to a third-party account and uncertainties surrounding the economic outlook holder and succession fees. This trend can be attributed remained. to the restrictive regulatory environment (limitation of In this more challenging than expected environment, and charges in the event of a payment incident for vulnerable despite the search for new growth drivers, development customers as from March 2019) and the decline in of the different customer bases and ramping-up of digital financial fees. transformation plans, Crédit du Nord saw its financial Operating expenses amounted to -€630.1 million, an results decline. increase of +7.5%, largely attributable as in previous years to investment expenses and IT costs related to the Fiscal year activity transformation of the sales offer and to tighter regulatory requirements. Furthermore, taxes were impacted by the contribution to the European Single Resolution All outstanding customer loans rose by +8.9% with, in Fund, which amounted to -€10.8 million in 2019 versus particular, very buoyant new home loan business. The -€9.0 million in 2018. TLTRO offering, once again proposed by the ECB and subscribed for by Crédit du Nord, greatly contributed to In light of all these items, gross operating income totalled the momentum enjoyed by equipment loans. €264.7 million (-48.3%). Restated for dividends received from subsidiaries and provisions for future commitments On-balance sheet savings picked up +7.3%, reflecting related to home savings products, gross operating the sharp uptrend over the last few years. The robust income was down 27.3%. growth in demand deposits (+10.2%) once again testified to the large cash surpluses of corporate The cost of risk increased substantially in 2019 to customers turning to low-rate loans to fund their -€63.2 million versus -€4.9 million at December investments. Meanwhile, regulated savings account 31, 2018. This trend can be attributed primarily to deposits posted a gain of +2.7%. the change in methods used to calculate collective provisions, which resulted in the booking of a provision allocation (see Note 1.3: “Change in collective provision 2019 net income calculation methods”).
Crédit du Nord generated net banking income of After taking account of a capital gain of +€40.6 million €894.8 million, down -18.6%. Restated for dividends relating to the sale of Visa Inc. shares, a correction paid by subsidiaries (€93.9 million in 2019 vs. relating to the impairment of leasehold rights €266.9 million in 2018) and provisions for future recorded under “Non-recurring income (expense)” for commitments related to home savings products -€10.4 million (see Note 1: “Accounting principles – (-€7.2 million in 2019 vs. +€0.7 million in 2018), net Comparability of financial statements – Point 1.3: error banking income was down 2.8%. This decline can be correction”) and income tax, net income for the period attributed to the negative effects of the low interest stood at +€188.4 million. rate environment and the decrease in the sales margin
182 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Annual fi nancial statements 2019 Management Report 4
Outlook Related-party agreements
Crédit du Nord’s 2019 earnings underscored the quality In accordance with the provisions of Article L.225-102- of its business model, founded on close customer 1 of the French Commercial Code, we are listing the relations and the balanced breakdown of its business agreements entered into directly or via an intermediary portfolio between the individual, professional and between the Chief Executive Officer or one of the business customer markets. Directors or Shareholders owning more than 10% of As the banking landscape continues to change in 2020, a company, and another company in which the latter Crédit du Nord will continue adapting and transforming company directly or indirectly owns more than half the in a bid to further improve its relationship banking share capital: and operational models, and thus secure its unique • Agreement with Societe Generale (GTS) on pooling positioning and commitment to aid in the economic IT infrastructure, the signing of which was authorised development of all enterprising customers across the at the Board of Directors meeting of July 23, 2009 regions. (approved by the Shareholders’ Meeting of May 12, In accordance with this model, the Crédit du Nord 2010); Group has decided to more effectively capitalise on • Agreement with Societe Generale (ITIM) on the Monaco’s potential by combining its two brands, Crédit establishment of a common information system, du Nord and Société Marseillaise de Crédit, creating the signing of which was authorised at the Board of a new banking subsidiary through two partial asset Directors meeting of May 6, 2011 (approved by the contributions in 2020. Shareholders’ Meeting of May 11, 2012); The management report does not take into account • Agreement with Societe Generale (GTPS) on pooling the effects of the COVID-19 epidemic, which had not Back Office payment operations, the signing of which really begun in Europe when the Board of Directors was authorised at the Board of Directors meeting approved the financial statements for 2019 on February of May 28, 2014 (approved by the Shareholders’ 26, 2020. The paragraph “Outlook” has been updated Meeting of May 28, 2015). since that date. Crédit du Nord is exposed to the risks related to the pandemic and its economic and market consequences due to its inherent general sensitivity to macro-economic and market conditions. We are currently assessing the consequences of the coronavirus health crisis on its business. Our priority, since the start of the crisis, has been to ensure the safety of the bank’s staff while continuing, as far as possible, to provide banking services to our customers in order to contribute our fair share to supporting the economy in this exceptional period.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 183 Financial statements | Annual fi nancial statements 4 2019 Management Report
Schedule of trade payables
Payables not yet due Other scheduled (in €m) 1-30 days 31-60 days > 60 days Payables due payments Total Amount at 31/12/2019 - 1.1 - - 0.1 1.2 Amount at 31/12/2018 - 0.6 - - 0.2 0.8
The maturity dates correspond to the payment dates The“Other scheduled payments” column refers listed on the invoices or to supplier terms and conditions, to retention payments for work which will be paid independently of their date of receipt. approximately 6 months after the work is received. Since 2016, the vast majority of Crédit du Nord’s Pursuant to Article D.441-4 of the French Commercial invoices in France have been processed centrally by Code as transcribed in Decree No. 2017-350 of March Societe Generale European Business Services (SG 20, 2017, implemented by the Decree of March 20, EBS), which records accounting entries and settles 2017, the following disclosures pertain to the schedule supplier invoices for services ordered by all Crédit du of trade payables: banking activities, insurance activities Nord functional and business divisions. and financial services (loans, financing and fees) are In accordance with Crédit du Nord’s internal control excluded from the reporting scope. procedures, invoices are only paid after they are approved by the departments which ordered the services. Once approval is obtained, they are entered into a joint application, with payments made according to the terms set by the suppliers.
Payment deadlines - receivables
The payment schedules for loans granted or services “Risks and capital adequacy”), particularly regarding invoiced to customers are contractually determined. The credit risk, structural interest rate risk and liquidity risk. terms of payment of loan instalments may be subject The remaining maturities of customer loans are reported to contractual options modifying the initial payment in Note 7.4 to the annual financial statements. schedules (such as prepayment options or payment All invoices issued for operating expenses have been deferrals). Compliance with contractual payment settled by the counterparties. Consequently, there were provisions is monitored for risk management purposes no unpaid receivables due at December 31, 2019. (see Chapter 5 of this Universal Registration Document
Disclosures on dormant bank accounts
Articles L.312-19 and L.312-20 of the French Monetary In respect of 2019, 5,955 dormant bank accounts were and Financial Code, derived from Act No. 2014-617 closed and a total of €11,325,480.69 in related deposits of June 13, 2014 on dormant bank accounts and were made to Caisse des Dépôts et Consignations. unclaimed life insurance accounts (the “Eckert Act”), Note: total deposits transferred in respect of fiscal year which entered into force on January 1, 2016, requires 2018 amounted to €2,166,388.99 for 342 dormant bank all credit institutions to annually disclose information on accounts. dormant bank accounts. At end-December 2019, 36,614 bank accounts were identified as dormant, for a total of €104,698,986.10.
184 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Annual fi nancial statements Five-year fi nancial summary 4
Five-year financial summary
2019 2018 2017 2016 2015
FINANCIAL POSITION AT YEAR-END Capital stock (in €) 890,263,248 890,263,248 890,263,248 890,263,248 890,263,248
Shares outstanding 111,282,906 111,282,906 111,282,906 111,282,906 111,282,906
RESULTS OF OPERATIONS FOR THE YEAR (in €k) Revenue without tax (1) 1,124,913 1,321,809 1,111,310 1,453,228 1,531,546 Net banking income 894,824 1,098,724 936,675 1,246,059 1,123,844 Income before tax, depreciation, amortisation, provisions and profit-sharing 362,733 549,727 389,302 813,591 632,534 Income tax -44,013 -67,865 -97,298 -101,512 -122,788 Income after tax, depreciation, amortisation and provisions 188,417 430,160 219,083 619,793 362,623 Total dividends (2) - 340,526 228,130 170,263 278,207
EARNINGS PER SHARE (in €) Income after tax, but before depreciation, amortisation and loss allowances (3) 2.87 4.32 2.62 6.34 4.51 Income after tax, depreciation, amortisation and provisions 1.69 3.87 1.97 5.57 3.26 Dividend per share (2) - 3.06 2.05 1.53 2.50 EMPLOYEE DATA Average headcount 4,238 4,258 4,331 4,388 4,408 Total payroll (in €k) 231,526 238,561 236,227 234,173 230,790 Total benefits (Social Security, corporate benefits, etc.) (in €k) 90,743 78,253 83,782 95,248 97,991
(1) Defined as the sum of bank operating income and other income deducted for interest paid on financial instruments. (2) In respect of the fiscal year. (3) Based on the number of outstanding shares at year-end.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 185 Financial statements | Annual fi nancial statements 4 Main changes in the securities portfolio in 2019
Main changes in the securities portfolio in 2019
Crédit du Nord carried out the following transactions on Reduced equity investment (o/w transfer its securities portfolio during fiscal year 2019: of all assets): None. Creation: In accordance with the provisions of Article L.233.6 Société de Banque Monaco. of the French Commercial Code, the table below Acquisition: summarises the significant changes in Crédit du Nord’s investment portfolio recorded in 2019 (note that legal Prismea - IRD Entrepreneurs. thresholds exist at 5%, 10%, 20%, 33% and 50%).
Increased equity investment: Upward threshold-crossings: None. Percent of capital Participation in capital increases: Threshold Company 31/12/2019 previous None. 50% Prismea 100.00% 0.00% 50% Société de Banque Monaco 59.00% 0.00% Complete disposal: Caisse de Refinancement de l’Habitat - Troyes Parc Downward threshold-crossings: Auto - Valeur Pierre Epargne - Visa Inc. - FCPI Innovation Technologies 2. Percent of capital Threshold Company 31/12/2019 previous -- - -
186 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Annual fi nancial statements Parent Company Balance Sheet 4
Parent Company Balance Sheet
Assets
(in €m) Note 31/12/2019 31/12/2018 Cash, due from central banks and postal accounts 7,735.6 9,395.5 Treasury notes and similar securities 2.1 1,574.2 2,003.2 Due from banks 2.3 23,123.7 20,019.2 Transactions with customers 2.3 20,703.0 19,002.9 Bonds and other fixed-income securities 2.1 2,415.3 2,307.4 Equities and variable-income securities 2.1 0.2 0.3 Equity investments and other long-term investment securities 2.1 102.2 119.0 Investments in subsidiaries and affiliates 2.1 1,767.8 1,764.8 Tangible and intangible fixed assets 7.1 349.8 340.3 Other assets and accruals 3.2 412.0 428.6 TOTAL 58,183.8 55,381.2
Off-balance sheet items
(in €m) Note 31/12/2019 31/12/2018 Loan commitments given 2.3 3,161.6 8,289.7 Guarantee commitments given 2.3 2,455.0 2,400.1 Security commitments given 313.6 287.5
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 187 Financial statements | Annual fi nancial statements 4 Parent Company Balance Sheet
Liabilities
(in €m) Note 31/12/2019 31/12/2018 Due to central banks, postal accounts - - Due to banks 2.4 25,700.0 21,816.2 Transactions with customers 2.4 24,717.4 23,043.0 Debt securities 2.4 2,844.0 5,700.9 Other liabilities and accruals 3.2 1,140.2 934.3 Provisions 7.3 184.1 136.6 Subordinated debt 6.2 560.3 560.3 Shareholders’ equity Capital 6.1 890.3 890.3 Additional paid-in capital 6.1 11.1 11.1 Reserves and retained earnings 6.1 1,948.0 1,858.3 Net income 6.1 188.4 430.2 Sub-total 3,037.8 3,189.9 TOTAL 58,183.8 55,381.2
Off-balance sheet items
(in €m) Note 31/12/2019 31/12/2018 Loan commitments received from banks 2.4 2,687.7 2,104.0 Guarantee commitments received from banks 2.4 9,546.6 8,601.1 Security commitments received 0.1 0.1
188 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Annual fi nancial statements Parent Company Income Statement 4
Parent Company Income Statement
(in €m) Note 2019 2018 Interest and similar income 2.5 424.6 436.4 Interest and similar expenses 2.5 -131.3 -138.2 Income from equity securities 2.1 102.7 276.3 Fee income 3.1 473.7 489.6 Fee expenses 3.1 -84.4 -73.9 Net gains or losses on trading book transactions 2.1 101.7 88.6 Net gains or losses on investment portfolio and similar transactions 2.1 10.2 22.7 Other banking income 13.0 13.4 Other banking expenses -15.4 -16.2 NET BANKING INCOME 894.8 1,098.7 Personnel expenses 4.1 -381.0 -352.1 Other administrative costs 4.3 -189.8 -185.6 Depreciation and amortisation -59.3 -48.7 GROSS OPERATING INCOME 264.7 512.3 Cost of risk 2.6 -63.2 -4.9 OPERATING INCOME 201.5 507.4 Gains or loss on fixed assets 2.1/7.1 41.4 0.4 PRE-TAX PROFIT 242.9 507.8 Non-recurring income (expense) 7.2 -10.4 -9.7 Income tax 5 -44.0 -67.9 Net allocation to regulated provisions -0.1 - NET INCOME 188.4 430.2
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 189 Financial statements | Annual fi nancial statements 4 Notes to the annual fi nancial statements
Notes to the annual financial statements
The financial statements were approved by the Board of Directors on February 26, 2020.
NOTE 1 Main valuation and presentation rules for the annual financial statements
Crédit du Nord’s annual financial statements were drawn Presentation up and are presented in accordance with the provisions The amounts presented in the financial statements and of ANC (French Accounting Standards Authority) in the notes are expressed in millions of euros, unless Regulation No. 2014-07 on the financial statements of otherwise indicated. banking sector companies. Rounding effects may generate gaps between the Comparability of financial statements amounts presented in the financial statements and those presented in the notes. No change in accounting method was observed in 2019.
1.1. Accounting principles and valuation methods
In accordance with the accounting principles applicable Trading transactions are usually marked to market, to French credit institutions, for most transactions with the exception of loans, borrowings and short-term the valuation methods take into account the original investment securities, which are recorded at nominal intention of such transactions. value. Where these instruments are not quoted on active Transactions carried out for banking intermediation markets, the mark-to-market valuation is corrected to purposes are held at their historic cost and impaired include a prudential discount. Moreover, a reserve is in the event of counterparty risk. The results of such booked to cover valuations established on the basis of transactions are recorded on a pro rata basis, in in-house models (Reserve Policy), which is determined accordance with the principle of separate accounting according to the complexity of the model used and the years. This category includes transactions in forward life of the financial instrument. financial instruments aimed at hedging and managing the overall interest rate risk of banking intermediation activities.
1.2 Use of estimates and judgement
In drawing up Crédit du Nord’s annual financial In order to make these estimates and develop these statements, the application of the accounting principles assumptions, Management uses data available at the and methods described in the notes led Management to date on which the annual accounts are prepared and develop assumptions and make estimates which may may be called upon to use its own judgement. By have an impact on the amounts booked to the income nature, the valuations based on these estimates contain statement, on the valuation of balance sheet assets and risks and uncertainties as to whether they will materialise liabilities, and on the disclosures presented in the notes in the future. Consequently, the final future results of the to the consolidated financial statements. transactions in question may differ from these estimates and therefore have a significant impact on the financial statements.
190 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Annual fi nancial statements Notes to the annual fi nancial statements 4
The use of estimates primarily concerns the following • amounts recognised as impairments of financial valuations: assets (see Note 2.6), tangible and intangible assets • the fair value, as reported on the balance sheet, (see Note 7.1); of financial instruments (securities and derivative • provisions booked to liabilities on the balance sheet, instruments) that are not listed on an active market including provisions for employee benefits and and held for market activities (see Notes 2.1, 2.2); provisions for disputes (see Notes 2.6, 4.2 and 7.3); • the amount of deferred tax assets recognised on the balance sheet (see Notes 5, 3.2).
1.3 Change in collective provision calculation methods
En 2019, considering the existence of several implicit the consolidated financial statements of Crédit du Nord methods for the recognition of credit risk in the parent Group, provisions for credit risk calculated in respect of company financial statements of credit institutions, 12-month expected losses are recorded under balance Crédit du Nord modified the methods for calculating sheet liabilities based on outstanding performing loans its provisions in order to provide better information and and off-balance sheet commitments. more appropriately and relevantly reflect the bank’s This modification has been treated as a change in the credit risk. estimating process whose effects have been recorded As from January 1, 2019, in accordance with the prospectively in the income statement. methods for estimating expected credit losses, used for
1.4 Error correction
When signing certain leases for branches in its network, leased asset in the assessment of the market rent. At Crédit du Nord paid a leasehold right to the previous December 31, 2019, the test was extended to all leases lessee. The leasehold right is recognised as an intangible and the assessment method for market rents was asset. It is subject to an impairment test. corrected. This correction resulted in the booking of an Hitherto, the impairment test was carried out by additional provision for impairment of the leasehold right comparing, on a sample of leases, the assessment of amounting to -€10.4 million under non-recurring income the market rent with the contract rent, without taking (expense) (see Note 7.2). account of the specific features of the location of the
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 191 Financial statements | Annual fi nancial statements 4 Notes to the annual fi nancial statements
NOTE 2 Financial instruments
2.1 Securities portfolio
Accounting principles They are marked to market at the end of the financial Securities are classified according to: period. • their type: public notes (Treasury notes and similar Net unrealised gains or losses, together with net securities), bonds and other fixed-income securities gains or losses on disposals, are recognised on (negotiable debt instruments, interbank securities), the income statement under “Net gains or losses shares and other equity securities; on trading books, investment portfolios and similar investments”. Coupon payments received on fixed- • and the purpose for which they were required: income securities in the trading portfolio are recorded trading, short-term and long-term investment, on the income statement under “Net interest income portfolio activities, equity investments, investments from bonds and other fixed-income securities”. in subsidiaries and affiliates, and other long-term equity investments. Trading securities no longer held for sale in the short term, no longer held for market-making purposes, Sales and purchases of securities are recognised on or for which the specialised portfolio management the balance sheet at the settlement-delivery date. strategy for which they are held no longer offers a The following classification and valuation rules are recent profit-taking profile in the short term, may be applied to each portfolio. The related impairment rules transferred to the “Short-term investment securities” are described in Note 2.6. or “Long-term investment securities” category if: • an exceptional market situation requires a change Trading securities in holding strategy; Trading securities are securities initially bought • or if the fixed-income securities can no longer or sold principally for the purpose of reselling or be traded on an active market following their repurchasing them in the near term, or held for acquisition, and if Crédit du Nord intends and is the purpose of market-making activities. These able to hold them for the foreseeable future or until securities are traded in active markets, and the their maturity. available market price reflects frequent buying and selling in normal competitive conditions. Short- Transferred securities are recorded in their new term investment securities also include securities category at their market value at the date of transfer. subject to a promise of sale as part of an arbitrage transaction carried out on an organised or similar Short-term investment securities market in financial instruments, and securities bought This category includes securities which are not or sold for specialised trading book strategy including included with short-term investment securities, forward financial instruments, securities or other investment securities, other long-term investment financial instruments managed together and showing securities, equity investments and subsidiaries, other indications of a recent short-term profit-taking profile. long-term investment securities or investments in Trading securities are recorded on the balance sheet subsidiaries and affiliates. at cost, net of expenses.
192 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Annual fi nancial statements Notes to the annual fi nancial statements 4
Equities and variable-income securities market situation or securities that can no longer be Equity securities are carried on the balance sheet traded on an active market). at cost excluding acquisition expenses, or at These long-term investment securities may also be contribution value. At the end of the fiscal year, they designated as hedged items in the case of a hedging are measured at their probable trading value, and only transaction or overall hedging of the interest rate risk unrealised capital losses are recognised by recording performed using forward financial instruments. an impairment on the securities portfolio. Income from Long-term investments are booked according to the these securities is recorded in “Income from equity same principles as short-term investment securities. securities”.
Bonds and other fixed-income securities Equity investments, investments in affiliates, and other long-term investment securities These securities are carried at cost excluding acquisition expenses and, in the case of bonds, This category of securities covers “Equity investments excluding interest accrued and not yet due at the and investments in subsidiaries and affiliates”, where it date of purchase. The positive or negative difference is deemed useful to Crédit du Nord’s business to hold between cost and redemption value is amortised to the shares over the long term. This notably covers income over the life of the relevant securities using investments that meet the following criteria: the actuarial method. Accrued interest on bonds and • shares in fully consolidated companies or issued other short-term investment securities is recorded as by companies accounted for by the equity method; “Related receivables” and under “Net interest income • shares in companies that share directors or senior from bonds and other fixed-income securities” on the managers with Crédit du Nord and where influence income statement. can be exercised over the company in which the Short-term investment securities can be reclassified shares are held; as “Long-term investment securities” if: • shares in companies that belong to the same • an exceptional market situation requires a change group controlled by individuals or legal entities, in holding strategy; where the said persons or entities exercise control • or if the fixed-income securities can no longer over the group and ensure that decisions are taken be traded on an active market following their in unison; acquisition, and if Crédit du Nord intends and is • shares representing more than 10% of the voting able to hold them for the foreseeable future or until rights in the capital issued by a bank or a company their maturity. whose business is directly linked to that of Crédit du Nord. Long-term investment securities This category also includes “Other long-term Long-term investment securities are acquired debt investment securities”. These are equity investments securities or reclassified short-term investment made by Crédit du Nord with the aim of developing securities which Crédit du Nord intends to hold until special professional relations with a company over the maturity, long term but without exercising any influence on its where it has the financial capacity to do so and is not management due to the small percentage of attached subject to any legal or other form of constraint that voting rights. might undermine its ability to do so. Equity investments, investments in consolidated Long-term investment securities also include trading subsidiaries and affiliates, and other long-term and short-term investment securities that Crédit du investment securities are recorded at their purchase Nord has decided to reclassify in accordance with price net of acquisition costs. Dividend income the specific conditions described above (exceptional earned on these securities is booked on the income statement under “Income from equity securities”.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 193 Financial statements | Annual fi nancial statements 4 Notes to the annual fi nancial statements
2.1.1 Treasury notes, bonds and other fixed-income securities, shares and other equity securities
31/12/2019 31/12/2018 Treasury Bonds and Treasury Equities and Bonds and notes and Equities and other fixed- notes and variable- other fixed- similar variable-income income similar income income (in €m) securities securities securities Total securities securities securities Total Trading book ------Short-term investment portfolio (1) Gross amount 1,564.8 0.2 2,411.8 3,976.8 1,990.6 0.3 2,304.1 4,295.0 Impairments -0.2 - -3.7 -3.9 -0.1 - -3.5 -3.6 Net amount 1,564.6 0.2 2,408.1 3,972.9 1,990.5 0.3 2,300.6 4,291.4 Investment portfolio Gross amount ------Impairments ------Net amount ------Related receivables 9.7 - 7.1 16.8 12.7 - 6.8 19.5 TOTAL (2) 1,574.3 0.2 2,415.2 3,989.7 2,003.2 0.3 2,307.4 4,310.9 (1) O/w securities eligible as collateral for Banque de France refinancing operations 3,953.7 4,266.2
(2) O/w bonds and other fixed-income securities issued by public organisations (net of provisions and excluding related receivables) 183.9 43.9
Additional information on securities
Short-term investment portfolio
(in €m) 31/12/2019 31/12/2018 Estimated value of short-term investment securities Unrealised capital gains (1) 78.8 66.3 Unrealised capital gains on shares and other equity securities 0.6 0.7 Unrealised capital gains on bonds and other fixed-income securities 78.2 65.6 Premiums and discounts related to short-term fixed-income investment securities (excluding doubtful securities) -42.1 -64.6 Units of UCITS held -- Listed securities in treasury notes and similar securities (net of provisions and excluding related receivables) 1,564.8 1,990.6 Listed securities in shares and other equity securities (net of provisions and excluding related receivables) -- Listed securities in bonds and other fixed-income securities (net of provisions and excluding related receivables) 1,354.7 1,118.5 Subordinated securities (net of provisions and excluding related receivables) - -
(1) These amounts do not include unrealised gains on financial instruments used to hedge short-term investment securities.
Securities transferred No securities were transferred from one portfolio to another in 2018 or 2019.
194 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Annual fi nancial statements Notes to the annual fi nancial statements 4
2.1.2 Equity investments, investments in subsidiaries and affiliates and other long-term investments
Equity investments and other long-term investment securities
(in €m) 31/12/2019 31/12/2018 Banks 88.9 90.4 Listed -- Unlisted (1) 88.9 90.4 Others 13.8 29.3 Listed -- Unlisted (2) 13.8 29.3 TOTAL GROSS 102.7 119.7 Impairments -0.5 -0.7 TOTAL NET 102.2 119.0 (1) The main change in 2019 concerned the disposal of CRH shares for €1.6 million. (2) The main change in 2019 concerned the disposal of Visa Inc. shares for €18.6 million.
Investments in subsidiaries and affiliates
(in €m) 31/12/2019 31/12/2018 Banks 1,520.2 1,517.2 Listed -- Unlisted 1,520.2 1,517.2 Others 247.6 247.6 Listed -- Unlisted 247.6 247.6 TOTAL GROSS 1,767.8 1,764.8 Impairments -- TOTAL NET 1,767.8 1,764.8
2.1.3 Income from equity securities
(in €m) 2019 2018 Dividends from shares and other equity securities - - Dividend from equity investments and other long-term securities (1) 102.7 276.3 TOTAL 102.7 276.3
(1) O/w income from shares in subsidiaries and affiliates 93.9 266.9
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 195 Financial statements | Annual fi nancial statements 4 Notes to the annual fi nancial statements
2.1.4 Net gains or losses on trading books, investment portfolios and similar investments
(in €m) 2019 2018 Net income from trading book Net income from transactions in short-term investment securities - - Net income from forward financial instruments 75.5 59.4 Net income from foreign exchange transactions 26.2 29.2 SUB-TOTAL 101.7 88.6 Net income from short-term investment securities Capital gains on disposal 11.0 24.4 Capital losses on disposal -0.5 -2.0 Allocations to impairment -1.4 -3.6 Impairment reversals 1.1 3.9 SUB-TOTAL 10.2 22.7 TOTAL NET 111.9 111.3
2.1.5 Gains and losses on fixed assets
Accounting principles impairment of equity investments and investments in “Gains and losses on fixed assets” covers capital affiliates, other long-term securities, and investment gains or losses on disposals, and net allocations to securities.
(in €m) 2019 2018 Long-term investment securities -- Equity investments, investments in affiliates, and other long-term investment securities Capital gains on disposal (1) 40.6 0.1 Capital losses on disposal -- Allocations to impairment 0.6 -0.4 Impairment reversals -- TOTAL 41.2 -0.3 (1) In 2019, Crédit du Nord recorded a capital gain on the disposal Visa Inc. shares amounting to €40.6 million.
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2.2 Transactions in forward financial instruments
Accounting principles income and expenses on the hedged item. Income Transactions in interest rate, foreign exchange or and expenses on interest rate instruments are booked equity futures are carried out for hedging or market- as net interest income in the same interest income making purposes. or expense account as the items hedged. Income and expenses on other instruments are booked as Nominal commitments on forward financial “Net gains or losses on trading books, investment instruments are recorded as a separate off-balance portfolios and similar investments”. sheet item. This amount represents the volume of outstanding transactions and does not represent Income and expenses on forward financial instruments the potential gain or loss associated with the market used for hedging and management of overall interest or counterparty risk on these transactions. Written rate risk are recorded on the income statement on credit derivatives used to hedge against credit risk a pro rata basis. They are recognised as “Net gains on financial assets that are not marked to market are or losses on trading books, investment portfolios and classified and treated as guarantee commitments similar investments”, under “Income from forward received. financial instruments”.
The accounting treatment of income or expenses on Transactions in open positions these forward financial instruments depends on the All relative income and expenses are booked to purpose for which the transaction was concluded, as the income statement on a prorata basis. They are follows: recognised as “Net gains or losses on trading books, investment portfolios and similar investments” under Hedging transactions “Income from forward financial instruments”. A Income and expenses on forward financial provision is set aside for unrealised losses, determined instruments used as a hedge and assigned from the by a book-to-market value comparison. Unrealised beginning to an identifiable item or group of similar gains are not recorded. items, are offset on the income statement against the
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 197 Financial statements | Annual fi nancial statements 4 Notes to the annual fi nancial statements
2.2.1 Financial instrument commitments
Macro- Micro- Total Total (in €m) Trading Speculation hedging hedging Over-hedging 31/12/2019 31/12/2018 Contract category under CRB Regulation 90/15 D A C B Firm transactions Transactions on organised markets Interest rate futures ------Foreign exchange futures - - 3.2 - - 3.2 - Other forward instruments ------OTC agreements Interest rate swaps - 1,802.9 44,430.0 2,892.5 3,775.0 52,900.4 49,344.8 Currency swaps 166.3 - - - 166.3 171.1 Others ------Options Interest rate options - 1,361.3 1,642.1 - - 3,003.4 2,452.1 Foreign exchange options - - - 649.4 - 649.4 402.9 Other options - - - 2,630.3 - 2,630.3 1,797.9 TOTAL - 3,330.5 46,075.3 6,172.1 3,775.0 59,353.0 54,168.8
2.2.2 Fair-value of hedging transactions
(in €m) 31/12/2019 Firm transactions Transactions on organised markets Interest rate futures - Foreign exchange futures - Other forward instruments - OTC agreements Interest rate swaps 510.4 Currency swaps - Others - Options Interest rate options 0.2 Foreign exchange options - Other options -0.4 TOTAL 510.2
198 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Annual fi nancial statements Notes to the annual fi nancial statements 4
2.2.3 Maturities of derivative commitments (notional amounts)
Residual maturity at December 31, 2019 Less than 3 3 months More than (in €m) months to 1 year 1-5 years 5 years Total FORWARD FINANCIAL INSTRUMENTS Micro-hedging transactions 252.6 1,806.8 3,420.9 695.0 6,175.3 Macro-hedging transactions 79.0 2,353.8 23,510.2 20,129.1 46,072.1 Over-hedging transactions - - 1,975.0 1,800.0 3,775.0 Position management transactions 123.2 361.2 2,175.1 671.1 3,330.6 TOTAL 454.8 4,521.8 31,081.2 23,295.2 59,353.0
2.3 Loans and receivables
Accounting principles Where necessary, provisions are set aside for these Amounts due from banks and customers are financing guarantees and commitments. classified according to their initial duration or type into: If a loan is considered to bear a probable risk that all demand (current accounts and overnight transactions) or part of the sums owed by the counterparty under and term accounts in the case of banks; customer the initial terms and conditions of the loan agreement receivables, current accounts and other loans in the will not be recovered, and notwithstanding the case of customers. Amounts due from banks and existence of loan guarantees, the loan in question customers include outstanding loans and repurchase is classified as doubtful. In any event, outstanding agreements, secured by notes and securities, entered loans are reclassified as doubtful where one or into with these counterparties. more payments is at least three months overdue (six months for real estate and property loans, nine Interest accrued on these receivables is recorded months for municipal loans), or where, any missed as Related receivables and booked to the income payments notwithstanding, there is a probable risk of statement under “Interest and similar income” or loss or where a loan is disputed. “Interest and similar expenses”. Unauthorised overdrafts are classified as doubtful Interest on doubtful loans is calculated using the loans after a period of no more than three consecutive discounted net book value of the loan. months during which the account limits are exceeded Fees received and incremental transaction costs (limits of which individual customers have been related to the granting of a loan are comparable to notified and limits resulting from legal or de facto interest and spread over the effective life of the loan. agreements with other categories of customers). Guarantees given at the request of customers or Where a given borrower’s loan is classified as a banks are recorded as off-balance sheet items in the “doubtful loan”, any other loans and commitments amount of the commitment. made to the same borrower are also automatically Off-balance sheet guarantees and endorsements classed as doubtful, regardless of any guarantees. correspond to irrevocable cash loan commitments Provisions for unrealised losses and for doubtful loans and guarantee commitments which did not give rise are booked in the amount of the probable loss (see to any fund movements. Note 2.6).
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 199 Financial statements | Annual fi nancial statements 4 Notes to the annual fi nancial statements
Restructured loans and receivables Loans and receivables may be subject to commercial The restructuring, due to financial difficulties, of a renegotiations where the borrowing customer is not financial asset classified in the “Customer loans”, experiencing financial difficulties or insolvency. Such and “Due from banks” categories is a contractual efforts are undertaken for customers for which Crédit amendment to the amount, term or financial du Nord Group agrees to renegotiate their debt in conditions of the transaction initially approved by the interest of preserving or developing a business Crédit du Nord Group. This is done in consideration relationship, in accordance with the credit approval of the borrower’s financial difficulties or insolvency procedures in force and without relinquishing any (whether said insolvency has occurred or is very principal or accrued interest. Renegotiated loans and likely to occur should no restructuring take place), receivables are derecognised at the renegotiation and would not have been considered in other date, and the new loans contractualised under circumstances. The restructured financial assets are the renegotiated terms and conditions replace the then classified as impaired outstandings and the previous loans and receivables on the balance sheet borrowers are considered to be in default. at this same date. These new loans are subsequently measured at amortised cost, based on the effective These classifications are maintained for at least one interest rate resulting from the new contractual terms year, or longer if Crédit du Nord Group is uncertain as and conditions, including renegotiation fees charged to the borrowers’ ability to meet their commitments. to the customer.
2.3.1 Due from banks
(in €m) 31/12/2019 31/12/2018 Demand deposits and loans Current accounts 317.1 379.6 Overnight deposits and loans 23.5 43.7 Term deposits and loans Term deposits and loans 22,718.7 19,524.4 Subordinated and participating loans 46.1 51.3 Loans secured by notes and securities - - Related receivables 18.3 20.2 TOTAL GROSS (1) (2) (3) 23,123.7 20,019.2 Impairments -- TOTAL NET 23,123.7 20,019.2
(1) O/w doubtful loans -- (2) O/w irrecoverable non-performing loans -- (3) O/w transactions with subsidiaries and affiliates 21,054.9 17,637.7
200 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Annual fi nancial statements Notes to the annual fi nancial statements 4
2.3.2 Transactions with customers
(in €m) 31/12/2019 31/12/2018 Trade notes 130.0 141.0 Other customer loans 20,009.3 18,397.3 Short-term loans 2,851.5 2,686.3 Export loans 27.2 23.8 Equipment loans 4,135.5 3,738.1 Housing loans 12,246.0 11,151.5 Other loans 749.1 797.6 Overdrafts 983.4 929.5 Related receivables 25.1 21.7 TOTAL GROSS (1) (2) (3) (4) (5) (6) 21,147.8 19,489.5 Impairments -444.8 -486.6 TOTAL NET 20,703.0 19,002.9 (1) O/w performing loans (excluding related receivables) 20,304.6 18,536.7 - Companies and individual entrepreneurs 8,711.7 7,910.0 - Individual customers 11,404.9 10,423.5 - Financial customers 0.2 7.2 - Others 187.8 196.0 (2) O/w doubtful loans (excluding related receivables) 236.6 289.7 - Companies and individual entrepreneurs 137.6 160.3 - Individual customers 98.4 128.8 - Financial customers -- - Others 0.6 0.6 (3) O/w irrecoverable non-performing loans 581.6 641.4 - Companies and individual entrepreneurs 430.7 474.5 - Individual customers 146.6 162.4 - Financial customers -- - Others 4.3 4.5 (4) O/w receivables pledged as collateral for liabilities 8,452.8 7,435.8 (5) O/w receivables eligible as collateral for Banque de France refinancing operations 3,893.7 3,145.0 (6) O/w transactions with subsidiaries and affiliates 11.7 0.5
Gross outstanding restructured loans totalled €65.6 million at December 31, 2019 versus €71.7 million at December 31, 2018. Concentration risk is analysed on a half-yearly basis at the consolidated level. The guiding principle and major trends are presented in Section 5 “Risks and capital adequacy”.
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2.3.3 Signed commitments given
(in €m) 31/12/2019 31/12/2018 Commitments given Loan commitments To banks 315.9 5,860.9 To customers 2,845.7 2,428.8 SUB-TOTAL (1) 3,161.6 8,289.7 Guarantee commitments To banks 139.5 178.5 To customers 2,315.5 2,221.6 SUB-TOTAL (2) 2,455.0 2,400.1 TOTAL 5,616.6 10,689.8
(1) O/w transactions with subsidiaries and affiliates 217.7 5,779.4 (2) O/w transactions with subsidiaries and affiliates 867.5 819.0
At December 31, 2019, assets pledged as collateral for On the liabilities side, related cash borrowings came own commitments (3G pool, EIB, Crédit Logement, SFH) to €6,205.3 million and, on the off-balance sheet, the amounted to €14,046.6 million and can be broken down undrawn portion totalled €2,687.7 million (see Note as follows: €9,195.6 million in Crédit du Nord assets and 2.4.4). €4,851.0 million in assets pledged as collateral from its subsidiaries.
2.4 Debt
Accounting principles This debt includes repurchase agreements, in the Amounts due to banks and customer deposits are form of securitised debt payables, carried out with classified according to their initial duration and type these economic operators. into: demand (deposits, current accounts) and term Accrued interest on these amounts is recorded as accounts in the case of banks; and regulated savings related payables through profit or loss. accounts and other deposits in the case of customers.
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2.4.1 Due to banks
(in €m) 31/12/2019 31/12/2018 Demand accounts Demand deposits and current accounts 3,397.8 2,343.3 Related payables 0.1 - SUB-TOTAL 3,397.9 2,343.3 Term accounts Term deposits and borrowings 22,309.9 18,660.7 Related payables -7.8 10.8 SUB-TOTAL 22,302.1 18,671.5 Securities sold under repurchase agreements - 801.4 TOTAL (1) 25,700.0 21,816.2
(1) O/w transactions with subsidiaries and affiliates 23,026.0 19,245.1
2.4.2 Transactions with customers
(in €m) 31/12/2019 31/12/2018 Regulated savings accounts Demand 6,045.2 5,880.7 Term 1,395.6 1,361.2 SUB-TOTAL 7,440.8 7,241.9 Other demand deposits Companies and individual entrepreneurs 8,872.9 8,155.8 Individual customers 4,874.4 4,433.2 Financial customers 79.5 45.0 Others 1,120.6 930.1 SUB-TOTAL 14,947.4 13,564.1 Other term deposits Companies and individual entrepreneurs 1,919.4 1,644.2 Individual customers (1) 25.3 20.5 Financial customers 21.1 6.0 Others 153.0 146.1 SUB-TOTAL 2,118.8 1,816.8 Related payables 29.9 18.2 TOTAL 24,536.9 22,641.0 Securities sold to customers under repurchase agreements 180.5 402.0 TOTAL (2) 24,717.4 23,043.0
(1) O/w security deposits 1.1 1.0 (2) O/w transactions with subsidiaries and affiliates 186.6 102.8
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 203 Financial statements | Annual fi nancial statements 4 Notes to the annual fi nancial statements
2.4.3 Debt securities
Accounting principles amortised using the straight-line or actuarial method These liabilities are broken down into medium-term over the life of the related borrowings. The resulting notes, interbank securities and negotiable debt expense is recorded on the income statement under instruments, bonds and other fixed-income securities “Net interest income from bonds and other fixed- (with the exception of subordinated notes, which are income securities”. classified under subordinated debt). Bond issuance fees incurred during the fiscal year Interest accrued and payable in respect of these are recorded in full as expenses for this same year, securities is booked as related payables through profit under “Interest and similar expenses” on the income or loss. Bond issuance and redemption premiums are statement.
(in €m) 31/12/2019 31/12/2018 Short-term notes 0.1 0.5 Bonds -- Related payables -- SUB-TOTAL 0.1 0.5 Money market and negotiable debt securities 2,841.8 5,699.0 Related payables 2.1 1.4 SUB-TOTAL 2,843.9 5,700.4 TOTAL 2,844.0 5,700.9
Unamortised debt balance of issue premiums on these debt securities 0.7 1.9
2.4.4 Signed commitments received
(in €m) 31/12/2019 31/12/2018 Commitments received Loan commitments from banks (1) 2,687.7 2,104.0 Guarantee commitments from banks (2) 9,546.6 8,601.1 TOTAL 12,234.3 10,705.1
(1) O/w transactions with subsidiaries and affiliates - 180.0 (2) O/w transactions with subsidiaries and affiliates 80.1 80.2
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2.5 Interest income and expenses
Accounting principles assimilated to interest, transaction costs and all types Interest income and expenses are booked to the of premiums and discounts. income statement under “Interest and similar income” When a financial asset or a group of similar financial and “Interest and similar expenses” for all financial assets has been impaired following a loss of value, instruments measured at amortised cost using the subsequent interest income is booked using the same effective interest rate method. interest rate that was used to discount the future cash The effective interest rate is taken to be the rate flows when measuring the loss of value. that discounts the future cash inflows and outflows In addition, provisions that are booked as balance over the expected life of the instrument to the book sheet liabilities, except for those related to employee value of the financial asset or liability. The rate is benefits, generate interest expenses for accounting calculated using the estimated cash flows based on purposes. This expense is calculated using the same the contractual provisions of the financial instrument interest rate used to discount to present value the without taking account of possible future loan expected outflow of resources that gave rise to the losses. The calculation includes commissions paid provision. or received between the parties where these can be
2019 2018 (in €m) Income Expense Net Income Expense Net Transactions with banks 3.0 -20.4 -17.4 -8.7 -13.6 -22.3 Transactions with central banks, post office accounts and banks 2.5 -21.9 -19.4 -7.1 -17.6 -24.7 Securities purchased under resale agreements 0.5 1.5 2.0 -1.6 4.0 2.4 Transactions with customers 394.0 -70.2 323.8 405.9 -60.7 345.2 Trade notes 1.9 - 1.9 2.2 - 2.2 Other customer loans (1) 363.7 - 363.7 373.4 - 373.4 Overdrafts 28.4 - 28.4 30.3 - 30.3 Regulated savings accounts -51.4 -51.4 - -41.7 -41.7 Other amounts due to customers - -20.7 -20.7 - -20.5 -20.5 Securities purchased/sold under resale/repurchase agreements - 1.9 1.9 - 1.5 1.5 Bonds and other fixed-income securities 22.1 -40.6 -18.5 34.3 -63.9 -29.6 Other interest income and similar expenses 5.5 -0.1 5.4 4.9 -0.1 4.9 TOTAL INTEREST INCOME/EXPENSES 424.6 -131.3 293.2 436.4 -138.2 298.2
(1) Breakdown of other customer loans:
(in €m) 2019 2018 Short-term loans 63.5 67.9 Export loans 0.2 0.2 Equipment loans 75.2 72.2 Housing loans 211.8 220.6 Other loans 13.0 12.5 TOTAL 363.7 373.4
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2.6 Provisions and impairments
2.6.1 Impairments
Accounting principles status is no longer plausible, the loan is specifically Impairments include write-downs of assets and classified as a non-performing loan. This status securities. is conferred if the loan is accelerated or the loan agreement is cancelled, or, in any case, if the loan Asset impairments has been classified as doubtful for one year, with the exception of doubtful loans for which the contractual The amount of the impairment loss for doubtful clauses are respected and/or doubtful loans with valid and non-performing loans is equal to the difference enforceable guarantees. Restructured loans for which between the gross book value of the asset and the the borrower has not respected payment schedules present value discounted for estimated recoverable are also classified as non-performing loans. future cash flows, taking into account the value of any guarantees, discounted at the original effective Segmentation of outstanding loans interest rate of the loans. Furthermore, this write- For the purpose of segmenting outstanding loans down may not be less than the full amount of the (performing, performing loans under watch, doubtful, accrued interest not yet received on the doubtful non-performing, irrecoverable), the following system loan. Impairment allocations and reversals, losses of external and/or internal ratings is used: on irrecoverable loans and amounts recovered on impaired loans are booked under “Cost of risk”, as are • external ratings: for a given counterparty, a Banque impairment reversals related to the passage of time. de France (BDF) rating of 8 or 9 automatically calls for declassification to doubtful loans, and a P rating Doubtful loans can be reclassified as performing loans calls for declassification to non-performing loans; once there is no longer any probable credit risk and once payments have resumed on a regular basis • internal ratings: for the retail portfolio, there is according to the initial contractual schedule. Moreover, a specific rating for default. For the corporate doubtful loans which have been restructured may be portfolio, each category of loans in default has a reclassified as performing. At the time of restructuring, specific rating (8 for doubtful, 9 for undisputed non- any difference between the discounting of contractual performing and 10 for disputed non-performing). cash flows initially expected and the discounting of Performing loans to corporates with a rating of 7 expected future cash flows related to principal and are reclassified as performing loans under watch interest resulting from restructuring at the original (“3S”). effective interest rate is subject to a discount. BDF ratings are also used in risk monitoring The discount recognised when a loan is restructured procedures to select performing loans that need to is recorded under “Cost of risk”. For restructured be subject to a risk review as a top priority. loans recorded under performing loans, this discount Credit-impaired performing exposures is reintegrated in interest income over the lifetime of Within the “Performing exposures” risk category, the loans concerned. Crédit du Nord has created a subcategory called In the event the creditworthiness of the borrower is “Performing loans under watch” to cover loans/ such that after a reasonable period of classification receivables requiring closer supervision. in doubtful loans, a reclassification to performing loan
206 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Annual fi nancial statements Notes to the annual fi nancial statements 4
Presentation of the statistical provisioning model Provisioning inputs are determined by observing past Crédit du Nord uses a statistical method to determine data and are: provisions for loans in default in its retail banking book • the probability of being transferred from doubtful to (individual and professional customer markets). Use disputed (LGD1); of a statistical model to determine provisions for these • the loss given default (LGD) rate, where the loan is loans in these particular markets is justified by the disputed (LGD2). high volume of loans issued for relatively low individual amounts. These rates are determined for classes of homogeneous assets and reflect how long the loans The loans are divided up into six classes of have been classified as doubtful or disputed. homogeneous assets in terms of risk, defined in accordance with Basel asset classes: Calculation of impairments on doubtful loans • Home loans to individuals and “SCI Patrimoniales” The impairment rate on doubtful loans is calculated (family-owned non-trading real estate company); for classes of homogeneous assets by multiplying the • Revolving loans to individuals; LGD1 and LGD2 rates.
• Consumer loans to individuals; Calculation of impairments on disputed loans • Current accounts and overdrafts extended to The impairment rate on disputed loans is the LGD2 individuals and “SCI Patrimoniales”; rate, which is separate, based on the class of homogeneous assets to which the loan belongs. • MLT loans to professional customers and “SCI” (non-trading real estate company); Classes of homogeneous disputed loans are divided up into quarterly generations (according to their date • ST loans to professional customers and “SCI of transfer to the disputed loans category), each of Commerciales” (commercial non-trading real estate which is subject to a different LGD rate. For each company). generation, the LGD2 rate is calculated on the basis Upon defaulting, the most substantial loans are of collections and losses observed in past quarters. excluded from this statistical provisioning approach, Collections may be observed in as many as 50 in favour of impairment determined on the basis of an quarters. expert opinion. These loans are identified by applying operational thresholds defined for each asset class. Updating of inputs used in the statistical model They account for approximately 1% of all retail loans Collections actually observed over the fiscal year are in default. compared with collections predicted in the model in Home loans guaranteed by Crédit Logement order to assess the model’s predictive capacity. and signed commitments are excluded from the Impairment of securities statistical provisioning approach and are thus not subject to a provision. For home loans guaranteed Short-term investment securities by Crédit Logement, the lack of provision is justified Equities and variable-income securities because Crédit Logement covers all losses in the At year-end, equities are measured on the basis of event of default, and for signed commitments by the their probable trading value. For listed securities, exceptional nature of the losses recognised for this probable trading value is determined according to the type of off-balance sheet commitment. most recent market price. Unrealised capital gains Provisioning inputs are not recognised in the financial statements but The statistical provisioning model is applied to the an impairment of the securities portfolio is booked entire portfolio in default (doubtful and disputed loans). to cover unrealised capital losses, without said impairment being offset against any unrealised capital gains.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 207 Financial statements | Annual fi nancial statements 4 Notes to the annual fi nancial statements
Bonds and other fixed-income securities Allocations to and reversals of impairment losses on At year-end, cost is compared to probable trading long-term investment securities, together with gains value or, in the case of listed securities, to their most and losses on sales of these securities, are recorded recent market price. Unrealised capital gains are in the income statement under “Net income from not recognised in the financial statements but an long-term investments”. impairment of the securities portfolio is booked to Equity investments and investments in affiliates cover unrealised capital losses, after consideration of At year-end, equity investments and investments in any gains made on any related hedging transactions. consolidated subsidiaries and affiliates are valued Allocations to and reversals of impairment losses, at their value in use, namely the price the company together with capital gains and losses on disposals of would accept to pay to obtain such securities if it had short-term investment securities, are recorded under to acquire them in view of its investment objective. This “Net gains or losses on trading books, investment value is estimated on the basis of various criteria, such portfolios and similar investments” on the income as shareholders’ equity, profitability, and the average statement. share price over the last three months. Unrealised capital gains are not recognized in the accounts but a provision Long-term investment securities for depreciation on portfolio securities is booked to cover At the balance sheet date, no impairment is recorded unrealized capital losses. Allocations to and reversals of for unrealised capital losses on the securities portfolio, impairment as well as any capital gains or losses realised unless there is a strong probability that the securities on the disposal of these securities, including any profit or will be sold in the short term, or unless there is a risk loss generated when tendering these securities to public that the issuer will be unable to redeem them. share exchange offers, are booked under “Net income from long-term investments”.
(in €m) 31/12/2019 31/12/2018 Asset impairments Banks -- Loans to customers 444.8 486.6 SUB-TOTAL (1) 444.8 486.6 Impairment of securities 4.4 4.2 TOTAL IMPAIRMENTS 449.2 490.8
(1) The change in total impairments (excluding securities) can be broken down as follows:
Allocations Reversals/Uses Other changes by other by other income income changes in Provisions at by cost of statement by cost of statement changes in exchange Provisions at (in €m) 31/12/2018 risk balance risk balance scope rate 31/12/2019 Impairments of doubtful loans Banks ------Loans to customers 40.6 32.1 - -30.8---41.9 Impairments of irrecoverable non-performing loans Banks ------Loans to customers 446.0 55.5 - -98.1 -0.5 - - 402.9 TOTAL 486.6 87.6 - -128.9 -0.5 - - 444.8
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2.6.2 Provisions
Accounting principles probability of occurrence of a default event over the Provisions include: lifetime of the financial instruments in question and, if applicable, the effect of collateral called or likely to • provisions on off-balance sheet commitments be called. (signed commitments); 12-month credit losses are measured using historical • collective provisions for credit risk. data and current conditions. The amount of the provision is therefore equal to the present value Provisions on off-balance sheet commitments (provisions on signed commitments) of expected credit losses, taking into account the probability of occurrence of a default event during the Provisions on off-balance sheet commitments following year and, if applicable, the effect of collateral represent the probable losses incurred by Crédit called or likely to be called. du Nord following the identification of a confirmed credit risk on an off-balance sheet loan or guarantee Changes in collective provisions calculated commitment that is not considered to be a derivative accordingly are recorded under “Cost of risk”. instrument or designated a financial asset at fair value Comments on the identification of an increase through profit or loss. in credit risk Collective provisions for credit risk (relating to To identify exposures subject to a collective provision, impaired loan commitments and outstandings) a significant increase in credit risk is identified by Without waiting until a confirmed credit risk examining all available historical and forward-looking has individually affected one or more loans information (behavioural scores, Loan-to-Value or commitments, the identification, within a indicators, macroeconomic forecasts, etc.). homogeneous portfolio, of a significant increase in The assessment of the increase in credit risk takes the the credit risk on a given set of financial instruments following items into account: results in the booking of a provision based on the – Criterion 1: change in the counterparty’s lifetime credit losses that Crédit du Nord expects to rating and changes in the business sector, incur on these instruments. macroeconomic conditions and the In order to provide better information with regard counterparty’s behaviour which may, in addition to its business, in 2019, Crédit du Nord decided to the rating review, reflect an increase in credit to extend the provisioning of credit risk to non- risk. impaired performing loans, based on the 12-month – Criterion 2: change in the counterparty’s rating credit losses that Crédit du Nord expects to incur, in on a contract-by-contract basis between the accordance with the prudence principle. origination date and the balance sheet date. Lifetime credit losses are measured using historical – Criterion 3: any payment more than 30 days data, current conditions as well as reasonable past due. forecasts regarding developments in the economic environment and relevant macro-economic factors A collective provision is recorded for a contract if it until the maturity of instruments. The amount of meets just one of these criteria. the provision is therefore equal to the present value of expected credit losses, taking into account the
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 209 Financial statements | Annual fi nancial statements 4 Notes to the annual fi nancial statements
Allocations Reversals/Uses Other changes by other by other Provisions income income changes in at by cost statement by cost statement changes exchange Provisions at (in €m) 31/12/2018 of risk balance of risk balance in scope rate 31/12/2019 Provisions for off-balance sheet commitments 35.7 11.5 - -14.3---32.9 Collective provisions (1) 31.6 59.6 - -23.9---67.3 TOTAL 67.3 71.1 - -38.2 - - - 100.2
(1) A provision allocation of €41.6 million was booked following the change in the methods for calculating collective provisions (see Note 1.3)
2.6.3 Home savings agreement commitments
Accounting principles Provisions are calculated for each generation of Home savings accounts and plans are savings home savings schemes with no netting between the schemes for individual customers (in accordance with different generations of schemes, and for all home Law No. 65-554 of July 10, 1965), which combine savings accounts taken together, which constitutes a an initial deposit phase in the form of an interest- single all-encompassing generation. earning savings account with a lending phase where During the savings phase, provisions are calculated the deposits are used to provide property loans. The according to the difference between average latter phase is subject to the prior existence of the expected outstanding savings and minimum expected savings phase and is therefore inseparable from it. outstanding savings, both of which are determined The deposits collected and loans granted are booked statistically based on historic observations of actual at amortised cost. customer behaviour. These instruments generate two types of During the lending phase, provisions are calculated commitments for Crédit du Nord: the obligation to according to loans already issued but not yet due subsequently lend to the customer at an interest at the balance sheet date, as well as future loans rate established upon the signing of the agreement, considered as statistically probable on the basis of and the obligation to pay interest on the customer’s customer savings deposits on the balance sheet at savings in the future at an interest rate set upon the the date of calculation and on historic observations of signing of the agreement, for an indefinite period. actual customer behaviour. Commitments with future adverse effects for Crédit A provision is booked if the discounted value of du Nord are subject to provisions booked as balance- expected future earnings for a given generation of sheet liabilities, any changes in which are recorded on home savings products is negative. These results are the interest margin line under “Net banking income”. measured on the basis of interest rates available to These provisions relate exclusively to commitments individual customers for equivalent savings and loan under home savings accounts and schemes existing instruments, with similar estimated life and date of at the date of the provision’s calculation. inception.
210 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Annual fi nancial statements Notes to the annual fi nancial statements 4
A. Outstanding deposits in PEL/CEL accounts (in €m) 31/12/2019 31/12/2018 PEL home savings plans Less than 4 years old 77.4 219.1 Between 4 and 10 years old 740.3 605.4 More than 10 years old 318.7 290.8 SUB-TOTAL 1,136.4 1,115.3 CEL home savings accounts 101.4 103.5 TOTAL 1,237.8 1,218.8
B. Outstanding housing loans granted with respect to PEL/CEL accounts (in €m) 31/12/2019 31/12/2018 Less than 4 years old - 0.1 Between 4 and 10 years old 0.8 1.7 More than 10 years old 0.8 0.6 TOTAL 1.6 2.4
C. Loss allowances for commitments linked to PEL/CEL accounts (1)
(in €m) 31/12/2019 31/12/2018 PEL home savings plans Less than 4 years old -- Between 4 and 10 years old 1.2 - More than 10 years old 16.7 10.0 SUB-TOTAL 17.9 10.0 CEL home savings accounts 0.9 1.6 Drawn down loans 0.1 0.1 TOTAL 18.9 11.7
(1) These provisions are booked as “Provisions for general risk and expenses” (see Note 7.3).
D. Methods used to establish inputs for measuring provisions
The inputs used to estimate future customer behaviour The values of the different market parameters used, are derived from historical observations of customer notably interest rates and margins, are calculated on the behaviour patterns over long periods (more than ten basis of observable data and constitute a best estimate, years). The value of these inputs can be adjusted if any at the valuation date, of the future value of these items changes are subsequently made to regulations with the for the relevant period, in line with the retail banking potential to undermine the reliability of past data as an division’s policy of interest rate risk management. indicator of future customer behaviour. The discount rates used are determined from zero coupon swaps vs. the Euribor yield curve at the valuation date, averaged over a 12-month period.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 211 Financial statements | Annual fi nancial statements 4 Notes to the annual fi nancial statements
2.6.4 Cost of risk
Accounting principles “Cost of risk” comprises net reversals of impairment losses and provisions for credit risk, losses on bad debts and amounts recovered on amortised loans.
(in €m) 2019 2018 Counterparty risk Net allocation to provisions and impairment -158.7 -117.3 Losses not covered -17.1 -13.1 Losses covered -56.1 -62.7 Reversals of impairments and provisions (including uses) 167.5 186.4 Amounts recovered on amortised receivables 1.2 1.8 TOTAL -63.2 -4.9
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NOTE 3 Other activities
3.1 Net service fee income
Accounting principles subscriptions are booked as income over the life of Crédit du Nord recognises service fee income and the service provided. expenses in different ways depending on the type of Fees for one-off services, such as fund transfer fees, service. fees on contributions received, and penalties for Fees for continuous services, such as certain fees on payment incidents are fully booked to income when payment instruments, custody fees or web-service the service is provided.
2019 2018 (in €m) Income Expense Net Income Expense Net Transactions with banks 5.7 -0.2 5.5 6.1 -0.2 5.9 Transactions with customers 133.6 - 133.6 136.0 - 136.0 Securities transactions 16.1 -5.9 10.2 11.1 -2.3 8.8 Foreign exchange transactions 0.9 - 0.9 0.8 -0.1 0.7 Loan and guarantee commitments 20.8 -0.3 20.5 37.8 -0.2 37.6 Services and other 296.6 -78.0 218.6 297.8 -71.1 226.7 TOTAL NET 473.7 -84.4 389.3 489.6 -73.9 415.7
3.2 Other assets, other liabilities and accruals
3.2.1 Other assets and accruals
(in €m) 31/12/2019 31/12/2018 Other assets Sundry debtors 137.7 157.0 Premiums on options purchased 13.5 17.5 Settlement accounts on securities transactions - - Others 0.6 0.6 SUB-TOTAL 151.8 175.1 Accruals Prepaid expenses 26.7 29.2 Accrued income 186.5 167.4 Others 47.0 56.9 SUB-TOTAL 260.2 253.5 TOTAL (1) 412.0 428.6
(1) At December 31, 2019, none of the components of these items had been pledged.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 213 Financial statements | Annual fi nancial statements 4 Notes to the annual fi nancial statements
3.2.2 Other liabilities and accruals
(in €m) 31/12/2019 31/12/2018 Other liabilities Sundry creditors (1) 453.0 260.8 Premiums on derivatives sold 8.3 10.5 Settlement accounts on securities transactions 0.7 0.8 Other securities transactions -- SUB-TOTAL 462.0 272.1 Accruals Expenses payable 437.9 406.6 Deferred taxes 31.7 52.7 Deferred income 36.4 36.7 Others 172.2 166.2 SUB-TOTAL 678.2 662.2 TOTAL (2) 1,140.2 934.3
(1) O/w €119.0 million in respect of security deposits on a securitisation transaction initiated in 2019. (2) None of these amounts relates to items received as pledges or to debts representing borrowed securities.
NOTE 4 Personnel expenses and employee benefits
4.1 Employee expenses and compensation of senior management
Accounting principles • defined benefit or defined contribution post- The “Personnel expenses” account includes all employment benefits, such as pension plans and expenses related to personnel, notably the cost of the end-of-career benefits; legal employee profit-sharing and incentive plans for • long-term benefits not expected to be paid out the year, and income related to the CICE (Employment within the twelve months of the end of the period, Competitiveness Contribution Tax) and restructuring such as non-indexed cash-settled deferred variable costs. compensation, long-service awards or flexible Employee benefits are broken down into four working provisions; categories: • employment termination benefits. • short-term benefits expected to be paid out within The expense representing the short-term benefits 12 months of the end of the fiscal year during which vested by staff members is recorded under “Personnel the staff members rendered the corresponding expenses” where said staff members have rendered services, such as wages, bonuses, paid annual the services rewarded by said benefits. leave, social security charges and payroll taxes, The accounting principles applied to post- and employee profit-sharing; employment benefits and long-term benefits are presented in Note 4.2.
214 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Annual fi nancial statements Notes to the annual fi nancial statements 4
(in €m) 2019 2018 Employee compensation -224.6 -217.4 Social security charges and payroll taxes -49.6 -47.8 Net retirement expenses - defined contribution plans -36.3 -35.8 Net retirement expenses - defined benefit plans -4.8 14.3 Other social security charges and taxes -36.2 -34.7 Employee profit-sharing and incentives -30.8 -32.1 o/w incentives 23.0 -23.3 o/w profit-sharing 0.0 -0.8 Transfer of charges 1.3 1.4 TOTAL -381.0 -352.1
Compensation of the administrative and decision-making bodies totalled €4.5 million in 2019.
2019 2018 Staff count recorded at December 31 4,493 4,498 Average staff count in activity 4,238 4,258 Executives 2,835 2,768 Non-executives 1,403 1,490
4.2 Employee benefits
Crédit du Nord grants the following benefits to its • long-term benefits, such as deferred variable employees: remunerations, long-service awards or flexible • post-employment benefits, such as pension plans working provisions; and end-of-career benefits; • employment termination benefits.
Breakdown of provisions for employee benefits
Allocations Reversals/Uses Other changes by other by other income income changes in Provisions at by cost statement by cost statement changes exchange Provisions at (in €m) 31/12/2018 of risk balance of risk balance in scope rates 31/12/2019 Provisions for employee benefits 31.0 - 4.4 - -2.5 - - 32.9
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4.2.1 Post-employment benefits
Accounting principles Where these plans are financed using external funds Pension plans can be defined contribution or defined meeting the definition of plan assets, the fair value benefit plans. of these funds is deducted from the amount of the provision recorded to cover the related commitments. Post-employment defined contribution plans Differences arising from changes in the calculation Defined contribution plans limit Crédit du Nord’s method (early retirement, discount rate, etc.) or liability to the contributions paid to the plan but do between actuarial assumptions and actual figures not commit Crédit du Nord to a specific level of (return on hedging assets, etc.) constitute actuarial future benefits. Contributions paid are booked as an differences (gains or losses). They are immediately expense for the year in question. and fully booked to profit or loss. Where a new plan (or amendment) is being Post-employment defined benefit plans established, the past service cost is immediately and Defined benefit plans commit Crédit du Nord, fully booked to profit or loss. either formally or implicitly, to pay a certain amount The annual expense recognised as personnel or level of future benefits and therefore bear the expenses for defined benefit plans includes: associated medium or long-term risk. The present value of defined benefit obligations are measured by • additional benefits vested by each employee independent qualified actuaries. (current service cost); A provision is recorded on the liabilities side of the • the interest expense associated with the increase balance sheet under “Provisions” to cover all of in the present value of a defined benefit obligation; the above pension commitments. It is valued on a • expected return on plan assets (gross yield); regular basis by independent actuaries using the • actuarial gains and losses and past service costs; projected credit unit method. This valuation method takes account of assumptions on demographics, • the effect of any plan curtailments or settlements. early retirement, wage increases, discount rates and inflation.
Post-employment defined contribution plans Post-employment defined benefit plans Defined contribution plans limit Crédit du Nord’s liability Post-employment pension plans include pension to the contributions paid to the plan but do not commit benefits as annuities and end of career payments. it to a specific level of future benefits. Pension benefit annuities are paid in addition to State The main defined contribution plans provided to Crédit pension plans. du Nord employees notably include State pension plans and other national retirement plans such as ARRCO and AGIRC, pension schemes for which the only commitment is to pay annual contributions (PERCO) and multi-employer plans.
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4.2.1.1 Reconciliation of assets and liabilities recorded on the balance sheet
(in €m) 31/12/2019 31/12/2018 Breakdown of provisions recorded on the balance sheet -13.4 -17.8 Assets recorded on the balance sheet -- Net balance on the balance sheet -13.4 -17.8 BREAKDOWN OF SURPLUS/DEFICIT Present value of defined benefit obligations 61.3 58.2 Fair value of plan assets -82.0 -83.7 A - Net balance of funded plans -20.7 -25.5 B - Present value of unfunded obligations 6.8 7.2 Unrecognised past service cost -- Unrecognised net actuarial gain/loss -- Separate assets -- Plan assets impacted by change in asset ceiling -0.5 -0.5 C - Total unrecognised items -0.5 -0.5 A + B - C = NET BALANCE -13.4 -17.8
4.2.1.2 Information on funding of pension plans and plan funding conditions
General information on funding assets (all plans combined and future contributions)
The plan coverage rate was 120%. The employer contributions for the defined benefit post- Surplus plan assets totalled €22.7 million. employment plans in 2020 will be determined after the year-end evaluations.
4.2.1.3 Main actuarial assumptions
(in €m) 31/12/2019 31/12/2018 Discount rate 0.8% 1.4% Long-term inflation rate 1.2% 1.4% Growth rate of future salary increases, net of inflation - employees less than 30 years old 2.7% 2.7% - employees 30 to 50 years old 1.9% - 1.5% 1.9% - 1.5% - employees more than 50 years old 0.7% 0.7% Average remaining working life of employees (in years) 13.7 12.9 Duration (in years) 13.0 12.2
Note: The discount rate is determined using the yield curves for AA-rated corporate bonds (source Merrill Lynch). The rate used for the valuation is based on the duration of the plan in question. The inflation rate is based on the duration of the plan. Average remaining working life is determined by plan and factors in turnover assumptions.
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4.2.2 Other long-term benefits
Accounting principles end of the period in which the employees render the Long-term benefits are employee benefits that do related services. The valuation method is identical to not fall due wholly within the twelve months after the the one used for post-employment benefits.
Other long-term benefits granted to Crédit du Nord The net balance of other long-term benefits came to Group employees include deferred bonuses, such as €22.8 million in 2019 (o/w €12.7 million related to flexible flexible working provisions and long-service awards. working provisions). Other benefits besides post-employment benefits The net balance of other long-term benefits was -€2.4 and end-of-career benefits are not due in full in the million at December 31, 2019 (expenses). 12 months following the end of the year in which the members of staff provided the corresponding services.
4.3 Other administrative expenses
(in €m) 2019 2018 Taxes -27.0 -22.9 Other expenses Rent, rental charges and other charges on buildings -41.0 -40.6 Sub-contracting expenses -320.8 -328.1 Charges reinvoiced to third parties 147.5 155.3 Transfer of charges 51.5 50.7 SUB-TOTAL -162.8 -162.7 TOTAL -189.8 -185.6
Statutory Auditors’ fees Information on Statutory Auditors’ fees is provided in the notes to the consolidated financial statements; consequently, this information is not included in the notes to the annual financial statements.
218 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Annual fi nancial statements Notes to the annual fi nancial statements 4
NOTE 5 Income tax
Accounting principles book values and the tax values of balance sheet items. Deferred taxes are calculated using the liability Current taxes method. Accordingly, they are adjusted whenever Since January 1, 2010, Crédit du Nord has been there is a change in the tax rate. The corresponding included in Societe Generale’s tax consolidation impact is added to/subtracted from the deferred tax scope. A tax consolidation sub-group was set up expense. Net deferred tax assets are recognised between Crédit du Nord and some of the subsidiaries where there is a possibility of recovery over a given in which it holds a direct or indirect ownership interest time period. of at least 95%. The convention adopted is that of The 2018 Finance Act, published in the “Journal neutrality. Officiel” on December 31, 2017, calls for a gradual In France, the standard corporate tax rate is reduction in the tax rate in France (amended by 33.33%. In addition, companies pay a 3.3% social law 2019-759 of July 24, 2019 with regard to the security contribution on profits (after a deduction of corporate tax rate for 2019 and by the Finance Act for €0.76 million), introduced in 2000. 2020 in the case of corporate tax rates for 2020 and 2021). The standard corporate tax rate of 33.33% will Long-term capital gains on equity investments are be reduced to 25% by 2022. In addition, companies tax-exempt, subject to taxation of a share of fees will still be required to pay the 3.3% social security and expenses equivalent to 12% of the gross capital contribution on profits. gain only if the company generates a net long-term capital gain in respect of the year in which the equity The deferred taxes for which French companies are investments are sold. liable are calculated by applying the tax rate that will be in force until the temporary difference is reversed. In addition, under the parent companies/subsidiaries Given the gradual reduction in rates from now through scheme, dividends received from companies in which 2022, deferred taxes (including the social security the equity investment is at least 5% are tax-exempt, contribution on profits) will be: subject to taxation on a share representing fees and expenses. • for taxable income taxed at the standard rate: from 34.43% or 32.02% in 2019 to 25.83% in 2022 and Deferred taxes beyond; Crédit du Nord records deferred taxes in its parent • for taxable income taxed at the reduced rate: from company financial statements. 4.13% or 3.84% in 2019 to 3.10% in 2022 and Deferred taxes are recognised in the event a beyond. temporary difference is detected between the restated
(in €m) 2019 2018 Current taxes (1) -65.0 -79.4 Deferred taxes 21.0 11.5 TOTAL -44.0 -67.9
(1) The 2019 tax expense includes tax consolidation income of €0.1 million versus an expense of €3.7 million in respect of fiscal year 2018.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 219 Financial statements | Annual fi nancial statements 4 Notes to the annual fi nancial statements
Reconciliation of the normative tax rate and the effective tax rate
2019 2018 Net income before tax (in €m) 232.4 498.1 Normal tax rate applicable to French companies (including the 3.3% social security contribution) 34.43% 34.43% Permanent differences -16.10% -20.50% Differential on items taxed at reduced rate 0.00% -0.03% Tax differential on profits taxed outside France 0.61% -0.27% Effective tax rate 18.94% 13.63%
NOTE 6 Shareholders’ equity
6.1 Change in shareholders’ equity
Additional Reserves paid-in capital and merger Retained Net Regulated Shareholders’ (in €m) Capital (1) premiums legal statutory others earnings income provisions equity Amount at December 31, 2017 890.3 11.1 89.0 1,326.7 0.2 450.5 219.1 0.9 2,987.8 Capital increase ------3rd Resolution of the Combined Shareholders’ Meeting of May 18, 2018 ------9.0 -219.1 - -228.1 2018 net income ------430.2 - 430.2 Other changes - - - - -0.1 - - 0.1 - Amount at December 31, 2018 890.3 11.1 89.0 1,326.7 0.1 441.5 430.2 1.0 3,189.9 Capital increase ------3rd Resolution of the Combined Shareholders’ Meeting of May 23, 2019 (2) - - - - - 89.7 -430.2 - -340.5 2019 net income ------188.4 - 188.4 Other changes ------AMOUNT AT DECEMBER 31, 2019 890.3 11.1 89.0 1,326.7 0.1 531.2 188.4 1.0 3,037.8
(1) At December 31, 2019, Crédit du Nord SA’s fully paid-up share capital amounted to €890,263,248 and consisted of 111,282,906 shares each with a par value of €8. (2) Distribution of a dividend of €340.5 million to shareholders.
Societe Generale owned 100% of Crédit du Nord’s quorum and majority, resolves to allocate net income for capital at December 31, 2019. As a result, Crédit du the period amounting to €188,417,172.20. Nord’s accounts are fully consolidated in Societe Profits plus earnings carried forward from the previous Generale’s consolidated financial statements. period, i.e. €531,078,562.10 resulted in total income available for distribution of €719,495,734.30, which the Proposed distribution of earnings General Meeting resolves to allocate in full to retained The General Meeting of Shareholders, under the earnings. conditions required by Ordinary General Meetings as to
220 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Annual fi nancial statements Notes to the annual fi nancial statements 4
6.2 Subordinated debt
Accounting principles Interest accrued and payable in respect of This item includes all dated or undated subordinated subordinated debt, if any, is shown with the underlying borrowings which, in the event of the liquidation of liabilities as related payables through profit or loss. the borrower, may only be redeemed after all other creditors have been paid.
(in €m) 31/12/2019 31/12/2018 Redeemable subordinated notes -- Undated subordinated notes 110.0 110.0 Subordinated borrowings 450.0 450.0 Interest payable 0.3 0.3 TOTAL 560.3 560.3
6.2.1 Breakdown of perpetual subordinated notes
December 2017 issue for a total of €110 million with the following characteristics: Size: €110 million Principal: €110 million Number of notes: 1 Issue price: 100.00% of principal Maturity: Perpetual Interest: 3M Euribor + 3.83%
6.2.2 Detailed information on subordinated borrowings
Subordinated loan totalling €450 million, taken out on September 15, 2017, with the following characteristics: Loan amount: €450 million Maturity: 12 years Interest: 3M Euribor + 1.41% Due date: September 15, 2029
With the approval of the European Central Bank, the There is no clause for the conversion of subordinated subordinated loan of €350 million taken out on March debt into capital or any other form of liability. 22, 2011 was prepaid on December 27, 2017. This loan Interest paid on all the above subordinated debts was replaced with a new subordinated loan of €450 amounted to €8.7 million at December 31, 2019 versus million taken out on September 15, 2017. €11.2 million at December 31, 2018.
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NOTE 7 Other disclosures
7.1 Tangible and intangible fixed assets
Accounting principles Crédit du Nord has applied this approach to its Operating and investment fixed assets are booked operating property, breaking down its assets on the balance sheet at cost. Borrowing expenses into at least the following components with their incurred to fund a lengthy construction period for corresponding depreciation periods: fixed assets are included in the acquisition cost, along with other directly attributable expenses. Investment Major structures 50 years subsidies received are deducted from the cost of the Infrastructures Doors and windows, roofing 20 years relevant assets. Frontages 30 years Elevators Software developed in-house is capitalised at the Electrical installations direct development cost, which includes external hardware and service costs and personnel expenses Electricity generators directly attributable to the production and preparation Air conditioning, smoke Technical extraction 10-30 of the software application in order to use it. installations Heating years As soon as they are fit for use, fixed assets are Security and surveillance depreciated over their useful life. Any residual value installations of the asset is deducted from its depreciable amount. Plumbing Depreciation is calculated mainly using the straight Fire safety equipment Fixtures & line method over the specified useful life of the asset. Finishings, surroundings 10 years fittings Where one or more components of a fixed asset are used for different purposes or to generate economic Depreciation periods for other categories of fixed benefits over a different time period from the asset assets depend on their useful life, usually estimated in considered as a whole, these components are the following ranges: depreciated over their own useful life. Allocations to depreciation and amortisation are recorded on Plant and equipment 5 years the income statement under “Depreciation and Transport equipment 4 years amortisation”. Furniture 10 years IT and office equipment 3-5 years Software, developed or acquired 3-5 years Franchises, patents and licenses 5-20 years
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7.1.1 Detailed information on fixed assets
Accumulated Gross Gross depreciation and value at Other value at amortisation at Net value at (in €m) 31/12/2018 Acquisitions Disposals changes 31/12/2019 31/12/2019 (1) 31/12/2019 Operating fixed assets Intangible assets Start-up costs ------Software created 406.6 52.4 -0.2 - 458.8 -304.0 154.8 Software purchased 57.3 0.3 - - 57.6 -56.1 1.5 Others 20.1 - -0.3 - 19.8 -10.9 8.9 SUB-TOTAL 484.0 52.7 -0.5 - 536.2 -371.0 165.2 Tangible assets Land and buildings 233.0 10.2 -0.7 2.6 245.1 -116.2 128.9 Others 294.7 15.3 -4.5 -2.6 302.9 -247.4 55.5 SUB-TOTAL 527.7 25.5 -5.2 - 548.0 -363.6 184.4 Fixed assets (excluding operating fixed assets) Tangible assets Land and buildings 1.2 - -0.2 - 1.0 -0.9 0.1 Others 1.0 - - - 1.0 -0.9 0.1 SUB-TOTAL 2.2 - -0.2 - 2.0 -1.8 0.2 TOTAL 1,013.9 78.2 -5.9 - 1,086.2 -736.4 349.8
(1) Breakdown of depreciation, amortisation and impairment:
Intangible assets Operating tangible assets Fixed assets Software Software Land & excluding operating (in €m) created purchased Others Buildings Others fixed assets (*) Total Amount at December 31, 2018 272.8 55.2 0.1 103.7 239.8 2.0 673.6 Depreciation and amortisation 31.4 0.9 0.4 12.0 11.8 - 56.4 Depreciation and amortisation relating to asset disposals -0.2 - -0.3 -0.7 -4.5 -0.2 -5.9 Impairment of fixed assets - - 0.5 2.5 - - 3.0 Impairment reversals - - -0.1 - - - -0.1 Other changes - - 10.4 -1.3 0.3 - 9.4 AMOUNT AT DECEMBER 31, 2019 304.0 56.1 10.9 116.2 247.4 1.8 736.4
(*) Allocations to depreciation and amortisation of fixed assets (excluding operating fixed assets) are included in “Net banking income”.
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7.1.2 Gains or losses on fixed assets
Accounting principles impairment for operating fixed assets. Income from “Gains or losses on fixed assets” includes capital real-estate holdings excluding offices is booked gains or losses on disposal and net allocations to under “Net banking income”.
(in €m) 2019 2018 Tangible operating fixed assets Capital gains on disposal 0.2 0.7 Capital losses on disposal -- SUB-TOTAL 0.2 0.7 Operating intangible fixed assets Capital gains on disposal -- Capital losses on disposal -- SUB-TOTAL -- TOTAL 0.2 0.7
7.2 Non-recurring income (expense)
(in €m) 2019 2018 Non-recurring income -- Non-recurring expense (1) -10.4 -9.7 TOTAL -10.4 -9.7
(1) At December 31, 2019, Crédit du Nord recorded a non-recurring expense of €10.4 million related to the correction of the provision for impairment of the leasehold right (see Note 1.4)
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7.3 Provisions
Accounting principles Provisions are recognised as liabilities on the income statement and include provisions for financial instruments, provisions for home savings accounts and plans, provisions for disputes and provisions for employee benefits.
Allocations Reversals/Uses Other changes by other by other changes income income in Provisions at by cost statement by cost statement impact - exchange Provisions at (in €m) 31/12/2018 of risk balance of risk balance reserves rates 31/12/2019 Provisions for credit risks (Note 2.6.2) 67.3 71.1 - -38.2 - - - 100.2 Provisions for employee benefits (Note 4.2) 31.0 - 4.4 - -2.5 - - 32.9 Provisions for disputes with customers 19.8 - 6.1 - -1.9 - - 24.0 Loss allowances for forward financial instruments 4.1 - 2.0 - -0.1 - - 6.0 Other provisions for general risk and expenses (*) 14.4 - 8.9 -0.5 -1.8 - - 21.0 TOTAL 136.6 71.1 21.4 -38.7 -6.3 - - 184.1
(*) This item mainly comprises PEL/CEL loss allowances amounting to €7.2 million in 2019 (see Note 2.6.3) and a tax provision of €0.7 million).
7.4 Assets and liabilities - Breakdown by residual maturity
Residual maturity at December 31, 2019 Less than 3 months More than (in €m) 3 months to 1 year 1-5 years 5 years Total ASSETS (USES OF FUNDS) Due from banks 2,454.5 1,383.6 8,364.7 10,875.5 23,078.3 Transactions with customers 2,308.7 1,952.8 7,755.9 8,685.7 20,703.0 Bonds and other fixed-income securities Trading securities ----- Short-term investment securities 114.7 148.2 1,979.3 173.1 2,415.3 Long-term investment securities ----- TOTAL 4,877.9 3,484.5 18,099.9 19,734.3 46,196.5 LIABILITIES (RESOURCES) Due to banks 4,247.5 1,033.3 9,322.9 11,096.3 25,700.0 Transactions with customers 23,849.3 321.7 546.2 0.2 24,717.4 Debt securities 238.7 1,586.9 879.8 138.6 2,844.0 TOTAL 28,335.5 2,941.9 10,748.9 11,235.1 53,261.4
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7.5 Foreign exchange transactions
Accounting principles foreign exchange transactions are measured at the Gains and losses arising from ordinary activities exchange rate of the currency in question over the in foreign currencies are booked to the income remaining forward term. Spot and other forward statement. “Outright” forward foreign exchange foreign exchange positions are revalued on a monthly transactions or forward foreign exchange basis using official month-end spot rates. Resulting transactions carried out to hedge other forward valuation differences are regularly recorded in the income statement.
31/12/2019 31/12/2018 Currencies to Currencies to Currencies to Currencies to (in €m) Assets Liabilities be received be delivered Assets Liabilities be received be delivered EUR 56,809.5 56,431.0 41.9 43.6 54,059.3 53,536.8 135.5 43.1 USD 253.7 592.7 40.3 34.8 172.6 587.7 42.1 131.0 GBP 34.6 75.1 0.4 0.7 20.7 103.3 0.2 1.2 CHF 1,039.3 1,055.6 0.6 4.4 1,095.8 1,121.2 1.2 2.2 JPY 15.4 2.5 0.1 0.3 0.8 2.5 1.3 0.3 Other currencies 31.3 26.9 2.0 1.6 32.0 29.7 5.0 7.4 TOTAL 58,183.8 58,183.8 85.3 85.4 55,381.2 55,381.2 185.3 185.2
226 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Annual fi nancial statements Notes to the annual fi nancial statements 4
7.6 Table of subsidiaries and equity investments
Net asset value Share of of shares owned Shareholders’ capital Guarantees Net Dividends At December 31, 2019 equity other owned (as Unpaid loans and and commit- banking 2019 net received Obser- (in €k) Legal form Capital than capital a %) Gross Net advances ments given income income in 2019 vations
A. Information on subsidiaries and equity investments owned by Crédit du Nord, whose net asset value exceeds 1% of the bank’s capital
Subsidiaries (at least 50% of capital owned) Banque Courtois SA 33, rue Rémusat (limited 31000 Toulouse company) 18,400 113,687 100.00 68,502 68,502 1,958,923 115 143,441 22,693 7,498 Banque Tarneaud SA 2-6, rue Turgot (limited 87000 Limoges company) 26,703 119,675 100.00 122,833 122,833 1,572,173 115 123,881 19,295 7,210 Banque Rhône-Alpes 20-22, boulevard SA Edouard Rey (limited 38000 Grenoble company) 12,563 139,985 99.99 111,622 111,622 2,271,846 115 132,811 17,363 17,272 Banque Nuger 5, place Michel-de- SA l’Hospital (limited 63000 Clermont-Ferrand company) 11,445 25,100 100.00 43,373 43,373 281,972 1,169 34,816 3,816 2,564 SA Banque Laydernier (limited 10, avenue du Rhône com- 74000 Annecy pany) 24,789 60,491 100.00 48,403 48,403 1,587,728 115 78,448 8,992 - Etoile ID 59, boulevard SA Haussmann (limited 75008 Paris company) 35,400 14,416 100.00 42,977 42,977 - - 26 -4 - Banque Kolb 1-3, place du Général- SA de-Gaulle (limited 88500 Mirecourt company) 14,099 76,247 78.54 46,738 46,738 931,069 115 68,462 8,856 - SAS Kolb Investissement (simpli- 59, boulevard fied joint Haussmann stock 75008 Paris company) 77 27,143 100.00 38,964 38,964 - - - -19 - Star Lease 59, boulevard SA Haussmann (limited 75008 Paris company) 55,000 104,395 100.00 55,000 55,000 1,857,787 810,981 7,593 -20,918 - Société Marseillaise de Crédit SA 75, rue Paradis (limited 13006 Marseille company) 24,472 316,059 100.00 1,006,353 1,006,353 3,832,323 115 369,143 59,308 16,427 SAM (Mone- Société Banque gasque de Monaco public 27, avenue de la Costa limited 98000 Monaco company) 82,000 82,000 59.00 48,380 48,380 - - - - -
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 227 Financial statements | Annual fi nancial statements 4 Notes to the annual fi nancial statements
Net asset value Share of of shares owned Shareholders’ capital Guarantees Net Dividends At December 31, 2019 equity other owned (as Unpaid loans and and commit- banking 2019 net received Obser- (in €k) Legal form Capital than capital a %) Gross Net advances ments given income income in 2019 vations
Equity investments (less than 50% of capital owned) Crédit Logement 50, boulevard SA Sébastopol 75003 (limited Paris company) 1,259,850 346,838 3.00 38,852 38,852 46,117 89,143 204,280 102,486 7,395 (1) Sicovam Holding SA 18, rue La Fayette (limited 75009 Paris company) 10,265 528,171 8.15 34,454 34,454 - - 93,004 385,720 978 (2) (3) Antarius 59, boulevard SA Haussmann (limited 75008 Paris company) 314,060 55,704 50.00 157,407 157,407 - - 1,497,192 65,113 42,300 (1) (3)
B. General information concerning other subsidiaries and equity investments
Subsidiaries not covered in section A a) French subsidiaries (combined) - - - 22,673 22,673 676,372 271,540 - - 60 b) Foreign subsidiaries (combined) ------
Equity investments (4) not covered in Section A a) French equity investments (combined, including property development companies) - - - 29,316 28,776 158 3,005 - - 239 b) Foreign equity investments (combined) - - - 92 92 - - - - 245
(1) Data in italics pertain to December 31, 2018 (2019 data unavailable). (2) Data in italics taken at July 31, 2019 (subject to approval). (3) For non-banking companies, revenue is indicated rather than “Net banking income”. (4) Including equity investments of less than 10% recorded in equity investment accounts, in accordance with the provisions of the internal chart of accounts. Note: Net income and “Net banking income” for 2019 are indicated, for some companies, subject to the approval of the financial statements by the Ordinary General Shareholders’ Meeting scheduled to meet in 2020. Crédit du Nord does not hold any direct or indirect investments in non-cooperative countries or territories.
228 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Annual fi nancial statements Statutory auditors’ report on the fi nancial statements 4
Statutory auditors’ report on the financial statements Year ended December 31, 2019
This is a translation into English of the Statutory Auditors’ report on related-party agreements that is issued in French and it is provided solely for the convenience of English-speaking users. This report on related-party agreements should be read in conjunction, and construed in accordance with, French law and professional auditing standards applicable in France. It should be understood that the agreements reported on are only those provided by the French Commercial Code and that the report does not apply to those related-party transactions described in IAS 24 or other equivalent accounting standards.
To the annual general meeting Crédit du Nord,
Opinion Independence We conducted our audit engagement in compliance with In compliance with the engagement entrusted to us independence rules applicable to us, for the period from by your annual general meeting, we have audited the January 1, 2019 to the date of our report and specifically accompanying financial statements of Crédit du Nord we did not provide any prohibited non-audit services for the year ended December 31, 2019. These financial referred to in Article 5(1) of Regulation (EU) No 537/2014 statements were approved by the Board of Directors or in the French Code of ethics (Code de Déontologie) on February 26, 2020 on the basis of the information for statutory auditors. available at that date in the evolving context of the Covid-19 health crisis. In our opinion, the financial statements give a true and Justification of Assessments - Key Audit fair view of the assets and liabilities and of the financial Matters position of the Company as at December 31, 2019 and In accordance with the requirements of Articles of the results of its operations for the year then ended in L. 823-9 and R. 823-7 of the French Commercial Code accordance with French accounting principles. (Code de Commerce) relating to the justification of our The audit opinion expressed above is consistent with our assessments, we inform you of the key audit matters report to the Audit Committee. relating to risks of material misstatement that, in our professional judgment, were of most significance in our Basis for Opinion audit of the financial statements of the current period, as well as how we addressed those risks. Audit Framework These matters were addressed in the context of our We conducted our audit in accordance with professional audit of the financial statements as a whole, and in standards applicable in France. We believe that the audit forming our opinion thereon, and we do not provide evidence we have obtained is sufficient and appropriate a separate opinion on specific items of the financial to provide a basis for our opinion. statements. Our responsibilities under those standards are further described in the “Statutory Auditors’ Responsibilities for the Audit of the Financial Statements” section of our report.
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Measurement of impairment and provisions on loans and other commitments granted to client
Risk identified Our response
Loans and receivables to clients carry a credit risk Our audit approach consisted in obtaining an that exposes Crédit du Nord to a potential loss if its understanding of the process of measuring impairment clients or counterparty is unable to meet its financial and collective provisions in place at Crédit du Nord, commitments. Crédit du Nord recognizes individual assisted, with the support of our experts in Credit impairment that amounts 444.8 M€ and collective Risk modelling. We tested the key controls set up by provisions that amounts 67.3 M€ to cover the credit Management for determining the assumptions and risk which accounting principles of valuation are parameters used as a basis for this measurement. presented in Note 2.6 «Impairment and provisions » Regarding under-performing loans for which provisions to the financial statements. are determined on a collective basis, our work consisted As stated in Note 1 “Significant accounting in: principles” to the financial statement, the amount • assessing the assumptions and documentation of of collective provisions for credit risk is measured Crédit du Nord used to identify a significant increase based on the amount of the expected credit losses in credit risk; within 1-year for non-downgraded performing loans • analyzing the key parameters used by Crédit du Nord and to maturity for downgraded performing loans. to measure collective provisions; Credit du Nord’s management uses its judgement to • examining the qualitative and the quantitative set assumptions and parameters used to calculate information disclosed in the notes to the financial these collective provisions. statements. • Regarding doubtful loans to retail customers whose Furthermore, Crédit du Nord uses its judgment impairments are calculated according to a statistical and makes accounting estimates to measure the method, our work consisted in: impairment and individual provisions on the doubtful • conducting interviews during the year with the people loans to corporate clients. in charge of risk monitoring in order to become On individual and professional customer markets, acquainted with the governance and the procedures impairments of doubtful loans are determined implemented to assess these impairments and ensure according the principles described in Note 2.6.1 their correct accounting; “Impairment” to the financial statements: • testing the operating effectiveness of the key controls • according to a statistical method, for loans under related to these procedures; certain operational thresholds. For loans covered • familiarizing ourselves with the parameters used by by this method, certain parameters used in this Management to input into the model, and assessing model are based on management’s estimates; whether the choice of parameters is part of an established governance that is documented; • according to the analysis of an expert, for the • assessing the sensitivity of certain significant loans exceeding these operational thresholds. parameters relating to the impairment amounts For these loans, management uses its judgment calculated according to this method. to determine impairments. • examined the qualitative and the quantitative information disclosed in the notes to the financial statements.
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We consider the measurement of impairment and For doubtful loans to retail customers whose impairments provisions on loans and other commitments granted are determined according to analysis by an expert, we: to clients to be a key audit matter. • acknowledged with the procedures applied to determine these impairments and the related documentation; • examined the data and assumptions used by Management to determine the amount of the impairments for a sample of loans; • examined the qualitative and the quantitative information disclosed in the notes to the financial statements.
Specific verifications considers that such operations fall outside the scope of disclosable information. We have also performed, in accordance with professional standards applicable in France, the specific Report on Corporate Governance verifications required by laws and regulations. We attest that the Board of Directors’ Report on Corporate Governance sets out the information required Information given in the Management Report and in the Other Documents with respect by Articles L. 225-37-3 and L. 225-37-4 of the French to the financial position and the financial Commercial Code (Code de Commerce). statements provided to the Shareholders Concerning the information given in accordance with We have no matters to report as to the fair presentation the requirements of Article L. 225-37-3 of the French and the consistency with the financial statements of Commercial Code (Code de Commerce) relating to the information given in the management report of the remunerations and benefits received by the directors Board of Directors approved on February 26, 2020 and and any other commitments made in their favor, we have in the other documents with respect to the financial verified its consistency with the financial statements, or position and the financial statements provided to the with the underlying information used to prepare these Shareholders except for the point described below. financial statements and, where applicable, with the With regard to the events which occurred and the facts information obtained by your Company from controlling known after the date the financial statements were and controlled companies. Based on these procedures, approved by Board of Directors relating to the impact we draw your attention to the following matter relating of the Covid-19 crisis, the management indicated to us to the accuracy and fair presentation of this information: that they will be communicated to the Annual General the information does not include all the remunerations Meeting called to approve the financial statements. and benefits paid by the company controlling your We have the following matter to report regarding the Company to the directors concerned in respect of the fair presentation and consistency with the financial terms of office, functions or assignments other than statements of the information relating to payment terms those performed within or on behalf of Crédit du Nord referred to in article D. 441-4 of the French Commercial Group; the information includes the remunerations and Code (Code de Commerce): as stated in the benefits paid by your Company to the directors solely management report, this information does not include in respect of their terms of office within Crédit du Nord. bank and other related operations as your Company
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 231 Financial statements | Annual fi nancial statements 4 Statutory auditors’ report on the fi nancial statements
Other information Statutory Auditors’ Responsibilities for In accordance with French law, we have verified that the Audit of the Financial Statements the required information concerning the purchase of investments and controlling interests and the identity Objectives and audit approach of the shareholders or holders of the voting rights and Our role is to issue a report on the financial statements. cross-shareholdings has been properly disclosed in the Our objective is to obtain reasonable assurance about management report. whether the financial statements as a whole are free from material misstatement. Reasonable assurance is Report on Other Legal and Regulatory a high level of assurance, but is not a guarantee that Requirements an audit conducted in accordance with professional standards will always detect a material misstatement Appointment of the Statutory Auditors when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in We were appointed as statutory auditors of Société the aggregate, they could reasonably be expected to Générale by your Annual General Meeting held in 1982 influence the economic decisions of users taken on the for DELOITTE & ASSOCIES and on May 4, 2000 for basis of these financial statements. ERNST & YOUNG et Autres. As specified in Article L. 823-10-1 of the French As at December 31, 2019, DELOITTE & ASSOCIES Commercial Code (Code de Commerce), our statutory was in the thirty-eighth year of total uninterrupted audit does not include assurance on the viability of the engagement and ERNST & YOUNG et Autres in the Company or the quality of management of the affairs of nineteenth year. the Company. As part of an audit conducted in accordance with Responsibilities of Management and professional standards applicable in France, the Those Charged with Governance for the statutory auditor exercises professional judgment Financial Statements throughout the audit and furthermore: Management is responsible for the preparation and fair • identifies and assesses the risks of material presentation of the financial statements in accordance misstatement of the financial statements, whether with French accounting principles and for such internal due to fraud or error, designs and performs audit control as management determines is necessary to procedures responsive to those risks, and obtains enable the preparation of financial statements that are audit evidence considered to be sufficient and free from material misstatement, whether due to fraud appropriate to provide a basis for his opinion. The or error. risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, In preparing the financial statements, management as fraud may involve collusion, forgery, intentional is responsible for assessing the Company’s ability to omissions, misrepresentations, or the override of continue as a going concern, disclosing, as applicable, internal control; matters related to going concern and using the going concern basis of accounting unless it is expected to • obtains an understanding of internal control relevant liquidate the Company or to cease operations. to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the The Audit Committee is responsible for monitoring purpose of expressing an opinion on the effectiveness the financial reporting process and the effectiveness of the internal control; of internal control and risk management systems and where applicable, its internal audit, regarding the • evaluates the appropriateness of accounting policies accounting and financial reporting procedures. used and the reasonableness of accounting estimates and related disclosures made by management in the The financial statements were approved by the Board financial statements; of Directors.
232 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Financial statements | Annual fi nancial statements Statutory auditors’ report on the fi nancial statements 4
• assesses the appropriateness of management’s use the results of our audit. We also report, if any, significant of the going concern basis of accounting and, based deficiencies in internal control regarding the accounting on the audit evidence obtained, whether a material and financial reporting procedures that we have uncertainty exists related to events or conditions that identified. may cast significant doubt on the Company’s ability Our report to the Audit Committee includes the risks of to continue as a going concern. This assessment material misstatement that, in our professional judgment, is based on the audit evidence obtained up to the were of most significance in the audit of the financial date of his audit report. However, future events or statements of the current period and which are therefore conditions may cause the Company to cease to the key audit matters that we are required to describe in continue as a going concern. If the statutory auditor this report. concludes that a material uncertainty exists, there is We also provide the Audit Committee with the a requirement to draw attention in the audit report to declaration provided for in Article 6 of Regulation (EU) the related disclosures in the financial statements or, N° 537/2014, confirming our independence within if such disclosures are not provided or inadequate, to the meaning of the rules applicable in France such as modify the opinion expressed therein; they are set out in particular by Articles L. 822-10 to • evaluates the overall presentation of the financial L. 822-14 of the French Commercial Code (Code de statements and assesses whether these statements Commerce) and in the French Code of Ethics (Code de represent the underlying transactions and events in a Déontologie) for statutory auditors. Where appropriate, manner that achieves fair presentation. we discuss with the Audit Committee the risks that may reasonably be thought to bear on our independence, Report to the Audit Committee and the related safeguards. We submit to the Audit Committee a report which includes in particular a description of the scope of the audit and the audit program implemented, as well as
Paris-La Défense, April 22, 2020
The Statutory Auditors French original signed by
DELOITTE & ASSOCIES ERNST & YOUNG et Autres Marjorie BLANC LOURME Vincent ROTY
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 233 4 Etats fi nanciers
234 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Rapport du Président sur les conditions de préparation et d’organisation des travaux du Conseil 5 ainsi que sur le Contrôle Interne et la gestion des risques
Risks and Capital Adequacy 5 Introduction and key figures ______236 5.6 Operational risks ______286 Operational risk management: organisation and 5.1 Risk factors ______238 governance 286 Risks related to macro-economic, market, and Measurement of operational risks 287 regulatory contexts 238 Operational risk monitoring process 288 Credit and counterparty risks 241 Operational risk modelling 290 Operational risk (including misconduct risk) and model risk 242 Operational risk insurance 291 Exchange rate, liquidity and funding risks 245 Capital requirements 291 Risks related to insurance activities 246 Market risks 246 5.7 Structural interest rate risk ______292 Organisation of structural interest rate risk management 292 5.2 Risk management system ______247 Structural interest rate risk - measurement and Governance of risk management 247 monitoring system 293 Risk appetite 248 Structural foreign exchange risk 295 Stress test system 251 5.8 Liquidity risk ______295 5.3 Capital management and adequacy ______252 Governance and organisation 295 Regulatory framework 252 Liquidity risk measurement system 296 Scope of application – prudential framework 253 Liquidity reserve 297 Own funds 253 Regulatory ratios 298 Capital requirements 256 Disclosures on asset encumbrance 299 Capital oversight 258 Leverage ratio 258 5.9 Non-compliance, reputational Ratio of large exposures 259 and legal risks ______300 Compliance 300 5.4 Credit and counterparty risks ______260 Risks and disputes 302 Organisation 260 Credit policy 260 5.10 Model risk______303 Risk supervision and monitoring system 261 Hedging against credit risk, guarantees, and collateral 262 5.11 Risks related to insurance activities ______304 Impairments 264 Management of insurance risks 304 Replacement risk 267 Modelling of insurance risk 305 Risk measurement and internal ratings 268 Rating system 269 5.12 Other risks ______306 Quantitative disclosures 272 Equity-related risks 306 Strategic risks 308 5.5 Market risks ______279 Environmental and social risks 308 Methods for measuring market risk and defining limits 279 Conduct risk 308 Implementation of the Group’s market risk appetite 279 99% Value-at-Risk (VaR) 280 Stress test assessment 282 Valuation of financial instruments 284 Capital requirements with regard to market risk 284 Market risk capital requirements and risk-weighted assets 285
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 235 Risks and Capital Adequacy 5
Introduction and key figures
This chapter includes information on the management of risks related to financial instruments, as well as information on the management of capital and respect for regulatory ratios required by the IFRS standards as adopted in the European Union. Some of the information herein is an integral part of the appendices to the Group’s consolidated financial statements and is covered by the Statutory Auditors’ report on the consolidated accounts; this information is identified by the heading “Audited I”, (the symbol ▲ indicates the end of the audited section). Crédit du Nord Group is subject to oversight by supervisory authorities and to regulations on capital requirements applicable to credit institutions and investment firms (Regulation (EU) No. 575/2013 of June 26, 2013). Within the framework of the third pillar of the Basel Accord, a detailed and standardised report is conducted, entitled “Report on risks aimed at improving published financial information”. All elements related to the Pillar 3 report and to prudential publications are available on the website www.groupe-credit-du-nord.com, under Life of the Bank > Crédit du Nord Group > Information on the company > Pillar 3 report on risks.
Total capital ratio (as a %; amounts in €m)
14.3% 14.1% 14.2% 2,684.5 2,741.0 2,799.5
2.6% 2.3% 2.3% 495.9 450.0 450.0 0.6% 0.6% 0.6% 110.0 110.0 110.0
11.1% 11.2% 11.3% 2,078.6 2,181.0 2,239.5
2017 2018 2019 2017 2018 2019 Category 2 own funds Common Equity Tier 1 ratio Category 2 own funds Common Equity Tier 1 ratio Additional category 1 own funds Additional category 1 own funds
236 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy 5
Fully-loaded CET1 and total capital ratios
14.3% 14.1% 14.2%
11.1% 11.2% 11.3%
Fully-loaded ratio Common Total capital Common Total capital Common Total capital Equity Tier 1 ratio Equity Tier 1 ratio Equity Tier 1 ratio
2017 2018 2019 Leverage ratio(1) One-month liquidity coverage ratio (LCR)
136.2% 3.0% 3.1% 3.1% 132.6%
123.6%
31/12/2017 31/12/2018 31/12/2019 31/12/2017 31/12/2018 31/12/2019
(1) Fully-loaded ratio based on CRR rules adopted by the European Commission in October 2014 (Delegated Act).
Risk-weighted assets Doubtful loans (RWA, period-end, in €m) (RWA, period-end, in €m)
18,786 19,487.3 19,748.4 1,299.7 1,305.8
1,219.7 39.9 84.1% 59.8
21.9
77.9%
76.4%
17,544.42.5 %18,121.72.7 % 18,408.8 3.0 % 5.4% 4.7% 4.0%
2017 2018 2019 2017 2018 2019 RWA or credit risk-weighted assets RWA or market risk-weighted assets Gross doubtful Gross doubtful exposures RWA or operational risk-weighted assets exposures ratio coverage (overall provisions / (doubtful / gross exposures) doubtful loans)
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 237 Risks and Capital Adequacy 5 Risk factors
5.1 Risk factors
This section indicates the main risk factors that could, • foreign exchange, liquidity and financing risks; based on the Group’s assessment, have a negative • risks related to insurance activities; impact on its activity, profitability, solvency and/or access • market risks. to financing. Risk factors are presented on the basis of an evaluation The risks specific to the Group’s activity are presented of their importance, and the major risks are listed first below under six main categories, in accordance with in each category. The figures related to risk exposure Article 16 of the “Prospectus 3” regulation 2017/1129 or assessment of risk factors provide information on of June 14, 2017, applicable since July 21, 2019 to the the Group’s level of exposure, but are not necessarily following risk factors: representative of the ongoing evolution of risks. • risks related to macro-economic, market and regulatory contexts; • credit and counterparty risks; • operational and model risks;
Risks related to macro-economic, market, and regulatory contexts
The economic and financial context, as well as several countries in the Eurozone, Brexit (refer to the risk the context of the markets in which the Group factor “Brexit and its impact on financial markets and operates, may have an adverse effect on the the economic environment could have repercussions on Group’s activities, financial position, and results. the Group’s activity and results”) and the persistence of The Group exercises its activities exclusively in mainland trade tensions between the United States and China, as France and in Monaco. It is sensitive to changes in well as fears of a slowdown of growth in China. These financial markets and to the economic environment in trade tensions could weaken certain industrial sectors France and throughout Europe, and to a lesser degree and, consequently, the credit quality of the actors in the United States and the rest of the world. The Group concerned, which could negatively affect the Group’s could be faced with significant deteriorations in market activities and results. conditions and the economic environment that may The prolonged period of low interest rates in the arise from crises affecting capital or credit markets or Eurozone, driven by accommodating monetary policies, from liquidity constraints, regional or global recessions, has affected, and could continue to affect, the Group’s major volatility in the pricing of commodities (notably oil), net interest margin (which stood at €880 million in 2019). changes in exchange rates or interest rates, inflation or In addition, this low-interest rate environment tends to deflation, a decline in ratings, restructuring or defaults in give rise to an increase in the risk appetite of certain sovereign or private debt, or geopolitical events (such as actors in the banking and financial system, which could terrorist attacks or armed conflicts). Such events, which translate into excessive risk-taking, low risk premiums may happen suddenly and the effects of which may be compared with their historic averages and high levels of unanticipated, could have a temporary or lasting impact valuation of certain assets. on the conditions in which the Group operates and a Moreover, the abundant liquidity environment that was material adverse effect on the Group’s financial position, behind the acceleration of credit growth in the Eurozone cost of risk, and results. and particularly in France, could lead monitoring Over the course of the past few years, financial markets authorities to introduce additional regulatory measures have seen such significant disruptions arising from in order to limit the provision of credit or to strengthen concerns over the trajectory of the sovereign debt of the protection of banks against a reversal in the financial
238 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Risk factors 5
cycle. Finally, the rise or accumulation of political and the United Kingdom’s withdrawal from the European geopolitical risks (notably in the Middle East) is a source Union on Friday, January 31. The European Parliament of additional uncertainty that could, in the event of definitively approved the WAB on January 29, 2020. military conflict, weigh on global economic activity and However, even after the approval of the exit agreement, the demand for credit, while increasing the volatility of there is no guarantee that a trade agreement will be financial markets. reached before the end of the transition period currently In France, strong performance in terms of growth slated for December 31, 2020, and the nature of the in 2016-2019 and low interest rates supported the relationship between the United Kingdom and the recovery of the real estate market. A decline in activity in European Union beyond the end of the transition period this sector could have a significant negative effect on the remains uncertain. The possibility of a “no-deal Brexit” value of the Group’s assets and on its activity, translating remains in the event that no trade agreement is reached to a decrease in the demand for loans and an increase and that the transition period is not extended. in non-performing loans. Depending on the various scenarios, Brexit may cause Risks related to the coronavirus crisis major disruption to the economy and European and While it is difficult to determine the impact of risks linked global financial markets and have repercussions on the to the coronavirus crisis at the time of the drafting of this Group’s overall activity and results. document, its transformation into a global pandemic and The Group is subject to an extensive regulatory the mobility restrictions imposed in numerous regions framework, changes to which could have an will lead to a major economic slowdown, at least during adverse effect on the Group’s activity, financial first-half 2020. position, costs, and the financial and economic In order to protect our employees while ensuring the environment in which it operates. continuity of service for our customers, Crédit du Nord The Group applies the regulations of all the jurisdictions Group is going beyond basis precautionary measures in which it does business, notably French and European (gloves, hydroalcoholic gel, counter windows, etc.), regulations. The application of existing regulations to accelerate the deployment of all remote working and the implementation of those coming into force solutions for its employees and to adjust the opening requires significant means, and this may weigh on the hours of these branches. Moreover, Crédit du Nord Group’s performances. Moreover, failure to comply Group is making every effort to deploy the exceptional with regulations could lead to financial sanctions, measures adopted by public authorities to support the deterioration of the Group’s image, the forced companies (deferment of maturities and implementation suspension of its activities or the withdrawal of its of state-guaranteed cash flow loans). authorisations. Brexit and its impact on financial markets and the Among the recent regulations that have a significant economic environment could have an adverse impact on the Group: effect on the Group’s results and activity. • the implementation of prudential reforms, notably Following the accord between the United Kingdom within the framework of the finalisation of the Basel and the European Union on a new “flexible extension” Accords, including the IRB Repair Initiative (which of the United Kingdom’s exit from the European Union provides the new default definition), could translate to until January 31, 2020 at latest, upon the approval of stricter capital and liquidity requirements, a revision of the updated withdrawal agreement, the United Kingdom standards related to the calculation of risk-weighted Withdrawal Agreement Bill (WAB) has now received the assets and restriction of the use of internal models to royal assent from the Queen of England, confirming calculate capital requirements;
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 239 Risks and Capital Adequacy 5 Risk factors
• the ongoing changes to legal and regulatory • the strengthening of the crisis prevention and framework related to activities on financial markets resolution regime outlined by the Directive on (such as European regulations and directives EMIR, the Recovery and Resolution of Banks of May MIFID 2, and MIFIR and the US Volcker Rule) 15, 2014 (“DRRB”), as amended, empowers the increase the Group’s obligations, notably in terms of Single Resolution Board (SRB) to begin a resolution transparency and reporting; procedure when the point of non-viability is reached, • the new European measures aiming to clean which could, in order to limit the costs to taxpayers, up banks’ balance sheets through the active cause the Group’s creditors and shareholders to management of non-performing loans (NPLs) that carry the majority of the losses. In the event that lead to an increase in prudential requirements and the resolution mechanism is employed, the Group require the Group to adapt its strategy in terms of could notably be forced to dispose of some of its NPL management. Additional regulatory provisions businesses, to modify the conditions of use of its debt (as indicated in the European Banking Authority’s instruments, to issue new debt instruments, or to Guidelines) the extent of which are not yet known, are incur the total or partial depreciation of or conversion expected to define a framework of best practices for into equities of its debt instruments. Moreover, the lending and monitoring loans; Group’s contribution to the annual financing of the Unique Resolution Fund (“URF”) is significant and will • increased supervisory requirements (via the adoption gradually increase until 2023, 2024 being the year in of improved practices) with regard to the Single which this fund will be fully operational. Supervisory Mechanism (SSM) could weigh on management costs and the levels of risk-weighted At December 31, 2019, the Group has CET1 capital assets from internal models; of €2.2 billion (for a CET1 ratio of 11.3%) and a total amount of regulatory capital of €2.8 billion (for a global • a strengthening of provisions related to internal ratio of 14.2%). control as well as to the Group’s governance and conduct rules, with a potential impact on costs; Risks related to the implementation of the Group’s strategic plan. • increased requirements in terms of data quality and protection and a potential increase in cyber-resilience This strategic plan is based on a certain number of requirements in relation to consultancy Digital hypotheses, notably related to the macro-economic operational resilience framework for financial services context and to the development of its activities. The launched by the European Commission in December failure of these hypotheses to materialise (including in 2019; the event that one or several of the risks described in this section materialises) or the effects of unanticipated • considerations around sustainable finance on the events could compromise the Group’s ability to achieve European political and regulatory agenda with the plan’s objectives and have a negative effect on its uncertainties around the integration of environmental activity, results and financial position. and social objectives in the Supervisory Review and Evaluation Process (SREP) as well as in the Increased competition via both banking and non- calculation of the prudential capital requirements of banking actors could have an adverse effect on the credit institutions for the Group; Group’s activity and results. The Group faces intense competition from both banking- and non-banking actors on the markets in which it operates. As such, the Group is exposed to the risk of not being able to maintain or develop its market shares in its various activities. This competition can also lead to increased pressure on margins, which is detrimental to the profitability of its activities.
240 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Risk factors 5
The presence of major local banking and financial actors, prove ineffective or poorly implemented, the Group’s as well as the emergence of new actors (for example, competitive position could be weakened as a result. online banks and financial service providers) has This intensification of competition could have a negative intensified the competition in nearly all of the products effect on the Group’s activity and results, both on the and services offered by the Group. New actors such as French market and internationally. fintechs and new automated, scalable services based The movement towards concentration in the financial on rapidly developing technologies are fundamentally services sector could allow the Group’s competitors changing consumers’ relationships to financial service to strengthen their capital, their resources, and their providers, as well as the function of traditional banking capacity to offer a wider range of financial services. networks. To meet these challenges, the Group has Moreover, the competition is increasing with the implemented a strategy, notably in terms of developing emergence of non-banking actors which, in some cases, digital technology and forming commercial or capital may have the advantage of more flexible regulations, alliances with these new actors (such as the neobank notably in terms of capital requirements. for professionals, PRISMEA). Should this strategy
Credit and counterparty risks
Weighted assets subject to credit and counterparty risks For information, at December 31, 2019, the Group’s stood at €18.4 billion at December 31, 2019, or 93% of exposure to credit risk (EAD, excluding credit risk) the Group’s total RWA. was €68.6 billion with the following breakdown by The Group is exposed to counterparty and type of counterparty: 22% on companies, 22% on concentration risks that may have a material governments, and 56% on retail customers. adverse effect on the Group’s activity, financial The primary sectors to which the Group was exposed in position and results. its Corporate portfolio are real estate activities (19% of Through its financing activities, the Group has significant exposure), commerce (17%), the manufacturing industry exposure to credit and counterparty risk. The Group (17%), and the construction sector (9%). could therefore be subject to losses in the event of Late or insufficient provisioning of credit exposures failure of one or more counterparties, in particular if could have an adverse effect on the Group’s results the Group encounters difficulties, legal or otherwise, in and its financial position. exercising its guarantees, or if the value of guarantees The Group regularly recognises provisions for doubtful does not allow it to fully hedge its exposure in the event loans as part of its financing activity, in order to anticipate of default. Despite the Group’s vigilant efforts aiming to losses and mitigate the volatility of its results. The size limit the effects of concentration on its credit exposure of provisions is based on the best evaluation to date of portfolio, it is possible that counterparty defaults could the recovery rate of the loans concerned. This evaluation be amplified within the same draws on an analysis of the borrower’s current and prospective situation as well as on an analysis of the economic sector or region due to the interdependence loan and the probability of recovery, taking any collateral effects of these counterparties. Moreover, certain into account. In certain cases (retail customers), the economic sectors could be particularly affected on a provisioning method may make use of statistical models longer-term basis by the measures implemented to based on the analysis of loss and recovery histories. support the energy transition. Since January 1, 2018, moreover, the Group has In this way, the default of one or more of the Group’s recognised provisions on performing loans in application major counterparties could have a significant negative of the IFRS 9 accounting standard. This evaluation is effect on cost of risk, the Group’s results and its financial based on statistical models for assessing the probability position. of default and of potential losses in the event of default, which take into account a prospective analysis on the basis of macro-economic scenarios.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 241 Risks and Capital Adequacy 5 Risk factors
At December 31, 2019, the stock of provisions related variation in cost of risk and therefore in the Group’s to exposures (on- and off-balance sheet) stood at results. €0.2 billion on performing assets and at €1.2 billion on The financial solidity and behaviour of other defaulted assets. Provisionable defaulted exposures financial institutions and market actors could have (Stage 3 in IFRS 9) amounted to €2.2 billion. an adverse effect on the Group’s activity. The net variations in provisions are recorded in net cost The Group’s capacity to carry out financing or investment of risk in the Group’s consolidated income statement. operations or to conclude transactions on derivative Over the last two years, the Group has registered a products could be negatively affected by the solidity historically low net cost of risk (15 basis points in 2018, of other financial institutions and market actors. Due in 9 basis points in 2019), in part thanks to an economic particular to their market, compensation, counterparty, context generally favourable to credit risk. Depending on and financing activities, financial institutions are closely its intensity, an economic slowdown and the expected linked to one another. The failure of an actor in the reversal of the credit cycle could lead to an increase in sector, or even rumours or questions concerning one provisions on doubtful loans, under the effect of both a or several financial institutions or a more general loss rise in borrower default rates and a potential degradation of confidence in the financial industry, could lead to a in the value of guarantees. This increase could have a generalised contraction of liquidity on the market and to negative effect on the Group’s results and financial additional losses or failures. situation. The Group is exposed directly and indirectly to numerous Moreover, the principles of the IFRS 9 accounting financial counterparties such as investment service standard and provisioning models could be procyclical providers, commercial or investment banks, mutual in the event of a sudden major deterioration in the funds, hedge funds, and other institutional customers, environment or could translate to a certain volatility in with whom it carries out transactions on a regular the event of fluctuations in economic outlooks. This basis. A large number of these transactions expose the could give rise to a significant and/or not fully anticipated Group to a credit risk in the event of a default of the counterparties or customers concerned.
Operational risk (including misconduct risk) and model risk
At December 31, 2019, the weighted assets subject to The Group is exposed to legal risks that could the Group’s operational risk amounted to €1.3 billion, or adversely affect its financial position or results. 6% of the Group’s total RWA. Between 2016 and 2019, The Group and some of its former and current the Group’s operational risks were concentrated mainly representatives may be involved in various types of in five risk categories, representing 99.4% of the total litigation, including civil, administrative, fiscal, criminal amount of the Group’s operating losses over the period: and arbitration proceedings. The vast majority of such commercial disputes (35% of the total amount), disputes proceedings arise from transactions or events that with authorities (15.5% of the total amount), execution occur in the Group’s ordinary course of business. There errors (18.9% of the total amount) and fraud and other has been an increase in client, depositor, creditor and criminal activities (30% of the total amount). The Group’s investor litigation and regulatory proceedings against other operational risk categories (failure of information intermediaries such as banks and investment advisors systems and loss of operating methods, pricing or risk in recent years, in part due to the challenging market assessment errors) represent 0.6% of the Group’s losses environment. This has increased the risk, for the on average from 2016 to 2019.
242 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Risk factors 5
Group, of losses or reputational harm deriving from in managing market transactions and short-term litigation and other proceedings. Such proceedings refinancing that could ultimately damage the Group’s or regulatory enforcement actions could also lead to reputation. civil, administrative, tax or criminal penalties that could The Group is exposed to the risk of operational failure or adversely affect the Group’s business, financial position disruptive incidents on its own systems and the systems and operating income. of its external partners. In preparing the Group’s financial statements, the The interconnectivity of multiple with clearing agents and Group makes estimates regarding the outcome of houses and exchanges, and the increased concentration civil, administrative, fiscal, criminal and arbitration of these entities, increases the risk that an operational proceedings in which it is involved, and records a failure at one institution or entity may cause an industry- provision when losses with respect to such matters wide operational failure that could materially impact the are probable and can be reasonably estimated. It is Group’s ability to conduct business and could therefore inherently difficult to predict the outcome of litigation result in losses. Industry concentration, whether among and proceedings involving the Group’s businesses, market participants or financial intermediaries, can particularly those cases in which the matters are brought exacerbate these risks, as disparate complex systems on behalf of various classes of claimants, cases where need to be integrated, often on an accelerated basis. claims for damages are of unspecified or indeterminate The Group is also exposed to risks linked to amounts, or cases involving unprecedented legal claims. cybercriminality and has seen attempted criminal attacks Should such estimates prove inaccurate or should the on its information systems. Each year, the Group sees provisions set aside by the Group to cover such risks a number of cyberattacks on its systems, or on those prove inadequate, the Group’s financial position or of its customers, partners, and suppliers. Despite the results could be adversely affected. resources and the professionals dedicated to security No significant disputes concerning Crédit du Nord monitoring, the Group may be the victim of targeted and Group are currently underway. sophisticated attacks on its information network, leading Operational failure, service disruption or security to misuse of funds, losses, theft or leaks of confidential incidents affecting the Group’s commercial data or customer data. Despite the Group’s monitoring partners, or a failure or breach of the Group’s and advanced response resources, such attacks could information technology systems, could result in lead to operating losses and adversely affect the Group’s losses and harm the Group’s reputation. activity and its results. The Group’s information and communication systems Damage to the Group’s reputation could affect its are crucial for the conduct of its activities and have competitive footing, its activity and its financial become even more important with the rise of remote position. banking. Any failure, dysfunction, interruption or The Group’s image of financial solidity and integrity is breach in security of these systems, even if only brief essential in order to build loyalty and develop relations and temporary, could result in significant disruptions with customers and other counterparties in a highly to the Group’s business. Despite the Group’s backup competitive environment. Any damage to the Group’s and prevention solutions, such incidents could result reputation could lead to a loss in activity with its in significant costs related to information retrieval and customers or a loss of trust vis-a-vis its investors, which verification, loss of revenue, loss of customers, litigations could affect the Group’s competitive footing, its activity with counterparties or customers, and difficulties and its financial position.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 243 Risks and Capital Adequacy 5 Risk factors
Negative comments concerning the Group, whether An incapacity to retain or attract qualified legitimate or not, and for acts that may or may not be employees could weigh on the Group’s attributable to it, could damage the Group’s reputation performances. and affect its competitive position. The Group employs more than 8,000 individuals and The Group’s reputation could also be damaged by supports more than 2 million customers on a daily basis, problems linked to weaknesses in the control systems including individuals, professionals, companies and aimed at monitoring and preventing operational, non- associations. The performance of banking and financial compliance, credit and market risks, notably in terms activities is closely linked to the human aspect. The of monitoring employee misconduct (corruption, fraud, incapacity to attract and build loyalty among employees, market abuse, tax violations, etc.); the risk may arise whether in terms of career prospects and training or from the misconduct itself, but also from administrative of aligning remuneration with market practices, could or penal sanctions resulting from an insufficiently weigh on the Group’s performances. A high personnel effective control environment. turnover rate and the departure of strategic talents could Liquidity provided by the Bank that is not in line with expose the Group to a loss of expertise and a decline in regulations or with its commitments could negatively service quality, to the detriment of customer satisfaction. impact the Group’s reputation. Therefore, methods The models used by the Group in strategic of distributing products and services that do not decision-making and in its risk management provide sufficient information to customers, a lack process could fail or prove ill-adapted, leading to of transparency in its communication – financial or generate financial losses for the Group. communications in particular – and internal management The internal models deployed by the Group could rules (including the management of human resources prove deficient in terms of design, calibration, use or or relations with suppliers and service providers) that the monitoring of performance over time, creating an fail to meet regulatory requirements or the Bank’s operational risk and generating inaccurate results, with commitments could influence the Group’s reputation. financial and other consequences. In particular: Moreover, a corporate social responsibility strategy (in • the assessment of customer solvency and of the particular concerning environmental challenges) that Bank’s exposure to credit and counterparty risk fails to meet the expectations of external stakeholders is generally based on hypotheses and historic in terms of its ambition, or difficulties in implementing observations that may be ill adapted to new economic this strategy, could have an impact on the Group’s conditions, and draw on scenarios and economic reputation. outlooks that may fail to anticipate unfavourable The consequences of these potential events, which economic conditions or unprecedented events. The could eventually give rise to disputes, vary according effects of this inaccurate evaluation could include to the context and the extent of media coverage, and under-provisioning for risks and a poor assessment remain difficult to estimate. of capital requirements; • the management of interest rate risk and liquidity risk (on- and off-balance sheet) draws on behaviour models according to market conditions. These models, which draw notably on historic observations, could have an impact on the hedging of these risks should unprecedented events arise.
244 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Risk factors 5
The Group may incur losses as a result of of such crisis) or major social movements such as the unforeseen or catastrophic events, including Yellow Vests movement, could create economic and terrorist attacks or natural disasters. financial disruptions or lead to operational difficulties The occurrence of unforeseen or catastrophic events, (including travel limitations or relocation of affected such as terrorist attacks, natural disasters (such as employees) for the Group. These events would be likely floods, in particular the flooding of the Seine) or a to negatively affect the Group’s capacity to carry out its widespread health crisis (or concerns over the possibility activities. The Group could incur losses as a result of such events.
Exchange rate, liquidity and funding risks
Exchange rate variation could have an adverse capital flows restrictions could be implemented, having effect on the Group’s results. an impact on the Group. The Group generates a significant portion of its results A more politically fragmented world and the risks of in the form of net interest margin and as such, remains exceptional counterproductive measures could have highly exposed to interest rate fluctuations as well a significant adverse effect on the Group’s business, as to changes in the yield curve. The Group’s results financial position and results. are therefore sensitive to changes in interest rates. In At December 31, 2019, the short-term regulatory particular, the extended period of low or negative interest liquidity ratio stood at 123.6% and liquidity reserves rates in Europe has affected and could continue to stood at €11.2 billion. negatively affect the Group’s results. A decline in the Group’s external rating or in the Certain exceptional measures taken by states, sovereign debt rating of the French state could central banks and regulators could have a material have an adverse effect on the Group’s financing adverse effect on the Group’s cost of financing and costs and its access to liquidity. its access to liquidity. For the proper conduct of its activities, the Group For several years, the central banks have taken depends on access to financing and other sources measures in order to facilitate the access of financial of liquidity. If the Group is unable to access secured institutions to liquidity, notably by lowering their interest or unsecured debt markets on terms it considers rates to historically low levels. Various central banks acceptable or if it experiences unforeseen outflows have substantially increased the amount and duration of of cash or collateral, including material decreases in liquidity provided to banks. They have relaxed collateral customer deposits, its liquidity could be impaired. In requirements and, in some cases, have implemented addition, if the Group is unable to maintain a satisfactory “non-conventional” measures to inject substantial level of customer deposits collection, it may be forced liquidity into the financial system, including direct market to turn to more expensive funding sources, which would purchases of government bonds, corporate bonds, and reduce the Group’s net interest margin and results. mortgage-backed securities. The Group is exposed to the risk of a rise in credit The fragmentation of financial markets is now partially spreads. The Group’s medium- and long-term financing “hidden” by the ECB’s policy. The lack of significant costs are directly linked to the level of credit spreads, progress on the Banking Union and the Capital Markets which can fluctuate according to general market Union leaves the Eurozone in a situation of potential conditions. These spreads can also be affected by an vulnerability. In the extreme case of a restructuring of a adverse change in France’s sovereign debt rating or the Eurozone Member State’s sovereign debt, cross-border Group’s external ratings by rating agencies.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 245 Risks and Capital Adequacy 5 Risk factors
The Group is currently monitored by two financial rating the Group to provide additional collateral to certain agencies – Fitch Ratings and Standard & Poor’s. A counterparties, which would have a negative impact on downgrade in the credit rating assigned to the Group liquidity. by these agencies, or by other agencies, could limit Lack of access to financing and liquidity constraints its access to funding, increase its financing costs and could have a significant negative effect on the Group’s reduce its ability to carry out certain types of transactions activity, its financial position, its results and its capacity or activities with customers. This could also require to fulfil its obligations vis-à-vis its counterparties.
Risks related to insurance activities
A deterioration in the market context, in particular generated by this compartment of the life insurance the excessive fluctuation (both rising and falling) business. of interest rates, could have a material adverse A sharp rise in interest rates could also decrease the effect on the life insurance activity of the Group’s competitiveness of the life insurance offerings in euros Insurance business line. (compared with bank savings products, for example) The Group’s Insurance activity (consisting of the and trigger a significant rise in customer repurchases 50% stake held in the company Antarius) is primarily and arbitrage, in an unfavourable context of unrealised concentrated in Life Insurance. At December 31, 2019, losses on the bond holdings. This configuration could life insurance policies accounted for outstandings of affect the revenues and profitability of the life insurance €14.5 million, with euro fund policies representing 73% business. and unit-linked policies representing 27%. More generally, a significant widening of spreads and a The Group’s Insurance business is highly exposed to decline in the equity markets could also have a major structural interest rate risk due to the high proportion of impact on the results of the Group’s life insurance bonds in the euro-denominated funds in its life insurance business. contracts. In certain market environments, the level and In the event of a deterioration in market parameters, changes could have a significant negative impact on the the Group could be led to increase the capital of its results and financial position of this business lines. Insurance subsidiary in order to continue to meet its By weighing on the yield of euro-denominated contracts, regulatory capital requirements. a prolonged period of low interest rates would make these supports less attractive for investors, which may negatively affect fund collection and the revenues
Market risks
Market risk refers to the risk of losses in the value of Crédit du Nord Group’s market activities are in line with financial instruments, arising from variations in market a development strategy focused mainly on responding parameters, the volatility of these parameters and to customers’ needs. Consequently, CDN has low correlations between these parameters. The parameters exposure to market risk, which amounts to only €39.9 concerned include exchange rates, interest rates, and million risk-weighted assets (0.2% of the Group’s RWA). the price of equities (actions, bonds) and commodities, derivatives and all other assets.
246 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Risk management system 5
5.2 Risk management system
Governance of risk management
Crédit du Nord Group has adopted Societe Generale Authority and European Regulation Basel 3 (CRR/CRD). Group’s risk management process. The main objectives of this risk management are: Within this framework, Crédit du Nord Group focuses • to contribute to the development of Crédit du Nord on implementing a robust and efficient organisation to Group’s businesses and profitability by defining the manage its risks and maintain a balance between strong Group’s risk appetite; awareness of risks and promoting innovation. • to contribute to the Group’s sustainability by This risk management, supervised at the highest level, establishing a risk management and monitoring is compliant with the regulations in force, in particular system; the order of November 3, 2014 relating to the internal • to reconcile the independence of the risk control of companies in the banking sector, payment management system in close collaboration with the services and investment services subject to the control core businesses, which have primary responsibility for of the French Prudential Supervisory and Resolution the transactions they initiate.
The table below illustrates the roles of the main departments involved in Crédit du Nord Group’s risk management.
GENERAL MANAGEMENT
Financial Division Risk Division Corporate Secretary's Compliance Division Office • Financial oversight • Supervision of credit, market, • Supervision of compliance and operational risks risk • Oversight of market risks, • Supervision of Level 1 liquidity risk, strategic risks • Validation of credit ratings, controls and risks linked to activity the credit policy and the • Supervision of Group legal, provisioning policy • Supervision of equity portfolio reputational and CSR risks • In charge of Level 2 permanent control
CUSTOMER DIVISIONS Oversee risks related to transactions of which they are in charge and implement projects to advance processes in their domain
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 247 Risks and Capital Adequacy 5 Risk management system
Risk appetite
General framework the Risk Committee of Crédit du Nord Group’s Board of Risk appetite is defined as the level of risk that Crédit Directors of changes in the indicators and compliance du Nord Group is prepared to accept to achieve its with limits. A specific escalation process has been strategic goals. defined, to be followed in the event that the threshold or limit is breached. Risk appetite is determined based on: • an assessment of the significant risks to which Crédit The Group’s strategic profile du Nord Group is exposed; Crédit du Nord Group exercises a retail banking activity • a provisional assessment of Crédit du Nord Group’s characterised by strong regional roots with a customer profitability and solvency under a baseline scenario base primarily made up of individuals, professionals and and a stressed scenario, over a horizon of four years, SMEs, and, to a lesser extent, large corporates and based on macro-economic reports from the Financial institutions. It exercises its activity throughout mainland Division of Societe Generale Group; France under its company name or via its banking subsidiaries. • the setting of financial targets; The Group’s development and organisation are based • the setting of indicators to limit risks; on close relations with customers and the development The determination of Crédit du Nord Group’s risk of its advisors’ expertise, allowing it to focus primarily appetite is carried out in line with the guidelines of on the capturing the following customer categories: (i) Societe Generale Group’s risk appetite framework. wealthy customers, (ii) professionals, (iii) SMEs and (iv) Crédit du Nord Group’s risk appetite is formalised in the family-owned mid-caps as well as their shareholders and Risk Appetite Statement (RAS), which outlines the main executives. risks to which the Group is exposed. This framework The distribution of credit is inseparable from the is deployed through a selection of indicators (financial development of Crédit du Nord Group’s customer base indicators of profitability, solvency or liquidity and other on each of its markets and is a key driver of NBI. Given risk indicators) and based on a graduated approach. the relatively significant weight of professional and Each indicator can therefore include up to three levels of individual customers in the customer base, and of Crédit monitoring: alert threshold, financial target or risk limit, du Nord Group’s modest number of large corporate and crisis level. customers, credit risk is by nature highly divided. The RAS is updated annually. It is then: This credit distribution activity is based on precise rules • approved by the General Management of Crédit du aiming to ensure the Group’s longevity and performances Nord Group; through a policy defined by Senior Management and approved by the Board of Directors. • presented to the Risk Committee of the Board of Directors and submitted to the Crédit du Nord Group Crédit du Nord Group aims to achieve sustainable Board of Directors for approval; profitability by drawing on a robust financial stability profile, in line with its retail banking model: • distributed throughout Crédit du Nord Group, notably in the regions/subsidiaries. • by focusing on the profitable and resilient development of the business lines; A monitoring dashboard is established on a quarterly basis by the Financial Division. This dashboard informs • by calibrating its equity targets in order to ensure the the General Management of Crédit du Nord as well as satisfaction of regulatory capital requirements;
248 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Risk management system 5
• ensuring resilience in its liabilities, calibrated by taking Crédit du Nord Group sets up specific credit policies into account a survival horizon in a liquidity stress for sectors or types of credit transactions which have a ratio, compliance with LC (Liquidity Coverage Ratio) specific or intrinsically higher concentration risk or risk and NSFR (Net Stable Funding Ratio) regulatory ratios profile. This system is complemented by a framework and the level of dependence on short-term marketing through portfolio limits: funding; • the criteria for granting real estate loans take into • by managing its leverage ratio. account the value of the asset, but are primarily The principles determining risk appetite are summarised based on an analysis of the borrower’s capacity to below. repay the loan; • consumer loan activities remain limited to customer Credit and counterparty risks borrowers With regard to Crédit du Nord Group’s model, credit and counterparty risk is the largest risk category to which the Market risk Group is exposed. Crédit du Nord Group’s market activities are focused When it assumes credit risk, the Group focuses on primarily on meeting the needs of customers via a medium- and long-term customer relationships, comprehensive range of solutions and are strictly targeting both customers with whom the bank has monitored through a number of limits. an established relationship of trust and prospects The limits applied to the Treasury function in terms of representing profitable business development potential volumes authorised and the duration of open positions over the mid-term. are determined in accordance with Societe Generale In a credit transaction, the acceptability of risk is based Group, and are maintained at low levels with regard to primarily on the capacity of the borrower to fulfil their Crédit du Nord Group’s capital. Regular reviews of these commitments. Security interests are sought to reduce limits allow the Group to closely monitor risks based on the risk of loss in the event of a counterparty defaulting changes in market conditions. on its obligations, but may not, except in exceptional cases, constitute the sole justification for taking the risk. Operational risks Crédit du Nord Group seeks to diversify risk by Crédit du Nord Group does not have operational risk controlling concentration and sectoral risk and appetite but is willing to assume potential losses of up to maintaining a policy of spreading risk by sharing it with 1% of its recurrent revenues. other financial partners. Crédit du Nord Group’s activities are carried out in strict Counterparty ratings are a key criterion of the credit compliance with the provisions specific to banking and policy and serve as the basis for the credit approval financial activities. The Group strives in particular to: authority grid used in both the commercial and risk • gather intelligence about its customers by functions. The rating system draws on internal models. implementing appropriate KYC measures; Special attention is paid to timely updating of ratings • work with clients and partners whose practices (which, in any event, are subject to annual review). comply with international rules and standards on anti- To closely monitor portfolio quality, Crédit du Nord Group money laundering and terrorism financing; defines limits on a series of indicators of credit portfolio • work with clients and complete transactions in quality. accordance with rules related to international embargoes and financial penalties;
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 249 Risks and Capital Adequacy 5 Risk management system
• offer products and advisory services and work with Crédit du Nord Group is exposed to operational risks partners in accordance with regulations governing, in inherent to its business: execution errors, internal and particular, client protection; external fraud, IT system failures, malicious acts against • implement the necessary measures and conduct IT systems, loss of operational resources, commercial transactions showing respect for the integrity of the disputes, failure to comply with tax obligations, etc. markets; Crédit du Nord Group has established a goal to manage these risks via: • implement an anti-corruption policy and deploy an anti-corruption mechanism, prevent and manage • environmental analysis of operational risk and a “weak conflicts of interest, and ensure its employees behave signals” detection system; responsibly in compliance with the Code of Conduct; • the deployment of secure procedures for processing • uphold its commitments regarding fiscal transparency; data, special prevention mechanisms and an internal control system. In addition, a framework has been • protect the data of its clients and employees; designed to ensure business continuity in crisis • foster a culture of compliance among its employees situations; and ensure them the right to whistleblow. • implementation of key risk monitoring and control Crédit du Nord Group has defined values and principles indicators (KRI); of conduct which apply to all of its employees: • promotion of a solid “risk culture” with respect to • it emphasises employee loyalty towards clients and operational risk throughout Crédit du Nord Group; the integrity of their practices; • the expectation that its critical service providers will • it develops a strong culture that guides employee provide a level of resiliency and information security behaviour in such a manner as to conduct business equivalent to its own. ethically and responsibly. This culture is spread through values (team spirit, innovation, responsibility, Structural interest and exchange rate risks commitment), a Code of Conduct and a leadership Crédit du Nord Group follows strict guidelines for model which defines the conduct and skills expected measuring and limiting its structural risk. The mechanism of employees in respect of each Group value; to control interest rate risk and foreign exchange risk is • it ensures that they are implemented and complied based on the limits set by Societe Generale Group. with through, in particular, alignment of the HR processes (recruitment, performance evaluations, Liquidity and financing risks promotion, compensation, disciplinary procedures, etc.) with these values and principles of conduct. The liquidity management framework is robust and developed around a clearly defined governance, With respect to its reputation, Crédit du Nord Group specialised and dedicated teams observing the performs ongoing monitoring based on a series of separation of tasks between the ALM and the Treasury indicators. The prevention and detection of the risk Department, documented processes and an efficient of reputation damage are integrated into all operating internal control system. practices.
250 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Risk management system 5
Liquidity risk is carefully monitored by limits set by Crédit du Nord Group has low exposure to funding risk Societe Generale Group and by the management due to its minimal dependency on market financing and targets of the various liquidity indicators, which are a large deposit base. Furthermore, the Group manages stricter than the regulations. The Group uses tools the risk of liquidity dry-up via a regulatory liquidity buffer to monitor liquidity risk, in particular a dedicated allowing it to easily cover cash flow needs for a period of software, a Societe Generale Group reporting tool, and 30 days without issues. management indicators for “business as usual” and stressed scenarios.
Stress test system
Stress tests are used to help identify, assess and in stress-case scenarios, and to quantify the manage risk, and to evaluate capital adequacy and corresponding decline in its profitability; liquidity with regard to the risk profile of Crédit du Nord • Specific stress tests per type of risk or portfolio and Group. As such, stress tests: in particular: • are an important indicator of the resilience of Crédit – market stress tests are based on hypothetical or du Nord Group, its activities and portfolios, and a historical economic scenarios developed for all of core component in the definition of its risk appetite; Societe Generale Group. They are supplemented • are based on hypothetical economic scenarios defines by special risk exposure stress tests based on a by the economic research departments of Societe number of risk factors (interest rates, equities, etc.) Generale Group. These scenarios are translated or activities (emerging markets, etc.), into impacts on Crédit du Nord Group’s activity, – stress tests determine the sensitivity of the value taking into account potential countermeasures and and the interest margin of the banking portfolio to systematically combining quantitative methods and structural interest rate risks. These sensitivities are expert assessments (risk, finance or business lines); measured in scenarios of yield curve changes and • they can also draw on sensitivity analyses (mono- or shifts (steepening and flattening), multi-risk factors). – liquidity stress tests that measure survival horizon, The stress test system comprises: i.e., the period during which the Group can • A global stress test, integrated into the budgetary continue to meet its financial commitments, process and the Internal Capital Adequacy – stress tests on credit risk, using a granular Assessment Process (ICAAP) to ensure that Crédit approach in order to clarify the adaptation of risk du Nord Group’s profile is in line with its objectives appetite to the scale of a portfolio/business.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 251 Risks and Capital Adequacy 5 Capital management and adequacy
5.3 Capital management and adequacy
Regulatory framework countercyclical buffer to preserve their solvency in the event of adverse conditions. Audited | As of January 2014, Crédit du Nord • the set-up of restrictions on distributions, relating Group applies the new Basel 3 regulatory framework to dividends, AT1 instruments and variable implemented in the European Union via a regulation and remuneration; a directive (CRR and CRD4, respectively). • in addition to these measures, there will be measures The general framework defined by Basel 3 is based on to contain the size and, consequently, the use of three pillars: excessive leverage. To this end, the Basel Committee • Pillar 1 sets minimum capital adequacy requirements defined a leverage ratio, for which the definitive and establishes the rules that banks have to regulations were published in January 2014, and implement to measure risks and calculate the resulting included in the Commission’s Delegated Regulation capital requirements according to standardised or (EU) 2015/62. The leverage ratio compares the bank’s more advanced methods; Tier 1 capital to the balance sheet and off-balance sheet items, with restatements for derivatives and • Pillar 2 concerns the discretionary supervision pensions. Banks have been required to publish this implemented by the competent authority, which ratio since 2015. allows them – based on a constant dialogue with supervised credit institutions – to assess the Moreover, several amendments to European regulatory adequacy of capital requirements as calculated standards were adopted in May 2019 (CRR2/CRD5). under Pillar 1, and to calibrate additional capital The majority of provisions will come into force in mid- requirements taking into account all the risks to which 2021. these institutions are exposed; The modifications focus on the following elements: • Pillar 3 encourages market discipline by developing • NSFR: insertion of a new regulatory requirement on a set of qualitative or quantitative disclosure long-term financing; requirements which will allow market participants • Leverage ratio: minimum requirement of 3% to better assess a given institution’s capital, risk exposure, risk assessment processes and, • Counterparty risk of derivatives (SA-CCR): the accordingly, capital adequacy. SA-CCR method is the Basel method replacing the current CEM method to determine the prudential In terms of capital, the following primary measures were exposure of derivatives using a standard approach; introduced by Basel 3 to strengthen banks’ solvency: • Large exposures: the main change concerns the • the complete revision and harmonisation of the calculation of the Tier 1 regulatory limit (25%, instead definition of capital, in particular with the amendment of total capital). of the deduction rules, the definition of a standardised Common Equity Tier 1 (or CET1) ratio, and new Tier 1 With regards to the implementation of market risk reform capital eligibility criteria for hybrid securities; (FRTB), after the publication in January 2016 of the first revised standard and of Consultation in March 2018 on • new capital requirements for the counterparty risk of this subject, the Basel Committee published in January market transactions, to factor in the risk of a change 2019 its final text: BCBS457. in CVA (Credit Value Adjustment) and to hedge exposures on the central counterparties (CCP); In accordance with previous publications, the BCBS confirmed its implementation timetable - which does not • the set-up of capital buffers that can be mobilised to call into question the European Union timetable below absorb losses in case of difficulties. The new rules - with an entry into force no later than January 1, 2022. require banks to create a conservation buffer and a
252 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Capital management and adequacy 5
Note: in Europe the CRR 2 timetable will apply as standardised approach (credit, market and operational follows: risks). The output floor will gradually increase from 50% • first, the FRTB reform will take effect as a reporting in 2022 to 72.5% in 2027. Of course, the rules will have obligation (2021 for the Standardised approach and to be enacted in European law (CRR3/CRD6) before 2023 for the IMA); they will apply to the Group. • FRTB capital requirements will then become In early 2019, the European Central Bank confirmed mandatory in the CRR3 package (not before the level of additional capital requirement under Pillar 2 2023). ▲ (P2R-Pillar 2 mandatory). This level was set at 1% for Crédit du Nord in 2019. In December 2017, the Group of Central Bank Governors and Heads of Supervision (GHOS), which At end 2019, the European Central Bank confirmed the oversees the Basel Committee on banking control, additional capital requirement of 1% under Pillar 2 (P2R- approved the Basel 3 regulatory reforms initiated in Pillar 2 requirement) applicable as of January 1, 2020. 2009. These new rules are set to apply as from 2022, Throughout 2019, Crédit du Nord Group remained in line with an aggregate output floor: the bank’s RWAs will be with its minimum ratio requirements. subject to a floor calculated as a percentage under the
Scope of application – prudential framework
At Crédit du Nord, the prudential scope is identical to the consolidation scope.
Own funds
Crédit du Nord Group’s regulatory own funds are • unrealised capital gains and losses on cash flow calculated on the basis of carrying amounts measured hedging; in accordance with International Financial Reporting • income on own credit risk; Standards (IFRS), and can be broken down as follows: • deferred tax assets on tax loss carryforwards; Common Equity Tier 1 (CET1) capital • deferred tax assets resulting from temporary According to CRR/CRD4, Common Equity Tier 1 capital differences beyond a threshold; is made up primarily of the following: • assets from defined benefit pension funds, net of • ordinary shares (net of repurchased shares and deferred taxes; treasury shares) and related share premium accounts; • any positive difference between expected losses • retained earnings; on customer loans and receivables, risk-weighted using the internal ratings-based (IRB) approach, and • components of other comprehensive income; the sum of related value adjustments and collective • other reserves; impairment losses; • minority interests limited by CRR/CRD4. • anticipated losses on investment portfolio exposures; Deductions from Common Equity Tier 1 capital • value adjustments resulting from the requirements of essentially involve the following: prudent valuation; • estimated dividend payments; • securitisation exposures weighted at 1,250%, where • goodwill and intangible assets, net of associated these positions are not included in the calculation of deferred tax liabilities; total risk-weighted exposures.
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Additional category 1 own funds (Additional • subject to the prior approval of the European Central Tier 1) Bank, Societe Generale has the option to redeem In accordance with CRR/CRD4, Additional Tier 1 capital these instruments at certain dates, but no earlier than consists of deeply subordinated notes issued directly five years after their issuance date. by the Bank, which predominantly have the following features: Tier 2 (T2) capital Tier 2 capital includes: • they are perpetual and constitute unsecured, deeply subordinated obligations. They rank junior to all other • undated deeply subordinated notes; obligations of the Bank, including undated and dated • dated subordinated notes; subordinated debt, and senior only to common stock • any positive difference between (i) the sum of value shareholders; adjustments and impairment losses on customer • moreover, Crédit du Nord may elect, on a discretionary loans and receivables exposures, risk-weighted using basis, not to pay the interest and coupons linked to the IRB approach and (ii) expected losses, up to 0.6% these instruments. This compensation is paid out of of the total credit risk-weighted assets using the IRB distributable items; approach; • they include neither a step-up in compensation nor • value adjustments for credit risk related to collective any other incentive to redeem; impairment losses on customer loans and receivables • they must have loss-absorbing capacity; exposures, risk-weighted using the standard approach, up to 1.25% of the total credit risk- weighted assets.
TABLE 1: CHANGES IN DEBT INSTRUMENTS ELIGIBLE FOR THE SOLVENCY CAPITAL REQUIREMENTS
(in €m) 31/12/2018 Issues Redemptions Prudential haircut Others 31/12/2019 Tier 1 eligible debt instruments 110 110 Tier 2 eligible debt instruments 450 450 TOTAL ELIGIBLE DEBT INSTRUMENTS 560 560
Solvency ratio The minimum Pillar 2 Requirement (P2R) is set by The solvency ratio is set by comparing the Group’s the supervisor based on the outcome of the annual equity with the sum of risk-weighted assets for credit Supervisory Review and Evaluation Process (SREP). The risk and the capital requirement multiplied by 12.5 for ECS notifies the institution of its P2R. It stood at 1% in market risks and operational risks. They are expressed 2019 and will remain at 1% for 2020. as a percentage of risk-weighted assets (RWA) and in The countercyclical buffer – just like the conservation reference to the capital construction method, i.e. Core buffers – plays a role in determining the overall buffer Equity Tier 1 (CET1), Tier 1 (T1) or Total Capital (TC). requirement: Each quarter, the ratios are calculated using data at the • the countercyclical buffer rate is set by country. Each balance sheet date, then compared to the minimum establishment calculates its countercyclical buffer requirements set by the supervisor for each ratio. requirement by measuring the average countercyclical The minimum Pillar 1 requirements is set by regulation buffer rate for each country, adjusted to take into at 4.5% for the CET1 ratio, 6% for the T1 ratio and 8% account the relevant credit risk exposures in these for the Total Capital ratio. This minimum requirement is countries. At January 1, 2020, the countercyclical constant over time. buffer requirement for Crédit du Nord Group was 0.25%. It will increase to 0.50% from April 1, 2020;
254 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Capital management and adequacy 5
• the conservation buffer in force as of January 1, 2016, Taking into account the combined regulatory buffers was subject to a transition period (phase-in) that (excluding the contracyclical buffer), the From January 1, ended in 2019 with a maximum interest rate of 2.5% 2020 excluding the contracyclical buffer, the fully-loaded applied since January 1, 2019. ratio that would trigger the Maximum Distributable Amount would be 8% as of January 1, 2020.
TABLE 2: BREAKDOWN OF MINIMUM PRUDENTIAL CAPITAL REQUIREMENT FOR CREDIT DU NORD AT JANUARY 1, 2020 – FULLY-LOADED RATIO (AS A%)
(as a %) 01/01/2020 01/07/2019 01/01/2019 Minimum requirement under Pillar 1 4.5% 4.5% 4.5% Minimum requirement for Pillar 2 (P2R) 1.0% 1.0% 1.0% Minimum conservation buffer requirement 2.5% 2.5% 2.5% Minimum systemic buffer requirement - - - Minimum countercyclical buffer requirement 0.25% 0.25% - MINIMUM CET1 RATIO REQUIREMENT 8.25% 8.25% 8.0%
TABLE 3: FULLY-LOADED CRR/CRD4 PRUDENTIAL CAPITAL AND SOLVENCY RATIOS
(in €m) 31/12/2019 31/12/2018 Shareholders’ equity, Group share 3,493.3 3,533.5 Deeply subordinated notes -110.0 -110.0 Undated subordinated notes - - Consolidated shareholders’ equity, Group share, net of deeply subordinated notes and undated subordinated notes 3,383.3 3,423.5 Non-controlling interests - - Intangible assets -197.4 -206.3 Goodwill -508.0 -508.0 Dividends proposed at the AGM and coupons payable on deeply subordinated notes and undated subordinated notes -266.7 -341.0 Deductions and regulatory adjustments -171.7 -187.2 TOTAL COMMON EQUITY TIER 1 CAPITAL 2,239.5 2,181.0 Additional Tier 1 capital 110.0 110.0 Tier 1 deductions - - TOTAL TIER 1 CAPITAL 2,349.5 2,291.0 Tier 2 instruments 450.0 450.0 Additional Tier 2 capital - - Tier 2 deductions - - TOTAL CAPITAL 2,799.5 2,741.0 TOTAL RISK-WEIGHTED ASSETS 19,748.4 19,487.3 Credit risk-weighted assets 18,408.8 18,121.7 Market risk-weighted assets 39.9 59.8 Operational risk-weighted assets 1,299.7 1,305.8 SOLVENCY RATIO Common Equity Tier 1 ratio 11.3% 11.2% Tier 1 ratio 11.9% 11.8% Total capital ratio 14.2% 14.1%
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 255 Risks and Capital Adequacy 5 Capital management and adequacy
The fully-loaded CRR/CRD4 solvency ratio was 11.3% After taking regulatory adjustments into account, at December 31, 2019 in Common Equity Tier 1 (11.2% prudential Tier 1 capital in full came to €2,239.5 million at December 31, 2018), 11.9% in Tier 1 (11.8% at at December 31, 2019, compared with €2,181 million at December 31, 2018), for a total capital ratio of 14.2% December 31, 2018. (14.1% at December 31, 2018). The table below presents the main items contributing to Group shareholders’ equity at end December 2019 this change. stood at €3,493.3 million (compared to €3,533.5 million at December 31, 2018).
TABLE 4: REGULATORY DEDUCTIONS AND RESTATEMENTS UNDER CRR/CRD4
(in €m) 31/12/2019 31/12/2018 IFRS 2 net of deferred taxes -85.2 -83.4 AVA -4.6 -7.9 Deduction of financial securities -4.5 -14.4 Neutralisation of revaluation of debt linked to own credit risk and DVA 0.5 0.4 Others -77.8 -81.9 TOTAL REGULATORY DEDUCTIONS AND RESTATEMENTS UNDER CRR/CRD4 -171.7 -187.2
Regulatory deductions and restatements under CRR/ • expected losses on equity portfolio exposures; CRD4 included in “Others” primarily involve the following: • unrealised gains and losses on cash flow hedges; • any positive difference between expected losses on • assets from defined benefit pension funds, net of customer loans and receivables, measured according deferred taxes; to the internal ratings-based (IRB) approach, and the sum of related value adjustments and impairment losses;
Capital requirements
The Basel 3 Accord established the new rules for a standard method, and (ii) advanced methods based on calculating minimum capital requirements in order to internal credit-risk weighted models taking into account more accurately assess the risks to which banks are the rating profiles of counterparties. exposed. The calculation of credit risk-weighted assets takes into account the transaction risk profile based on two approaches for determining risk-weighted assets: (i)
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TABLEAU 5: GROUP CAPITAL REQUIREMENTS AND RISK-WEIGHTED ASSETS
RWA Capital requirements (in €m) 31/12/2019 31/12/2018 31/12/2019 31/12/2018 Credit risk (excluding counterparty risk - CRR) 18,145.0 18,062.1 1,451.6 1,445.0 o/w standardised approach (SA) 2,484.6 2,227.0 198.8 178.2 o/w Foundation Internal Ratings-Based approach (F-IRB) 1,260.1 1,259.1 100.8 100.7 o/w Advanced Internal Ratings-Based approach (A-IRB) 14,400.3 14,576.0 1,152.0 1,166.1 Counterparty risk 75.0 59.6 6.0 4.8 Contribution to CCP guarantee funds - - - - Settlement risk - - - - Securitisation exposures in the banking book 188.9 - 15.1 - o/w internal IRB approach 188.9 - 15.1 - o/w IRB Supervisory Formula Approach (SFA) - - - - o/w Internal Assessment Approach (IAA) - - - - o/w standardised approach (SA) - - - - Market risk 39.9 59.8 3.2 4.8 o/w standardised approach (SA) 30.7 46.2 2.5 3.7 o/w CVA 9.2 13.6 0.7 1.1 o/w Internal Models Approach (IMA) - - - - Operational risk 1,299.7 1,305.8 104.0 104.5 o/w basic indicator approach - - - - o/w standardised approach (SA) - - - - o/w Advanced Measurement Approach (AMA) 1,299.7 1,305.8 104.0 104.5 Floor adjustment - - - - TOTALS 19,748.5 19,487.3 1,579.9 1,559.1
Change in risk-weighted assets and capital requirements The following table presents the breakdown of the Group’s risk-weighted assets by pillar (fully loaded).
TABLE 6: BREAKDOWN OF RISK-WEIGHTED ASSETS (RWA) BY TYPE OF RISK Total at Total at (in €m) Credit Market Operational 31/12/2019 31/12/2018 French Retail Banking 18,408.8 39.9 1,299.7 19,748.4 19,487.3
At December 31, 2019, the breakdown of risk-weighted • market risks account for 0.2% of risk-weighted assets (€19,748.5 million) was as follows: assets; • credit risks account for 93.2% of risk-weighted • operational risks account for 6.6% of risk-weighted assets; assets.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 257 Risks and Capital Adequacy 5 Capital management and adequacy
Capital oversight
Audited | In the management of its capital, Crédit du • meeting the needs of its diverse stakeholders: Nord Group, under the supervision of the Financial supervisors, investors in debt and capital, rating Division, aims to ensure that its level of solvency remains agencies and shareholders. compatible with the following objectives: Consequently, Crédit du Nord Group determines its • maintaining its financial solidity and respecting the risk internal solvency target, in line with these objectives and appetite targets; remaining below regulatory thresholds. • maintaining the financial flexibility to finance its internal Crédit du Nord Group has an internal process for and external development; assessing the adequacy of its capital that measures the • adequate allocation of capital between its various adequacy of Crédit du Nord Group’s capital ratios in light business lines according to the Group’s strategic of regulatory constraints. ▲ objectives; At December 31, 2019, the Group’s risk-weighted • maintaining the Group’s resilience in the event of assets were up 1.3% to €19,748.5 million compared to stress scenarios; €19,487.3 million at end December 2018.
Leverage ratio
Crédit du Nord Group manages its leverage effect of the different businesses is under the Finance Division’s according to the CRR leverage ratio rules, as amended control. by the delegated act of October 10, 2014 and has The Group aims to maintain a consolidated leverage integrated the amendments of CRR2, which come into ratio significantly above the minimum of 3.0% required force on June 2021, into its management. by the Basel Committee for a non-systemic bank and Managing the leverage ratio means both calibrating adopted in Europe in the CRR2. the amount of Tier 1 capital (the ratio’s numerator) and At end-2019, Crédit du Nord Group’s leverage ratio controlling the Group’s leverage exposure (the ratio’s stood at 3.1%, the same as in 2018. denominator) to achieve the target ratio levels that the Group sets for itself. To this end, the “leverage” exposure
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TABLE 7: LEVERAGE RATIO SUMMARY AND RECONCILIATION OF PRUDENTIAL BALANCE SHEET AND LEVERAGE EXPOSURE
(in €m) 31/12/2019 31/12/2018 Tier 1 capital 2,349.5 2,291.0 Total prudential balance sheet assets 71,954.4 69,409.2 Adjustments for fiduciary assets recorded on the balance sheet but excluded from leverage exposure - - Adjustments for derivative exposures 1,295.0 1,166.4 Adjustments for securities financing transactions - - Off-balance sheet exposures (loan and financial guarantee commitments) 5,978.6 5,251.2 Technical and regulatory adjustments (Tier 1 prudential capital deductions) -794.3 -788.6 Technical and regulatory adjustments (exempting Regulated Savings) -2,002.7 - Leverage exposure 76,431.0 75,038.2 Fully loaded CRR leverage ratio 3.1% 3.1%
Ratio of large exposures
The CRR (European Capital Requirements Regulation) of Tier 2 capital. The latter may not exceed a third of Tier incorporates the provisions regulating large exposures. 1 Capital. As such, Crédit du Nord Group may not have any The final rules of the Basel Committee on large exposure for which the total amount of net risks incurred exposures will be transposed in Europe via CRR2. on a single beneficiary exceeds 25% of Crédit du Nord The main change compared with the current CRR is Group’s capital. the calculation of the regulatory limit (25%), henceforth The eligible capital used to calculate the large exposure expressed as a proportion of Tier 1 (instead of total ratio is total regulatory capital, with a limit on the amount capital).
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 259 Risks and Capital Adequacy 5 Credit and counterparty risks
5.4 Credit and counterparty risks
Audited | Credit risk refers to the risk of losses resulting from the incapacity of Crédit du Nord Group’s customers or other counterparties to fulfil their financial commitments. Credit risk includes the counterparty risk related to market operations, risk linked to securitisation activities and may be aggravated by the risk of individual concentration, country or sectoral concentration. ▲
Organisation
Audited | To provide a framework for Crédit du Nord • approving credit scores or internal customer rating Group’s credit risk management, the Risk Division has criteria; developed a control and monitoring system based on • monitoring large exposures and various specific credit the credit risk policy. This framework is periodically portfolios; reviewed and approved by the Risk Committee. • approving specific and collective provisioning policies. The Risk Division is notably responsible for: A monthly report on the monitoring of major impaired • setting or proposing global and individual credit limits risks is presented to the Crédit du Nord Group Risk by customer, customer group or transaction type; Committee, along with any additional specific analyses. • authorising transactions submitted by the sales ▲ department;
Credit policy
Audited | Crédit du Nord Group’s credit policy is • all transactions involving credit risk (debtor risk, based on the principle that approval of any credit risk settlement/delivery risk, issuer risk and replacement undertaking must be based on sound knowledge of risk) must be pre-authorised; the client and the client’s business, an understanding • responsibility for analysing and approving transactions of the purpose and structure of the transaction, and lies respectively with the sales function and the risk of the sources of repayment of the debt. The Group’s function, which examine all authorisation requests credit decisions must also ensure that the structure of related to a specific customer in order to ensure a the transaction will minimise the risk of loss in the event consistent approach to Crédit du Nord Group’s risk that the counterparty defaults. Furthermore, the credit decisions; approval process takes into consideration the overall • the sales function and the risk function work commitment of the group to which the client belongs. independently of one another; Risk approval forms part of Crédit du Nord Group’s risk management strategy in line with its risk appetite. • credit decisions must be systematically based on internal risk ratings (counterparty rating), as provided The risk approval process is based on four core by the sales function and approved by the Risk principles: Division.
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The Risk Division submits recommendations to the Nord Group Board of Directors. The allocation of limits Crédit du Nord Group Risk Committee on the limits is subject to final approval by Crédit du Nord Group’s which it deems appropriate for sectors, products or General Management and is based on a process that customer types, in order to reduce risks with strong involves the operating divisions exposed to risk and the correlations. These limits are approved by the Crédit du Crédit du Nord Group Risk Division. ▲
Risk supervision and monitoring system
Monitoring of individual concentration • trade risk arises from a fall in the credit quality of all The major individual exposures of each region and counterparties in a given country due to an economic subsidiary of Crédit du Nord Group are examined, once or financial crisis in the country, independently of the per year, during the meeting of the Regional Strategic financial position specific to each counterparty. This Risks Committees, attended by General Management, could be a macroeconomic shock (sharp slowdown which specifies the general guidelines to be followed in activity, systemic banking crisis, etc.), currency vis-à-vis these counterparties. depreciation, or sovereign default on external debt possibly entailing other defaults. Crédit du Nord Group complies with regulations on major risks. Moreover, the Group has set a stricter internal rule Overall limits and strengthened monitoring of exposures with a limit of 10% of the Group’s consolidated capital have been established for countries based on their applying to any exposure concentrated on a customer internal ratings and governance indicators. Supervision group. is not limited to emerging markets. The country limits are approved on a yearly basis by Monitoring of country risk Societe Generale Group. They may be lowered at any Country risk arises when an exposure (loan, security, time if the country’s situation deteriorates or is expected guarantee or derivative) becomes liable to negative to deteriorate. impact from changing regulatory, political, economic, All of Crédit du Nord Group’s exposures (security, social and financial conditions in the country of exposure. derivative, loan, guarantee) are taken into account in this It includes exposure to any kind of counterparty, oversight. The country risk methodology determines a including a sovereign state (sovereign risk is also country of initial risk and a country of final risk (after any controlled by the system of counterparty risk limits). guarantee effects). The country of final risk is subject to Country risk breaks down into two major categories: country limits. • political and non-transfer risk covers the risk of non- Portfolio review and sector risk monitoring payment resulting from either actions or measures Crédit du Nord Group also regularly reviews its entire taken by local government authorities (decision to credit portfolio via analyses according to type of prohibit the debtor from meeting its commitments, counterparty or activity sector. In addition to industry nationalisation, expropriation, non-convertibility, etc.), research and regular sector concentration analyses, domestic events (riots, civil war, etc.) or external sector research and more specific business portfolio events (war, terrorism, etc.); analyses are carried out at the request of the General Management.
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Authorisation limits are set by counterparty and Credit stress tests the credit approval process must comply with the With the aim of identifying, monitoring and managing overall authorisation limit for the group to which the credit risk, Credit du Nord Group works with the counterparty belongs. business divisions to conduct a set of specific stress The Crédit du Nord Group Risk Committee carries out tests relating to a given activity. These specific stress monthly analyses of the main loans granted and the tests combine both recurring stress tests, conducted primary impairments. on those portfolios identified as structurally carrying Concentrations are measured using an internal model risk, and occasional stress tests, designed to recognise and individual concentration limits are defined for larger emerging risks. exposures. Limit breaches are managed over time by Structured around the portfolio analysis function, the establishing exposure reductions. Risk Division teams translate these economic scenarios into impacts on risk parameters (default exposure, default rate, provisioning rate at entry into default, etc.).
Hedging against credit risk, guarantees, and collateral
Audited | Crédit du Nord Group uses credit risk During the credit approval process, an assessment is reduction techniques on both its market activities performed on the value of guarantees and collateral, and commercial banking activities. These techniques their legal enforceability and the guarantor’s ability to provide partial or full protection against the risk of debtor meet its obligations. This process also ensures that the insolvency. collateral or guarantee successfully meets the criteria set There are two main categories: forth in the Capital Requirements Directive (CRD). • personal guarantees are commitments made by a Guarantor ratings are reviewed internally at least once a third party to replace the primary debtor in the event year and collateral is subject to revaluation at least once of the latter’s default. These guarantees encompass every twelve months. the protection commitments and mechanisms The Risk function is responsible for approving provided by banks and similar credit institutions, the operating procedures established by the core specialised institutions such as mortgage guarantors businesses for the regular valuation of guarantees (e.g. Crédit Logement in France), monoline or multiline and collateral, either automatically or based on an insurers, export credit agencies, etc; expert opinion, whether during the approval phase for • collateral may consist of physical assets taking the a new loan or upon the annual renewal of the credit form of property, commodities or precious metals, or application. ▲ financial instruments such as liquidities, high-quality A revaluation is carried out as part of the annual credit investments and securities, and also insurance application reviews and as often as it appears necessary: policies. • when market conditions see significant changes likely Appropriate haircuts are applied to the value of collateral, to affect the value of the collateral; reflecting its quality and liquidity. • when an exposure is classified as doubtful; In order to reduce its risk-taking, Crédit du Nord Group • upon the review of provisioned applications; is pursuing active management of its securities, in • when an exposure rating falls from doubtful to particular by diversifying them: physical collateral, disputed. personal guarantees and others.
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The frequency of revaluation depends on the type of Professional markets – Private portion, for an amount asset. The frequencies mentioned below are minimum originally below €3 million, is carried out on a quarterly frequencies: basis. It is carried out each year in January, April, July • financial guarantees (cash, equities, bonds, fund and October, during the second half of the month in shares) and gold: every 6 months; question. • commercial real estate assets: yearly – Control every It is carried out based on real estate price indices 3 years by an independent professional evaluator for published quarterly by INSEE, in partnership with loans above €3 million; notaries. • residential real estate assets: every 3 years - Control The index applied depends on the type of the residential by an independent professional evaluator for loans real estate asset used as guarantee (Apartment / House above €3 million. A revaluation by a professional / Mixed) and its location (Ile de France, PACA, Nord Pas evaluator is carried out yearly for defaulted loans of de Calais, Rhône-Alpes, Province). more than €3 million; Commercial real estate assets • other collateral (air planes, boats, vehicles, equipment, The evaluation of a real estate asset for professional use etc.): yearly. provided as guarantee of financing is carried out with With regard to the revaluation of real estate collateral, the help of an evaluation tool that assesses the following there are two categories: assets: • residential real estate asset (houses, apartments, etc.) • offices; received as guarantee; • commercial spaces or shops; • commercial real estate asset (offices, commercial • industrial spaces; spaces, warehouses, industrial buildings, etc.) received as guarantee. • warehouses; • land for commercial or industrial use. Residential real estate assets This tool covers the geographic territory of France, Residential real estate assets are generally provided as a including Corsica and excluding Monaco. guarantee at the time of the financing of their acquisition. The value of real estate assets that can be evaluated The operation gives rise to a market transaction and by this tool is capped at €3 million. The value of the the value of the asset held may be based on that of commercial real estate asset must be monitored at close the sale, i.e., the price paid by the customer, excluding intervals and at least once per year, as revaluation of the fees. This possibility is open subject to confirmation from asset is part of the credit application renewal process. the Risk function that the market concerned does not demonstrate bias in its representation of the acquisition A haircut may be estimated to take into account resale price. conditions (forced sale, constrained timeframes, resale fees, etc.). For performing commitments, it is not The value of the residential real estate asset is monitored mandatory to apply a valuation haircut in the absence of at close intervals. indices showing the decline of conditions for the sale of An automatic revaluation of collateral (i.e., apartment the asset, or of reservations with regard to the executory mortgage, garage, home mortgage, apartment lien, nature of the guarantee. However, a haircut must be garage, home lien) under the status “Existing for estimated in order to value the collateral of a defaulted finalisation” and “Finalised existing”, taken as guarantee borrower. for loans granted to customers in the Individual and
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Haircuts by type of guarantee are defined by a group legal proceedings underway, or the time elapsed since of internal experts. These haircuts may be adjusted the last valuation. according to local conditions, customer specificities,
Impairments
Impairments can be broken down into impairments • the identification of other criteria that, regardless of of performing exposures (Stages 1 and 2) and whether or not payments are past due, translate to impairments of defaulted exposures (Stage 3). Since a probable risk of partial or total non-repayment of the implementation of IFRS 9 on January 1, 2018, all loans such as: of these impairments are applied to the exposures – a significant degradation in the financial position concerned (i.e. considered specific). There is no longer of the counterparty, leading to a high probability a general provision for credit risk. that the latter will not be able to fully honour its The applicable accounting principles are specified in commitments, which implies a risk of loss for the note 3.8 of consolidated financial statements found in Group, Chapter 4 of the universal registration document. – the granting, for reasons linked to the borrower’s financial difficulties, of concessions to clauses of Methods of classification between stages the loan contract that would not be granted in Performing exposures classified in Stages 1 and 2 other circumstances (“restructured” loans), At their initial recognition date, exposures are – filing of legal proceedings (ad hoc mandate, court systematically classified in Stage 1 unless they are administration or liquidation, or their equivalent in doubtful or defaulted exposures from the time they are the jurisdictions concerned). acquired or granted. The Group applies the default contagion principle to To identify exposures classified in Stage 2, the significant all of a counterparty’s outstandings. When a debtor increase in credit risk from the initial recognition date belongs to a group, all of the group’s outstandings are is assessed by the Group, using all available past and generally defaulted as well. forward-looking data (behavioural scores, ratings, loan to value indicators, macroeconomic forecast scenarios, New definition of default etc.). The guidelines published by the European Banking Defaulted exposures classified in Stage 3 Authority (EBA) on the application of the default definition To identify Stage 3 exposures, the Group determines under Article 178 of Regulation (EU) N° 575/2013, whether there is an objective evidence of impairment: applicable from January 1, 2021, and the European Central Bank (ECB) in Regulation (EU) 2018/1845 • one or more payment(s) more than 90 days past due regarding the threshold for assessing the materiality of (with the exception of restructured loans transferred credit obligations past due, applicable on December to Stage 3 when a payment is 30 days past due 31, 2020 at the latest, will both improve consistency in during a two-year probation period), whether or not the practices of European credit institutions in terms of a collection procedure is instigated. To assess this identifying defaulted exposures. criterion, the Group applies no materiality threshold to the amount of past due payments, except as The definition of default will be clarified by the required by local supervisory authorities. Moreover, introduction of a relative threshold and an absolute only payments past due resulting from commercial threshold to be applied to past due payments to identify disputes, specific contractual clauses or IT system default situations. The conditions for the return to non- interruptions may not result in default after 90 days; defaulted status for performing exposures will also be clarified via the introduction of a probation period and explicit criteria for the classification of restructured
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loans as defaulted. The Group will apply these new (positive and negative) in outcome between the base provisions to identify defaulted exposures from April 1, scenario and the actual scenario, which corresponds 2020, while the internal parameters used to calculate at December 31, 208 to 72% for the central scenario, the expected losses will be adjusted at January 1, 2021. 14% for the stress scenario and 12% for the optimistic The preliminary analyses carried out by the Group show scenario. These probabilities are updated quarterly that the clarifications provided for the identification of based on changes in the central scenario, and annually defaulted exposures remain in line with the criteria used according to new observations. The method is to assess the doubtful nature of exposures classified in supplemented with a sector adjustment that increases Stage 3, in accordance with the provisions of the IFRS or decreases expected credit loss in an effort to better 9 standard related to the recognition of expected losses anticipate defaults or recoveries in certain cyclical for credit risk. The Group considers that the changes sectors. These sectoral adjustments are reviewed and resulting from the application of the new provisions updated on a quarterly basis. The adjustments concern related to defaulted exposures will have no significant certain cyclical economic sectors that have seen default effect on its consolidated financial statements. peaks in the past and to which the Group’s exposure exceeds a threshold that is reviewed and set annually by Methods of estimating expected credit the Risk Division. Finally, a marginal additional provision losses on expert recommendation, increasing or decreasing The methodology for calculating Stage 1 and 2 expected expected credit losses, was used to account for future credit losses is based on the Basel framework, which non-modelled risks (primarily legislative and regulatory served as the basis for determining the methods for changes). These parameters are updated on a quarterly setting calculation inputs (probability of default and loss basis. given default for exposures under the A-IRB and F-IRB Impairments of performing exposures (Stages 1 approaches, and the provisioning rate for exposures and 2) under the standardised Basel method). Impairments of performing exposures are determined The Group’s portfolios have been segmented to using an estimate of 12-month expected credit losses ensure consistency in risk characteristics and a better (general case) or lifetime expected credit losses (case for correlation with both global and local macro-economic contracts subject to a significant increase in credit risk variables. This segmentation allows all the Group’s since the loan was issued). specific characteristics to be taken into account. It These impairments are calculated on the basis of is in line with or equal to the segmentation defined in assumptions on default rates and loss given default, the Basel framework, guaranteeing the consistency of in addition to macroeconomic or sector/country- default and loss records. specific forecasts. These assumptions are calibrated The forward-looking approach of expected credit losses by homogeneous group based on their specific (at one year / at maturity) is based primarily on the characteristics, sensitivity to the economic environment integration of economic outlooks into the probability of and historical data. They are reviewed periodically by the default. Risk Division. The anticipated credit losses are calculated based Impairments of defaulted exposures (Stage 3) on the probable average of the 3 macro-economic As soon as objective proof of an event of default scenarios, established by SG Group’s economists for is found, an impairment on defaulted exposures is all of Crédit du Nord Group’s entities (the current base- calculated for the counterparties in question. The and stress-case scenarios being supplemented by an amount of impairment depends on the probability of optimistic scenario). recovering the amounts due. The expected cash flows The base- and stress-case scenarios are those used by are based on the financial position of the counterparty, the Group in its budgetary planning and in carrying out its economic prospects and the guarantees called up or its stress tests. The probabilities used are based on past that may be called up. observations, spanning a 25-year period, of differences
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 265 Risks and Capital Adequacy 5 Credit and counterparty risks
The related segments and variables are described in the following tables:
Parameters Macro-economic variables Growth rate - France Retail Inflation rate - France Unemployment rate - France EURIBOR spread - EONIA 3-month swap Financial institutions Growth rate - United States Growth rate - Brazil Growth rate - India Growth rate - China Large corporates Growth rate - Russia Growth rate - Japan Excluding retail customers Growth rate - United States Growth rate - Eurozone Corporate margin rate France Mid-caps France Growth rate - France Local communities Growth rate - France Corporate margin rate France SME France Growth rate - France
Expected credit losses are calculated based on increasing or decreasing the expected credit losses to the probable average of the three macro-economic better anticipate patterns of default or recovery in certain scenarios (the current base- and stress-case scenarios cyclical sectors. being supplemented by an optimistic scenario). The These sectoral adjustments are examined and updated base- and stress-case scenarios are those used for on a quarterly basis. The sectors concerned are budgetary planning and stress tests. economic sectors considered cyclical, which have seen The probabilities used are based on past observations, peaks in default in the past and to which the Group’s spanning a 25-year period, of differences (positive and exposure exceeds a threshold that is examined and negative) in outcome between the base scenario and set annually. Finally, a marginal additional provision the actual scenario, which corresponds at December 31, on expert recommendation, increasing or decreasing 2019 to: 74% for the central scenario, 16% for the stress expected credit losses, was used to account for future scenario and 10% for the optimistic scenario. They are non-modelled risks (mainly legislative and regulatory updated quarterly based on changes in the central changes). These parameters are updated on a quarterly scenario, and annually according to new observations. basis. The system is completed by a sectoral adjustment,
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Replacement risk
Counterparty risk linked to market transactions is a credit Setting individual counterparty limits risk (potential loss in the event of counterparty default), The credit profile of counterparties is reviewed on a also known as replacement risk. It represents the cost of regular basis and limits are set both according to the replacement, in the event of the failure of a counterparty, type and maturity of the instruments concerned. The of transactions reflecting a positive value in favour intrinsic creditworthiness of counterparties and the of Crédit du Nord Group. Transactions giving rise to reliability of the associated legal documentation are replacement risk are, inter alia, repurchase agreements, two factors considered when setting these limits. securities borrowing and lending transactions, and Fundamental credit analysis is also supplemented by derivative contracts such as swaps, options and futures relevant peer comparisons and a market watch. traded over the counter or with central counterparty Information technology systems allow both traders and clearing houses (CCP). the Risk Division to ensure that counterparty limits are Management of counterparty risks linked not exceeded and that additional limits are requested to market transactions as necessary. Audited | Crédit du Nord Group suit son exposition Audited | Any significant weakening in the bank’s au counterparty risk in order to minimise its losses in counterparties also prompts urgent internal rating the event of failure and the authorisation amounts are reviews. A specific supervision and approval process is defined by all counterparties (banks, other financial put in place for more sensitive counterparties or more institutions, companies, public bodies and CCPs). ▲ complex financial instruments. ▲ To quantify the potential replacement cost, Crédit du Crédit du Nord Group is now included in the scope of Nord Group uses the model developed by Societe Societe Generale Group entities that send, centralise Generale Group: the future fair value of market and store their market transactions daily in the machine transactions carried out with each counterparty is risk oversight calculator (MRP). modelled, taking into account the effects of correlation The data collected in MRP is used in new centralised and compensation. SG tools in order to recover, analyse and monitor The forecasts are derived from Monte-Carlo models counterparty risks linked to market transactions: developed by the Risk Division, based on a historical iPilotage, iForce and iFlow. analysis of market risk factors, and take into account The Risk Division performs daily supervision of CVaR guarantees and collateral. limit breaches for customers without direct access to the Societe Generale Group monitors positions using two trading floor. It also conducts a monthly ex-post control indicators to represent the distribution resulting from the of the handling of CVaR limit breaches for customer with Monte Carlo simulation: direct access to the trading floor by the Treasury and • the average ordinary risk, particularly useful for Foreign Exchange Department (DOTC). The DOTC also analysing a customer portfolio’s risk exposure; performs a daily check of market transaction breaches for bank counterparties. • Credit VaR (or CVaR): amount of the largest loss that can be obtained after eliminating 1% of the most adverse occurrences, used to set individual counterparty limits.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 267 Risks and Capital Adequacy 5 Credit and counterparty risks
Risk measurement and internal ratings
Crédit du Nord Group has the permission of the • the Loss Given Default (LGD): the ratio between supervisory authorities to apply the internal method the loss incurred on an exposure in the event a for the majority of its exposures (Internal Rating Based counterparty defaults and the amount of the exposure method - IRB) in order to calculate the necessary capital at the time of the default. with regard to credit risks. Crédit du Nord Group also takes into account: General framework of the internal approach • the impact of guarantees and credit derivatives with the substitution of the PD, the LGD and the Audited | To calculate its capital requirements under risk-weighting calculation of the guarantor with that the IRB method, Crédit du Nord estimates the Risk of the borrower (the exposure is considered to be a Weighted Assets (RWA) and the Expected Loss (EL), direct exposure to the guarantor) in the event that the a loss that may be incurred due to the nature of the guarantor’s risk weighting is more favourable than transaction, the quality of the counterparty and all that of the borrower; measures taken to mitigate risk. • the collaterals provided as guarantee (physical or To calculate its RWA, Crédit du Nord Group uses its own financial). This impact is factored either at the level Basel parameters estimated based on its internal risk of the LGD models in the pools concerned or on a measurement system for retail customers and the Basel line-by-line basis. ▲ parameters developed by Societe Generale Group for risks, excluding retail customers: To a lesser extent, Crédit du Nord Group also applies an IRB Foundation approach (for which only the Probability • exposure at default (EAD) is defined as Crédit du Nord of Default parameter is estimated by the Bank, as the Group’s exposure in the event of the counterparty’s LGD and CCF parameters are set by default by the default. The EAD includes exposures recorded on the supervisor) for an equipment-leasing portfolio housed in balance sheet (loans, receivables, income receivable, its Star Lease subsidiary. market transactions, etc.), and a proportion of off- balance sheet exposures calculated using internal or Besides the capital requirement calculation objectives regulatory Credit Conversion Factors (CCF); under the IRBA method, Crédit du Nord Group’s credit risk measurement models contribute to the management • the Probability of Default (PD): the probability that a of Crédit du Nord Group’s operational activities. They counterparty of the bank will default within one year; also constitute tools to structure, price and approve transactions and participate in the setting of approval limits granted to business lines and the Risk function.
TABLE 8: BREAKDOWN OF EAD(1) PER THE BASEL METHOD
31/12/2019 31/12/2018 IRB 97% 97% Standardised 3% 3% TOTAL 100% 100%
(1) Excluding equity investments, fixed assets and accruals.
268 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Credit and counterparty risks 5
Credit risk measurement for retail customers • a system that automatically assigns Loss Given Crédit du Nord Group’s credit risk measurement system, Default (LGD) and Credit Conversion Factor (CCF) which estimates internal Basel parameters, uses a parameters according to the characteristics of each quantitative assessment mechanism coupled with an transaction; expert judgement. • a set of procedures outlines the rules related to notes For corporate, banking and sovereign portfolios, the (scope of application, frequency of revision, note measurement system is based on three key pillars: approval procedure, etc.) as well as those related to the supervision, backtesting (retroactive testing), and • a counterparty rating system; approval of models.
Rating system
The rating system consists in assigning a rating to each The counterparty rating models are structured in counterparty according to an internal scale, for which particular according to the type of counterparty each grade corresponds to a probability of default (companies, financial institutions, public entities, determined using historical series observed by Standard etc.), the country, geographical region and size of the & Poor’s over more than 20 years. company (usually assessed through its annual revenue). The table below presents Societe Generale Group’s The company rating models are underpinned by internal rating scale as applied to Crédit du Nord statistical models (regression methods) of customer Group and the correspondences with the scales of default. They combine quantitative parameters derived the main external credit rating bodies, as well as the from financial data that evaluate the sustainability and corresponding average probabilities of default. solvency of counterparties and qualitative parameters The rating assigned to a counterparty is generally that evaluate economic and strategic dimensions. proposed by a model and then adjusted and approved by experts in the Risk Department following the individual analysis of each counterparty.
TABLE 9: INTERNAL RATING SCALE APPLIED TO CRÉDIT DU NORD AND CORRESPONDENCE WITH AGENCY RATING SCALES
1-year Internal counterparty rating DBRS FitchRatings Moody’s S&P probability of default 1 AAA AAA AAA AAA 0.01% 2 AA high to AA low AA+ to AA- AA1 to AA3 AA+ to AA- 0.02% 3 A high to A low A+ to A- A1 to A3 A+ to A- 0.04% 4 BBB high to BBB low BBB+ to BBB- BAA1 to BAA3 BBB+ to BBB- 0.30% 5 BB high to BB low BB+ to BB- BA1 to BA3 BB+ to BB- 2.16% 6 B high to B low B+ to B- B1 to B3 B+ to B- 7.93% 7 CCC high to CCC low CCC+ to CCC- CAA1 to CAA3 CCC+ to CCC- 20.67% 8.9 and 10 CC and below CC and below CA and below CC and below 100.00%
LGD models The models used to estimate the loss given default Loss given default (LGD) is an economic loss that (LGD) excluding retail clients are applied by regulatory is measured by taking into account all parameters sub-portfolios, type of asset, size and geographical pertaining to the transaction, as well as the fees location of the transaction or of the counterparty, incurred for recovering the receivable in the event of a depending on the existence or not of collateral and its counterparty default. nature. This makes it possible to define homogeneous
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 269 Risks and Capital Adequacy 5 Credit and counterparty risks
risk pools, notably in terms of recovery, procedures and Three categorisation models are then applied to the the legal environment. retail customer base of Crédit du Nord Group. Nine These estimates are built on a statistical basis when the risk categories are established for individuals, seven for number of loans in default is sufficient. They are based professionals and SCIs. New customers and defaulted in this case on the observation of recovery data over a counterparties are considered specific risk categories. long period. Once the counterparties are classified in statistically When the number of defaults is insufficient, the estimate distinct homogeneous risk pools, the probability of is revised or determined by an expert. default parameters are estimated by observing the average long-term default rates for each product. These estimates are adjusted by a safety margin to estimate CCF (Credit Conversion Factor) models as best as possible a complete default cycle using a For its off-balance sheet exposures, Crédit du Nord Through the Cycle (TTC) approach. Group is authorised to use the internal approach for “term loan with drawing period” products and revolving LGD models credit lines. LGD for retail customers is calculated by Crédit du Nord Group. LGD values are estimated by product, according Backtests to the existence or not of collateral. The performance level of the entire customer credit Consistent with operational recovery processes, system (excluding retail customers) is measured by estimate methods are generally based on a two-step regular backtests that compare estimates with actual modelling process that initially estimates the proportion results for the PD, LGD, and CCF of each portfolio, of defaulted loans in loan termination, followed by the allowing the Group to measure the prudence of the risk loss incurred in case of loan termination. parameters used under the IRB approach. The expected losses are estimated with internal long- The results of backtests can justify the implementation term historical recovery data for exposures that have of remedial plans or the application of add-ons if the defaulted. These estimates are adjusted with safety system is deemed to be insufficiently prudent. The margins in order to reflect the possible impact of a results of backtests and remediation plans are presented downturn. to the Expert Committee for discussion and approval (see “Governing of the rating system”). CCF (Credit Conversion Factor) models Credit risk measurement for retail customers For its off-balance sheet exposures, the Crédit du Probability of default models Nord Group applies its estimates for revolving loans and overdrafts on current accounts held by retail and Probability of counterparty default for retail customers professional customers. is modelled by Societe Generale Group with the data transmitted by Crédit du Nord Group. The models incorporate data on the payment behaviour Backtests of counterparties. They are segmented by type of The performance level of the whole retail customer credit customer and distinguish between retail customers, system is measured by regular backtests, which check professional customers, very small businesses and real the performance of PD, LGD and CCF models and estate investment companies (SCI, Sociétés Civiles compare estimated figures with actual figures. Immobilières). Each year, the average long-term default rates observed The counterparties in each segment are classified by homogeneous risk pools are compared with the automatically using statistical models in homogeneous probabilities of default. If necessary, the calibrations risk pools, each of which is assigned probabilities of of probabilities of default are adjusted to preserve a default. satisfactory safety margin. The discrimination level of the
270 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Credit and counterparty risks 5
models and changes in the portfolio’s composition are the modelling entities within the framework of a also measured. committee (Models Committee); Regarding the LGD, the backtest consists in comparing • a validation stage that is structured around a the last estimate of the LGD obtained by computing the Committee of Experts whose purpose is to validate average level of payments observed and the value used the consistency of the Basel parameters of an internal to calculate regulatory capital. model from a banking perspective. The Committee The difference should in this case reflect a sufficient of Experts is a body reporting to Societe Generale safety margin to take into account a potential economic Group’s Chief Risk Officer and to the Heads of the slowdown, uncertainties about estimation, and changes relevant business lines. in the performance of collection processes. The The Committee of Experts is also responsible for appropriateness of this safety margin is assessed by a defining the review guidelines and for revising models at Committee of Experts. the proposal of the Models Committee. These guidelines Likewise for the CCF, the level of conservatism of take into account the regulatory requirements and estimates is assessed annually by comparing estimated economic and financial issues of the business lines. drawdowns and observed drawdowns on the undrawn The models used by Crédit du Nord Group are approved portion. by the Models Committee and the Committee of Experts, in which the Bank’s experts participates. Governing of the rating system In accordance with the Delegated Regulation (EU) No. The unit responsible for the governing of the Crédit du 259/2014 of May 20, 2014 regarding the monitoring of Nord Group credit risk rating system, which reports to internal models used to calculate capital requirements, the Risk Division, ensures compliance with requirements changes to Crédit du Nord Group’s credit risk related to the internal control of the rating system, measurement system are subject to one of three types jointly with the independent review team of the Societe of notification to the competent supervisory authority, Generale Group Risk Division. depending on the significance of the change, evaluated The governance of risk modelling set up by Societe according to this rule:: Generale Group covers the development, approval and • significant changes are subject to a request for monitoring of decisions regarding changes to internal authorisation prior to their implementation; models for measuring credit risks. • the supervisory authority is notified of changes which Societe Generale Group’s internal validation protocol for are not significant according to the criteria defined new models and annual backtesting is broken down into by the regulation. Barring a negative response three stages: within a two-month period, such changes may be • a preparation stage during which the validation team implemented; takes control of the model and the environment in • the competent authorities are notified of all other which it is built and/or backtested, ensures that the changes after their implementation, at least once expected deliverables are complete, and draws up a annually in a specific report. working plan; The Internal Audit department is responsible for • an investigation stage intended to collect all statistical performing periodic evaluations of the overall efficiency and banking data required to assess the quality of the of the model risk management system and performing models. For subjects with statistical components, a an independent audit of models. review is performed by the independent model control entity, whose conclusions are formally presented to
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 271 Risks and Capital Adequacy 5 Credit and counterparty risks
Quantitative disclosures
Audited | The measurement used for credit exposures Exposures are broken down by portfolio, sector and in this section is EAD – Exposure At Default (on- and borrower rating, i.e. before factoring in the substitution off-balance sheet), excluding equity investments, fixed effect.▲ assets and all accruals.
Audited | Credit risk exposure
CREDIT RISK EXPOSURE BY EXPOSURE CLASS (EAD) CREDIT RISK EXPOSURE BY EXPOSURE CLASS (EAD) AT DECEMBER 31, 2019 (EAD) AT DECEMBER 31, 2018 (EAD)
On- and off-balance sheet commitments: EAD €69bn On- and off-balance sheet commitments: EAD €66bn
Retail Sovereigns Retail Sovereigns 56% 22% 53% 25%
Institutions % (1) 1 Institutions 1% (1)
Companies Companies 21% 21%
(1) Institutions: Basel portfolios for banks and local authorities. (1) Institutions: Basel portfolios for banks and local authorities.
RETAIL CREDIT RISK EXPOSURE BY EXPOSURE CLASS VRETAIL CREDIT RISK EXPOSURE BY EXPOSURE CLASS (EAD) AT DECEMBER 31, 2019 (EAD) AT DECEMBER 31, 2018
On- and off-balance sheet commitments: EAD €39bn On- and off-balance sheet commitments: EAD €35bn
Real VSEs and Real VSEs and estate loans professionals estate loans professionals 64% 19% 62% 20%
Other Other individual individual loans loans 15% 16%
Renewable Renewable exposures exposures 2% 2%
272 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Credit and counterparty risks 5
SECTOR BREAKDOWN OF CORPORATE EXPOSURES (BASEL PORTFOLIO: SMES, LARGE CORPORATES, SPECIALISED FINANCING)
EAD breakdown - Corporates (Large Corporates, SMEs, Specialised financing) by business sector
EAD €14.5 billion at 31/12/2019
€3,000 M 19.4%
17.2% 16.8% €2,500 M
€2,000 M
€1,500 M 8.8%
€1,000 M 6.0% 5.9% 5.6% 5.6%
3.2% €500 M 2.0% 2.0% 1.7% 1.6% 1.4% 0.9% 0.7% 0.5% 0.5% 0.0% 0.2% €0 M
Construction Teaching Trade. auto repair Real estate activities Extraction industries Public administration Manufacturing industry Hosting and reputation Other service activities Undetermined activity Transport and warehousing Healthcare and social action Information and communication Financial and occurrence activity Agriculture. forestry and fishing Administrative & Support Activities Prdn. & distr. Elec. Gaz vap & air cond.
Specialised activity. scientific and technical Arts. performance & recreational activities Water/waste management & decontamination
* Excluding adjustments. ▲
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 273 Risks and Capital Adequacy 5 Credit and counterparty risks
Exposures to Retail Customers
BREAKDOWN OF THE RETAIL CUSTOMER PORTFOLIO BY RISK CATEGORY AT 31/12/2019 On- and off-balance sheet commitments: EAD €39bn (IRBA and Standard method, performing and defaulted exposures) The breakdown by risk category of performing IRBA exposures, excluding new customers (Cf Focus no.3 below) illustrates the quality of the portfolio.
FOCUS ON RETAIL (INDIVIDUALS) FOCUS ON RETAIL (PROFESSIONALS) FOCUS ON RETAIL (PROPERTY AT DECEMBER 31, 2019 AT DECEMBER 31, 2019 INVESTMENT COMPANIES) AT DECEMBER 31, 2019
35% 40% 35%
30% 35% 30%
30% 25% 25% 25% 20% 20% 20% 15% 15% 15% 10% 10% 10%
5% 5% 5%
0% 0% 0% CR1 CR2 CR3 CR4 CR5 CR6 CR7 CR8 CR9 CR1 CR2 CR3 CR4 CR5 CR6 CR7 CR8 CR9 CR1 CR2 CR3 CR4 CR5 CR6 CR7 CR8 CR9
BREAKDOWN OF THE RETAIL CUSTOMER PORTFOLIO BY RISK CATEGORY AT 31/12/2018 On- and off-balance sheet commitments: EAD €35bn (IRBA and Standard approach, performing and defaulted exposures)
FOCUS ON RETAIL (INDIVIDUALS) FOCUS ON RETAIL (PROFESSIONALS) FOCUS ON RETAIL (PROPERTY AT DECEMBER 31, 2018 AT DECEMBER 31, 2018 INVESTMENT COMPANIES) AT DECEMBER 31, 2018
30% 40% 35%
35% 30% 25% 30% 25% 20% 25% 20% 15% 20% 15% 15% 10% 10% 10%
5% 5% 5%
0% 0% 0% CR1 CR2 CR3 CR4 CR5 CR6 CR7 CR8 CR9 CR1 CR2 CR3 CR4 CR5 CR6 CR7 CR8 CR9 CR1 CR2 CR3 CR4 CR5 CR6 CR7 CR8 CR9
274 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Credit and counterparty risks 5
Exposures to Corporate Customers The EAD of the Corporate portfolio is presented in accordance with the Basel definition (large corporates, SMEs, specialised financing). At December 31, 2019, the Corporate portfolio amounted to €14.5 billion (on- and off-balance sheet exposures measured in EAD) compared to €14.0 billion at December 31, 2018.
BREAKDOWN OF THE “CORPORATE” CUSTOMER BASE BREAKDOWN OF THE “CORPORATE” CUSTOMER BASE BY BY INTERNAL RISK RATING AT DECEMBER 31, 2019 INTERNAL RISK RATING AT DECEMBER 31, 2018 (AS A % (AS A % OF EAD) OF EAD)
50% 50%
45% 45%
40% 40%
35% 35%
30% 30%
25% 25%
20% 20%
15% 15%
10% 10%
5% 5% 0% 0% AAA AA A BBB BB B
Audited | The scope considered includes performing loans recorded under the IRB methods for the large corporates and SME portfolios. It represents EAD of €12.4 billion (out of total EAD for the Basel Corporate customer portfolio of €14.5 billion, all methods combined). The breakdown by rating of the Group’s “Corporates” exposure demonstrates the quality of the portfolio. It is based on an internal counterparty rating system, presented above as its Standard & Poor’s equivalent.▲ At December 31, 2019, the portfolio was solid: more than a third of performing loans are classified under Investment Grade counterparties (i.e., with an internal rating above BBB – based on Standard and Poor’s scale) and 40% of outstandings are rated BB. The quality of the portfolio remains stable as compared to 31/12/2018.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 275 Risks and Capital Adequacy 5 Credit and counterparty risks
Counterparty risks Counterparty risk is distributed as follows TABLE 10: EXPOSURE TO COUNTERPARTY RISK, EAD AND RISK-WEIGHTED ASSETS (RWA) BY METHOD AND CATEGORY OF EXPOSURE
31/12/2019
(in €m) IRB Standardised Total Category of exposure Exposure EAD RWA Exposure EAD RWA Exposure EAD RWA Sovereigns 14,862 14,850 - 64 64 27 14,926 14,914 27 Institutions 743 630 57 5 3 3 748 633 60 Companies 15,836 13,656 8,999 892 811 690 16,728 14,467 9,689 Retail 36,626 37,156 6,794 1,599 1,410 872 38,225 38,566 7,666 Others 2 2 1 - - - 2 2 1 TOTAL 68,069 66,294 15,851 2,560 2,288 1,592 70,629 68,582 17,443
31/12/2018
(in €m) IRB Standardised Total Category of exposure Exposure EAD RWA Exposure EAD RWA Exposure EAD RWA Sovereigns 15,978 15,975 - 78 79 30 16,056 16,054 30 Institutions 839 710 45 125 123 15 964 833 60 Companies 15,233 13,102 9,906 936 849 762 16,169 13,951 10,668 Retail 33,306 33,526 5,894 1,397 1,212 745 34,703 34,738 6,639 Others 7 6 1 - - - 7 6 1 TOTAL 65,363 63,319 15,846 2,536 2,263 1,552 67,899 65,582 17,398
Net cost of risk a less significant decrease of less 39%, reflecting a Crédit du Nord Group’s consolidated cost of risk stood lower base of defaulted exposures and more effective at €44.6 million in 2019, compared with €70.0 million in collections. 2018. Divided by total loans issued by the Group, cost The provision ratio for doubtful and disputed exposures of risk came out at 0.09%, i.e. a decline of 6 basis points (S3), net of collateral, increased to 84.1%, with an from 2018, reflecting a combination of decreased cost of overall decline in the level of defaulted exposures risk and increased performing exposures. (-11% over one year, or a decrease of more than €230 This low cost of risk can be attributed to one-off items million), thanks to the dynamic management of disputed and the favourable recalibration of provision model exposures (for corporate and professional customers in inputs. Restated for these items, annual cost of risk particular) and to the actions implemented to monitor comes to €92 million (or 18 basis points) compared non-performing loans. with €122 million (or 25 basis points) in 2018, based on The provision ratio of S1 and S2 performing exposures identical restatements. stood at 0.31%, down slightly by 4 basis points from On the corporate customers market, 2019 cost of risk 2018. The 2019 cost of risk for this scope is a product on defaulted exposures (Stage 3) remained moderate that has benefited from: and lower than 2018 cost of risk, which was impacted • the implementation at the end of the year of synthetic by a major loan. There was, however, a slight increase securitisation (securitised loans for €1.4 billion in in default entries on this market over the last quarter, the large companies/SMEs scope), which results although the total remains moderate. in the recognition of a receivable (repayment claim On the individual and professional customer markets, representative of the expected compensation on the cost of risk on defaulted exposures (Stage 3) for the hedged portfolio); year was down sharply by 74% compared with 2018. • and favourable recalibrations of the parameters of Restated for the recalibration of statistical provision provision models. model inputs and one-off events, cost of risk showed
276 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Credit and counterparty risks 5
Analysis of gross outstandings and depreciations and provisions for credit risk
Audited | The following tables illustrate the provisional cost or at fair value through other comprehensive exposures (on- and off-balance sheet) subject to income; depreciations and provisions in accordance with the new • operating lease and lease finance receivables; model for measuring expected credit losses introduced • financing and guarantee commitments; by the IFRS 9 standard and the depreciations and provisions by stage of provisioning. Provisionable exposures accounted for €69 billion at December 31, 2019. The scope covered in the tables includes: Performing exposures (Stages 1 and 2) increased by €4 • securities and loans & receivables to customers and million, primarily concentrated in credit institutions. banks & similar institutions measured at amortised
TABLE 11: PROVISIONABLE EXPOSURE BY BASEL PORTFOLIO
31/12/2019 01/01/2019 (in €m) Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Sovereigns 6,081.2 - - 6,081.2 6,390.9 - - 6,390.9 Institutions 7,891.7 0.0 - 7,891.7 3,005.2 1.1 - 3,006.3 Companies 14,687.2 1,004.1 842.3 16,533.5 15,216.4 1,097.8 888.4 17,202.6 Retail 35,324.7 2,178.9 1,337.2 38,840.8 35,274.3 2,500.5 1,520.0 39,294.8 Others ------TOTAL 63,984.7 3,183.0 2,179.5 69,347.2 59,886.8 3,599.4 2,408.4 65,894.6
TABLE 12: PROVISIONABLE EXPOSURES BY COUNTERPARTY RATING
31/12/2019 01/01/2019 (in €m) Stage 1 Stage 2 Stage 3 Total Total 1 9,993.1 3.9 9,997.0 8,363.0 2 21,235.2 13.9 21,249.0 19,751.4 3 12,455.2 204.7 12,659.9 13,722.8 4 8,292.3 493.3 8,785.5 8,020.2 5 6,709.3 520.8 7,230.1 6,465.5 6 1,480.9 1,056.5 2,537.3 2,571.7 7 93.7 486.9 580.6 721.8 Default (8, 9, 10) 2,179.5 2,179.5 2,398.8 Other method* 3,725.3 403.0 4,128.3 3,879.4 TOTAL 63,984.7 3,183.0 2,179.5 69,347.3 65,894.6
* These mainly include: - counterparties housed in the equipment leasing subsidiary STARLEASE. The customer bases are those of a service provider, and we collect neither ratings nor risk categories; - for the scope of the Basel 18 Real Estate portfolio, we determine a rating on the transaction but not the counterparty; - Monegasque counterparties.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 277 Risks and Capital Adequacy 5 Credit and counterparty risks
TABLE 13: IMPAIRMENTS AND PROVISIONS FOR CREDIT RISK BY BASEL PORTFOLIO
31/12/2019 01/01/2019 (in €m) Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Sovereigns 0.0 - - 0.0 0.0 - - 0.0 Institutions 0.3 0.0 - 0.3 0.2 0.0 - 0.2 Companies 60.8 34.8 474.2 569.8 64.0 35.1 518.0 617.1 Retail 37.3 36.3 680.0 753.6 35.1 40.8 750.2 826.1 Others ------TOTAL 98.4 71.1 1,154.1 1,323.7 99.2 75.9 1,268.3 1,443.4
▲
Coverage of doubtful exposures
TABLE 14: PROVISIONS FOR DOUBTFUL EXPOSURES
(in €m) 31/12/2019 31/12/2018 Gross book outstandings 51,405.2 48,272.2 Doubtful loans 2,035.3 2,273.6 GROSS DOUBTFUL EXPOSURES RATIO 4.0% 4.7% Provisions Step 1 86.6 86.2 Provisions Step 2 68.0 72.9 Provisions Step 3 1,124.9 1,238.0 GROSS DOUBTFUL EXPOSURES COVERAGE RATIO (S3 PROVISIONS/DOUBTFUL EXPOSURES) 84.1% 77.9%
Restructured debt
Audited | For Crédit du Nord Group, “restructured” Any situation leading to debt restructuring entails placing debt refers to loans whose amount, term or financial the customers in question in the Basel default category conditions have been contractually modified due to the and classifying the loans themselves as impaired. borrower’s insolvency (whether insolvency has already The customers whose loans have been restructured occurred or will definitely occur unless the debt is are kept in the default category for as long as the bank restructured). remains uncertain of their ability to meet their future Restructured debt does not include commercial commitments and for a minimum of one year. renegotiations involving customers for which the bank Restructured debt totalled €186.3 million at December has agreed to renegotiate the debt in order to retain 31, 2019.▲ or develop a business relationship, in accordance with credit approval rules in force and without giving up any of the principal or accrued interest.
TABLE 15: RESTRUCTURED DEBT
(in €m) 31/12/2019 31/12/2018 Non-performing restructured debt 171.7 179.5 Performing restructured debt 14.6 11.7 TOTAL RESTRUCTURED DEBT 186.3 191.2
278 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Market risks 5
5.5 Market risks
Audited | Market risks are the risks of loss of value on financial instruments arising from changes in market parameters, the volatility of these parameters, and the correlations between them. These parameters include, but are not limited to, exchange rates, interest rates, the price of securities (equities or bonds), commodities, derivatives and other assets. ▲
Methods for measuring market risk and defining limits
Audited | The Group’s market risk assessment is based allow the Group to limit its exposure to systemic risk on a combination of three types of indicators, which are and to exceptional market shocks; monitored through limits: • additional metrics such as sensitivity (showing local • the 99% Value-at-Risk (VaR): in accordance with the risks taken on trading activities), nominal (giving a regulatory internal model, this global indicator is used more readily understandable order of magnitude on for the day-to-day monitoring of the market risks the exposures without netting effects), concentration incurred by the Group within the scope of its trading or holding period, etc. activities; Stressed VaR (or SVaR) is also calculated on a daily • stress test measurements, based on decennial basis.▲ shock-type indicators. Stress test measurements
Implementation of the Group’s market risk appetite
Risk appetite is defined as the level of risk that the Group The choice and calibration of these limits thus transpose is prepared to assume to achieve its strategic goals. the Group’s market risk appetite: The business development strategy of the Group • they are allocated at various levels of the Group’s for market activities is primarily focused on meeting structure and/or by risk factor, thereby ensuring the customer needs via a full range of solutions. The risk operational transposition of the Group’s market risk resulting from these market activities is strictly managed appetite through its organisation; through a set of limits for several indicators (stress tests, • their calibration is determined using a detailed VaR, sensitivities, nominal values, etc.). analysis of the risks related to the portfolio managed. The Market Transaction Risk Management Department This analysis may include various elements such (RISQ/RMA/MRF) is responsible for examining limit as market conditions, specifically liquidity, position requests submitted by the business lines: at Crédit du manoeuvrability, income generated in view of risks Nord, such requests are submitted by the Front Office taken, etc.; of the Client Market Solutions Department (CMS) of the • regular reviews make it possible to manage risks trading room, with the Market Risks Department of the according to the prevailing market conditions; Group Risk Division (DRG/RMA). These limits ensure • specific limits or restrictions may be put in place to that the Group complies with the market risk appetite manage risks for which the Group has little or no risk approved by the Board of Directors, further to a proposal appetite. from General Management.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 279 Risks and Capital Adequacy 5 Market risks
The day-to-day monitoring of compliance with limits the Risk function, the Finance Division and the Business assigned to each activity is carried out by the function Lines, and ii) compliance with the limits in place, aided in charge of monitoring market metrics (RISQ/RMA/ by the products and solutions distributed to customers. MMG), jointly with the function for risk control on market This continuous oversight of the market risk exposure transactions, and locally by DRG/RMA. profile is frequently discussed by the risk and business Effective management and understanding of the teams, resulting in a variety of risk hedging or mitigation Group’s market risk exposure are ensured through i) the initiatives taken by the Front Office for the purpose of governance in place between the various departments of observing the established framework.
99% Value-at-Risk (VaR)
Crédit du Nord uses a Societe Generale calculator to Within the framework described above, the one-day assess its market risks and accordingly applies the 99% Value-at-Risk corresponds to the average of the same methodology as Societe Generale Group, which second and third largest losses computed. is described below. The VaR assessment is based on a model and a The Internal VaR Model was approved by the French certain number of conventional assumptions, the main regulator in late 1996 for the purpose of calculating limitations of which are as follows: regulatory capital requirements. • by definition, the use of a 99% confidence interval Value-at-Risk assesses the potential losses on positions does not take into account losses arising beyond this over a defined time horizon and for a given confidence point; VaR is therefore an indicator of the risk of loss interval (99% for Societe Generale). under normal market conditions and does not take The method used is the “historical simulation” method, into account exceptionally significant fluctuations; which implicitly takes into account the correlation • VaR is computed using closing prices, meaning that between the various markets and is based on the intra-day fluctuations are not taken into account. following principles: Societe Generale’s Market Risk Department mitigates • storage in a database of the risk factors representative the limitations of the VaR model by performing stress of Societe Generale’s positions (interest rates, share tests and other additional measurements for Societe prices, exchange rates, commodity prices, volatility, Generale Group, including Crédit du Nord. credit spreads, etc.); All Crédit du Nord market activities are now covered by • definition of 260 scenarios corresponding to one-day a VaR calculation, excluding foreign exchange options. variations in these market parameters over a rolling Positions in foreign exchange options tend to generate one-year period; residual market risk which, though perfectly hedged • the application of these 260 scenarios to the market back-to-back on the market, are not covered by the parameters of the day; SG calculator. The SG calculator will be adjusted in 2019/2020 to incorporate these positions. • revaluation of daily positions, on the basis of the 260 sets of adjusted market parameters. Capital charges for market risks are not based on a regulatory 10-day VaR, but are calculated using the standardised method, as Crédit du Nord is not authorised to use an internal model.
280 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Market risks 5
TABLE 16: TRADING VALUE-AT-RISK (VAR): BREAKDOWN BY RISK FACTOR
31/12/2019 31/12/2018 (in €k) 99% 1-day VaR 99% 1-day VaR Start of period -113.4 -48.6 Maximum -180.3 -214.6 Average -116.7 -68.6 Minimum -50.7 -23.4 End of period -160.0 -112.3
CHANGE IN 99% 1-DAY VAR OVER 2019 (in €k)
-50
-100
-150
-200 02/01/2019 02/02/2019 02/03/2019 02/04/201902/05/2019 02/06/2019 02/07/2019 02/08/2019 02/09/2019 02/11/2019 02/12/2019
Crédit du Nord’s Trading VaR was low over the period, In 2019, VaR levels were stable overall with a high of as the Bank regularly secures its customer orders, - €50k and a low of - €180k, or on average - €117k. thus significantly reducing its exposure to market risks.
Stressed VaR (SVaR)
The calculation method used for the 99% one-day SVaR The historical stress window, which is determined using is the same as under the VaR approach. It consists in a method approved by the regulator, captures significant carrying out a historical simulation with one-day shocks shocks on all risk factors (risks related to equity, fixed and a 99% confidence interval. Contrary to VaR, which income, foreign exchange and credit). It is subject to an uses 260 scenarios for one-day fluctuations over a rolling annual review. The window used was “September 2008 one-year period, SVaR uses a fixed one-year historical - September 2009”. window corresponding to a period of significant financial tension.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 281 Risks and Capital Adequacy 5 Market risks
Stress test assessment
Methodology Head of the Market Risk Department, economists and Alongside the VaR model, Crédit du Nord assesses its representatives of Societe Generale’s trading activities. risks via stress test to take into account exceptional These committee meetings cover the following topics: market disruptions, drawing consistently on the changes in scenarios (introduction, removal, shock methodologies and scenarios provided by Societe review), appropriate coverage of the risk factors by the Generale Group. scenarios, review of the approximations made in terms of calculation, correct documentation of the whole A stress test estimates the loss resulting from an process. The authorisation level needed to validate the extreme change in market parameters over a period changes in stress test scenarios depends on the impact corresponding to the time required to unwind or hedge of changes considered. In July 2019, the shocks to the positions affected. interest rates and inflation, and the volatility of interest This stress test assessment is applied to all of the Bank’s rates and exchange rates were updated. Notably, the market activities. It is based on a set of 18 scenarios amplitude of certain shocks was recalibrated in order to (3 historical and 15 hypothetical), which include the reflect a frequency of once per decade, and new risk “Hypothetical Financial Crisis Scenario” or “Generalised factors were added. Scenario”, based on the events observed in 2008. These scenarios apply shocks to all substantial risk factors, Historical stress tests including exotic parameters. This method consists of an analysis of the major Together with the VaR model, this stress test risk economic crises that have affected the financial markets assessment methodology is one of the main pillars of the since 1995 (date from which the financial markets have risk management framework. The underlying principles become global and subject to increased regulatory are as follows: requirements): the changes in the prices of financial assets (equities, interest rates, exchange rates, credit • the stress test corresponds to the worst result derived spreads, etc.) during each of these crises have been from the set of historical and hypothetical scenarios; analysed in order to define scenarios for potential • the shocks applied are calibrated on time horizons variations in these risk factors which, when applied to specific to each risk factor (the time horizon can the bank’s trading positions, could generate significant range from five days for the most liquid risk factors, to losses. Accordingly, Societe Generale uses three more than 20 days for the least liquid); significant historical scenarios related to the period from • risks are calculated daily for each of the Bank’s October to December 2008. market activities (all products combined), using each of the historical and hypothetical scenarios; Hypothetical stress tests The hypothetical scenarios are defined with Societe • stress test limits are established for Societe Generale’s Generale Group’s economists and are designed to activity as a whole, and then for the Group’s various identify possible sequences of events that could lead business lines, including Crédit du Nord. to a major crisis in the financial markets (e.g. a major The various stress test scenarios are regularly terrorist attack, political instability in the main oil- reviewed by the Risk Division, in conjunction with the producing countries, etc.). The Group’s aim is to select Group’s teams of economists and specialists. These extreme but plausible events which would have major reviews are presented during dedicated committee repercussions on all international markets. meetings held every six months, attended by the
282 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Market risks 5
Accordingly, Societe Generale has adopted the 15 being abandoned: significant widening of credit hypothetical scenarios described below: spreads, decline in yen interest rates, rise in US and • generalised ( Societe Generale hypothetical Eurozone long-term interest rates and flight to quality; financial crisis scenario): considerable mistrust • risky assets drop: unexpected halt in Central Bank of financial institutions after the failure of the Lehman quantitative easing policies leading to a widespread Brothers; collapse of equity markets, sharp decline drop in risky assets (equity, credit, emerging) in implied dividends, significant widening of credit combined with a significant increase in worldwide spreads, pivoting of yield curves (rise in short-term interest rates; interest rates and decline in long-term interest rates), • two Eurozone crisis scenarios: exit of Greece from substantial flight to quality (purchase of assets from the Eurozone, triggering a widespread drop in risky the highest rated issuers); assets (equity, credit, emerging), more particularly in • GIIPS crisis: mistrust in risky sovereign issuers and Europe, and a tightening of the US and Japanese increased interest in higher-rated sovereign issuers sovereign spreads, mitigated with ECB support such as Germany, followed by the spreading of fears (activation of the OMT programme resulting in a to other markets (equities, etc.); decrease in Eurozone interest rates) or without ECB • Middle East crisis: instability in the Middle East support (dislocation of the basis rates reflecting a leading to a significant shock in oil prices and freeze in the interbank market); other energy sources, a stock market crash, and a • Russian crisis: significant depreciation of the steepening of the yield curve; Russian currency, default of the Russian government, • terrorist attack: major terrorist attack on the United crisis in the bond markets and drop in equities, more States leading to a stock market crash, decline in particularly in emerging markets (as seen with the interest rates, widening of credit spreads and sharp Russian crisis in September 1998); decline in the US dollar; • risk premium normalisation (hypo51): this • bond crisis: crisis on the bond market (decoupling hypothetical scenario assumes the partial of bonds and equity yields), sharp increase in US normalisation of the financial markets (in particular interest rates and a more modest rise in other interest via a sharp drop in volatility) after a period of stress. rates, moderate decline on the equity markets, flight This is, for example, the case when market actors to quality with a widening of credit spreads, rise in the are forced to observe that the general economic US dollar; and financial environment is rapidly worsening, and that the effects are long-term. Over the course of an • US dollar crisis: collapse of the US dollar due to initial period, markets react very negatively (with a fall a sharp deterioration in the US trade balance and in share prices and government bond yields, but an budget deficit, rise in interest rates and narrowing of increase in volatility). A second period sees a partial US credit spreads; normalisation: the volatility of equities decreases, but • Eurozone crisis: decline in euro exchange rates, share prices remain lower than pre-correction levels sharp rise in Eurozone interest rates, sharp fall in euro as economic outlooks have worsened for the long equities and rise in US equities, significant widening term. Similar effects are also seen on interest rates. of euro credit spreads; Moreover, the emerging interest rates fall and their • Yen carry trade unwinding: change in monetary currencies appreciate; policy in Japan leading to yen carry trade strategies
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 283 Risks and Capital Adequacy 5 Market risks
• sudden economic rebound: sharp rise in equity • bursting of an equity bubble: significant drop in markets and in US and Eurozone interest rates (as the equity markets following the bursting of an equity seen with the anticipation of the beginning of the Iraq bubble in a specific business sector (as seen with the war in March 2003); Worldcom bankruptcy in July 2002).
Valuation of financial instruments
Market products are marked to market, when such to the principles already specified in the CRD3 (Capital market prices exist. Otherwise, they are valued using Requirements Directive). The RTS define the various parameter-based models: uncertainties which have to be taken into account in the • each model is approved independently by the Risk Prudent Valuation, and set a target level of confidence Division on market transactions; to reach (the bank must be 90% confident that the transaction could be liquidated at a better price than the • the parameters used in the valuation models, prudent valuation). whether or not they originate from data observed on the markets, are subject to controls by the Risk Within this framework, in order to account for the various Division on market transactions. The values obtained elements that could generate additional switching costs are supplemented where necessary by reserves or with regard to expected value (model risk, concentration adjustments (bid ask or liquidity, for example), the risk, liquidation costs, uncertainty with regard to market calculation methods for which are approved by the prices, etc.), prudent valuation adjustments (PVAs) are Risk Division on market transactions. calculated for each exposure. The Additional Valuation Adjustments (AVAs) are defined as the difference Furthermore, Additional Valuation Adjustments (AVAs) between the Prudent Valuation obtained and the fair are computed on fair value assets, in compliance with value of the positions, in order to comply with the the Regulatory Technical Standards (RTS) published by required target confidence level. The AVA amounts the European Banking Authority (EBA), which lay out the determined are deducted from Common Equity Tier 1 requirements related to Prudent Valuation, in addition capital.
Capital requirements with regard to market risk
Allocation of positions in the regulatory The banking book is defined by elimination: all on- and trading book off-balance sheet items not included in the trading book The on- and off-balance sheet items must be allocated are included by default in the banking book. to one of the two portfolios defined by prudential Crédit du Nord Group’s trading book consists of all regulations: the banking book or the trading book. positions in financial instruments held by an institution either for trading purposes or in order to hedge other positions in the trading book. The trading interest is documented as part of the traders’ mandates.
284 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Market risks 5
The prudential classification of instruments and positions prudential classification and regulatory capital is governed as follows: treatment for transactions subject to validation; • the Finance Division’s prudential regulation experts • holding period: The Market Risk Department has are responsible for translating the regulations into designed a control framework for the holding period procedures, together with the Risk Division for for certain instruments; procedures related to holding period and liquidity. • liquidity: on a case-by-case basis or on demand, the They also analyse specific cases and exceptions. Market Risk Department performs liquidity controls They communicate these procedures to the business based on certain criteria (negotiability/transferability, lines; bid/ask size, market volumes, etc.); • the business lines comply with these procedures. In a strict process for any change in prudential particular, they document the management intentions classification, involving the business line and the Finance for the positions taken by traders; and Risk Divisions; • the Finance and Risk departments are in charge of Internal Audit: through its various periodic assignments, defining the framework of controls. Internal Audit verifies or questions the consistency of the The following controls make it easier to ensure that prudential classification with policies/procedures as well the management of each activity is coherent with its as the suitability of the prudential treatment in light of prudential classification: existing regulations. • “new product” process: any new product or activity is subject to an approval process that covers its
Market risk capital requirements and risk-weighted assets
TABLE 17: CAPITAL REQUIREMENTS AND RISK-WEIGHTED ASSETS BY TYPE OF MARKET RISK
31/12/2019 31/12/2018 (in €m) Risk-weighted assets Capital requirements Risk-weighted assets Capital requirements Foreign exchange risk - - - - Credit risk 9.2 0.7 13.6 1.1 Interest rate risk 30.7 2.5 46.2 3.7 TOTAL 39.9 3.2 59.8 4.8
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 285 Risks and Capital Adequacy 5 Operational risks
5.6 Operational risks
Audited | Operational risks include the risk of losses resulting from the inadequacy or failure of processes, personnel, and information systems, or from exterior events. This risk category notably includes: • non-compliance risks (including legal and tax risks): risk of court-ordered, administrative or disciplinary sanctions, material financial loss or reputational harm, due to failure to comply with the provisions governing the banking and financial activities, whether these are of a legislative or regulatory nature, national or European, directly applicable, or are professional and ethical standards, or instructions of the effective leaders, in particular pursuant to the guidelines of the supervisory organ; • reputation risk: risk resulting from the negative perception of customers, counterparties, shareholders, investors or regulators, which could negatively affect the Group’s capacity to maintain or initiate business relations and the continuity of access to sources of financing; • misconduct risk: risk resulting from actions (or inaction), or from the behaviour of the Bank or its employees, that are incompatible with the Group Code of Conduct, and that could have negative consequences for our stakeholders, or place the longevity or the reputation of the Bank at risk; • IT and Information System Security risks: cybercriminality, failure of services, etc.; • risks related to the externalisation of services and business continuity. ▲ The system used to measure non-compliance risks is described in Chapter 5.10.
Operational risk management: organisation and governance
Operational Risk Function
The Operational Risk Division, comprised of six internal The network of Operational Risk Officers is coordinated by: employees, is in charge of overseeing and coordinating • raising awareness/offering training in operational the systems used throughout Crédit du Nord Group risks and providing information on changes in risks related to operational risk, the business continuity plan (overviews, presentations, incidents in the financial and crisis management, outsourced services, and the sector drawn from Societe Generale Group’s press banking accreditation management policy. review, which is made available to all officers); It draws on a network of Operational Risk Officers • coordinating and monitoring Operational Risk Officers appointed in the various entities of the head office, through: subsidiaries and operating network (for the network, the – Operational Risk meetings with the main entity’s Head of Organisation and Logistics). Operational Risk Officers of the functional divisions, – occasional presentations at the annual meetings of Heads of Organisation and Logistics for the operating network.
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The following employee awareness-raising initiatives • operating losses, risk indicators (KRIs) defined at the were continued in 2019: Societe Generale Group level and presented to the • mandatory e-learning modules for all employees on Group Risk Committee; fighting corruption, the Code of Conduct, international • Operational Risk Cartographies; sanctions, risk appetite fundamentals, etc.; • Business Continuity Plans and the Crisis Management • awareness training around “phishing” for all System. employees in 2019 via two new campaigns. An operational risk committee also meets periodically at the various Regional Divisions and Banking Subsidiaries Monitoring and oversight of Operational Risk within Crédit du Nord Group in the operating network. At Crédit du Nord Group, operational risks are monitored The Crédit du Nord Management Committee receives and overseen by the Internal Control Coordination communication on the work of the Operational Risks Committee, which meets under the authority of the Chief Division several times per year; the information is more Executive Officer five times per year. particularly focused on changes in operating losses within the Group. The Head of Internal Control Coordination of Societe Generale Group is a standing guest of the committee Scope and is a member of the Operational Risk Division This monitoring process covers all entities of Crédit du of Societe Generale Group. The following items are Nord Group, the activities of which are primarily focused reviewed at committee meetings: on its domestic retail banking businesses. The scope was stable compared to the previous fiscal year.
Measurement of operational risks
As an entity of Societe Generale Group, Crédit du Operational risks are broken down into eight event Nord Group has opted for the Advanced Measurement categories (further divided into 58 event sub- Approach (AMA) to measuring operational risks. categories*): • commercial disputes; Operational risks to which Crédit du Nord Group is exposed • disputes with authorities; The businesses of the various Crédit du Nord Group • pricing or risk measurement errors; entities are exposed to a series of risks (administrative, • execution errors; accounting, legal, IT, etc.) combined under the heading • fraud and other criminal activities; “Operational Risks” for the purposes of the Basel II bank solvency reform. • unauthorised market activities (Rogue trading); • loss of operating resources; • failure of information systems.
* New taxonomy of SG Group operational risks implemented in 2019.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 287 Risks and Capital Adequacy 5 Operational risks
Operational risk monitoring process
Internal loss and major incident data Internal Control and Coordination Committee; in, 2019, collection the brokerage firm Gilbert Dupont presented these Crédit du Nord follows the internal loss collection components of the risk profiles to the Internal Control process put in place by Societe Generale Group in 2001. Coordination Committee. Data on internal losses exceeding €10,000 (groupwide CDN Group’s RCSA 2019 mapping was validated by reporting threshold) are collected by the various General Management and was presented to the Internal Operational Risk Officers of the Group’s entities. In Control Coordination Committee (December 2019). addition to data collection, fraud-related losses are monitored by Crédit du Nord Group from the first euro, Key Risk Indicators (KRIs) providing a better picture of the overall associated risk The Operational Risk oversight system is rounded out (attempted fraud/actual losses). by monitoring KRIs, used to generate upstream alerts on future operational risks, while regularly reporting on Incidents without financial impact are also identified if trends and changes in KRIs. Key Risk Indicators are they are considered major according to their impact, monitored and presented to the Group oversight body in particular as relates to contractual commitments, at meetings of the Internal Control and Coordination reputation, day-to-day operations, risk appetite, and Committee. level of regulatory compliance: • the results are periodically reported to the Operational Scenario Analyses (SAs) Risk Division, which supervises data collection on Scenarios Analyses (SAs) are conducted to keep the operating losses at Group level; Group informed of potentially high-risk factors, where it • in conducting its accounting reviews, Crédit du is exposed to rare but high-severity events. Nord’s Permanent Control Division ensures that all The SAs performed by Crédit du Nord are part of the losses are reported to the Group’s Operational Risk scenario analyses of the French Retail Banking Network Division; and mainly address risk factors related to: • changes and the breakdown of losses are reported to • disputes with the authorities: tax adjustments/ the Internal Control Coordination Committee and the regulated savings; Board of Directors. • fraud and other criminal activities: raid on a vault; Operational risk identification system and • commercial disputes: poor advice; Risk and Control Self-Assessment (RCSA) • IT system interruption: unavailability of French Retail The RCSA serves to identify operational risk factors at Banking workstations (any network brand). each Group entity at the registered office, subsidiary and Crédit du Nord is also part of the cross-business SAs operating network levels, and to ensure the efficiency or conducted by Societe General Group (information expand on the prevention and reduction of risk factors system security with “widespread viral attack”, loss of uncovered. operating resources with “100-year flood”, “Destruction The RCSA focuses specifically on the results of the of an IT operating centre” and “Failure of a major service risk profiles of certain entities at meetings of the Group provider”).
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Permanent control communication with the operating network on best In conducting its accounting reviews, Crédit du Nord’s practices. Permanent Control Division ensures that all losses are • For internal fraud: on major cases highlighting criminal reported to Crédit du Nord Group’s Operational Risk conduct on the part of employees, and an analysis of Division. changes in affected procedures. Permanent Control uses a software application (GPS) Permanent Control has established various supervision to store quantitative and qualitative data on its work, reports, informants and control procedures aimed at reported quarterly at meetings of the ICCC to review detecting unusual transactions or behaviours calling the progress achieved on its control plans and its overall for more extensive analysis. It is kept informed of assessment of risk factors in the operating network. customer complaints liable to involve one of the Group’s Permanent Control receives the results of the RCSA employees, and is in charge of investigating special and, in conjunction with the Operational Risk Division cases involving an employee. and General Management, recommends changes to the Permanent Control also works with the ITIM (Innovation, control process covering high-risk areas if necessary. Technologies, IT for the business lines) e-fraud unit, Furthermore, for the purpose of monitoring incidents, which uses Big Data security (SPLUNK) to guard against Permanent Control is responsible for centralising cybercrime (e.g. detection of Phishing). information on areas of vulnerability (any event, excluding counterparty risk, liable to generate a loss of more than Crisis management and business continuity €10,000). Crédit du Nord Group’s Business Continuity Plans and It keeps the Operational Risk Division informed on these Crisis Management System are overseen and monitored matters. Significant areas of vulnerability are monitored by Crédit du Nord’s Operational Risk Division. This body by the Operational Risk Division, which keeps track in turn relies on Operational Risk Officers designated of action plans implemented to prevent failures from by each entity at the registered office, network and recurring. Permanent Control and the Operational Risk subsidiary levels, responsible for the operational Division regularly exchange information to make sure the implementation of their entity’s Business Continuity Plan system provides comprehensive coverage. and Crisis Management System. With regard to Crédit du Nord’s IT Backup Plan (PSI), specific measures were Combating fraud put in place by ITIM enabling Crédit du Nord to monitor The Group Head of Permanent Control is kept informed the different exercises performed under the PSI (CDN of internal and external fraud (attempted or proven) by IS Resilience Oversight Committee). The exercises/tests the regional and subsidiary control managers. performed by GTPS (Global Transaction & Payment Services) on Payment Instruments platforms and tools He reports to the General Management at meetings of shared with Crédit du Nord are also presented at PSI the ICCC: Committee meetings. • For external fraud: on developments in terms of Moreover, the Operational Risk Division in charge of external fraud and losses. Crédit du Nord Group’s Business Continuity Plans and For specific events (e.g. new types of fraud or high Crisis Management System attends the committee concentration of fraud), he recommends procedural meetings related to the Societe Generale Group changes based on areas of vulnerability detected Business Continuity Plan and Crisis Management and ensures that these procedures are observed by System. conducting on-site controls and through frequent
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 289 Risks and Capital Adequacy 5 Operational risks
Outsourcing of services reputation, supplier, human resources, environmental Some of the Bank’s services are outsourced to third and social responsibility, and business continuity risks, party providers or within Societe Generale Group. A SG as well as risks linked to data quality, information security Group framework with standards and a tool ensures that and data protection. Legal experts qualify services as the operational risk related to outsourcing is managed, “essential” as defined by the decree of November 3, and that the conditions set by SG Group’s accreditation 2014. are observed. This framework makes it easier to map All services are then monitored at a frequency defined by Crédit du Nord Group’s outsourcing and to place their level of risk. controls on outsourced services with understanding of Critical services at the Group level are subject to risks and adapted supervision. increased oversight through highly regular contractual During the examination phase, the business lines decide monitoring. These services are identified on the basis on the outsourcing of services within the framework of of criteria such as the notion of “core business activity”, the standards set by the Group. Outsourcing projects financial impact and reputational risk. Critical services are carried out by a project manager and approved are validated by a dedicated committee, chaired by the by the sponsor who accepts the level of residual risk SG Group Operational Risk Department. following a risk analysis based on expert opinions. The A closing phase facilitates the management of service analysis integrates a minima operational risks (including outflows. fraud, execution risk, etc.); legal, tax, non-compliance,
Operational risk modelling
The methodologies used to model and calculate capital requirements for operational risks are defined by Societe Generale.
Quantitative data The charts shown present a breakdown of operating losses by risk category for the period 2016 to 2019 (loss events > €10,000 reported in Group software tool “Caroline”).
OPERATIONAL RISK LOSSES: BREAKDOWN BY RISK OPERATIONAL RISK LOSSES: BREAKDOWN CATEGORY (NUMBER OF EVENTS) BY RISK CATEGORY (VALUE) 1% 1% 0% 0%
27% 30% 26% 35%
13%
19% 16% 32%
100 - Commercial disputes 100 - Commercial disputes 200 - Disputes with authorities 200 - Disputes with authorities 400 - Execution errors 400 - Execution errors 500 - Fraud and other criminal activities 500 - Fraud and other criminal activities 700 - Loss of operating resources 700 - Loss of operating resources 800 - Failure of information systems 800 - Failure of information systems
290 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Operational risks 5
Over the past four years, Crédit du Nord Groups’s • disputes with the authorities account for 15.5% in operational risks are concentrated on average in four value and 13% in number in terms of operating losses risk categories, which represent more than 99.4% of the over the period, and represent the fourth category of value of the Group’s operational losses: operating losses. • commercial disputes account for 35% in value and Two other risk categories - the failure of information 26% in number in terms of operating losses over the systems and the loss of operating resources - remain period. insignificant and account in total for less than 0.6% • fraud and other criminal activities account in value and 2% in number of the operating losses of for 30% in value and 27% in number in terms of Crédit du Nord Group. The last two categories of losses, operating losses over the period. pricing errors and rogue trading, have not resulted in losses over the period. • execution errors account for 18.9% in value and 32% in number in terms of operating losses over the period.
Operational risk insurance
Crédit du Nord Group is covered by the insurance policies taken out by Societe Generale, within the framework of its global operational risk insurance coverage policy.
Capital requirements
Crédit du Nord’s capital requirements for operational risk are determined using the advanced measurement approach. The table below presents the Group’s risk-weighted assets and corresponding fund requirements at December 31, 2019.
TABLE 18: RISK-WEIGHTED ASSETS AND CAPITAL REQUIREMENTS IN TERMS OF OPERATIONAL RISKS
31/12/2019 31/12/2018 (in €m) Risk-weighted assets Capital requirements Risk-weighted assets Capital requirements French Retail Banking 1,299.7 104.0 1,305.8 104.5 TOTAL 1,299.7 104.0 1,305.8 104.5
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 291 Risks and Capital Adequacy 5 Structural interest rate risk
5.7 Structural interest rate risk
Audited | Structural risks refer to risks of losses in interest margin or the value of banking portfolios due to variations in interest rates and exchange rates. This risk is linked to the bank’s trading activities and own management transactions and includes the risk of distortion of the structural gap between assets and liabilities linked to social commitments as well as risk associated with related to longer terms of future payments. ▲
Audited | Structural interest rate risk is defined as the risk of losses on balance sheet items arising from interest rate movements.
Structural exposure to interest rate risk results and corporate centre transactions are hedged against from commercial transactions and their associated interest rate risks, in accordance with management hedging transactions, as well as from corporate principles and standards, either through macro-hedging centre transactions (primarily capital transactions and (hedging of portfolios of similar commercial transactions) investments). or micro-hedging techniques (individual hedging of each Interest rate risk linked to trading activities is excluded commercial transaction). The regular arrangement of from the structural interest rate risk measurement scope, adequate hedges helps reduce positions exposed to as it belongs to the category of market risks. Structural interest rate risk. Consequently, structural interest rate and market exposures make up Crédit du Nord Group’s risks are only incurred on residual positions. total interest rate risk exposure. Management of interest rate risk associated with market The general principle is to reduce positions exposed activities is addressed in the section entitled “Market to structural interest rate risks to the greatest extent risks.” possible. Wherever possible, commercial transactions
Organisation of structural interest rate risk management
Crédit du Nord Group applies the interest rate risk Chief Financial Officer, a member of the Executive management principles and standards defined by Committee; Societe Generale Group. As Crédit du Nord Group is • a Treasury department, which oversees all of the responsible for managing its own interest rate risk, Group’s hedging transactions. It also comes under it develops models, measures interest rate positions the authority of Crédit du Nord Group’s Chief Financial and sets up ad hoc hedges in accordance with the Officer. management standards defined by the shareholder. This monitoring system is governed by the following The interest rate risk exposure of each legal entity oversight and decision-making bodies, specific to comprising Crédit du Nord Group is monitored centrally Crédit du Nord Group: the ALM Committee, chaired by Crédit du Nord parent company. by the Chief Executive Officer of Crédit du Nord Group. This centralised management system relies on: This committee meets once a month and takes all • an ALM department, operating on behalf of each decisions related to interest rate risk management, based of the Group’s entities in terms of measuring and on the associated metrics produced. The Risk Division of overseeing positions. This department is integrated Crédit du Nord Group is represented at this committee. into the Financial Management Division and comes Representatives of the Financial Division and the Risk under the authority of the Crédit du Nord Group’s Division of Societe Generale Group are also present.
292 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Risks and Capital Adequacy Structural interest rate risk 5
This oversight system is also governed by the key with representatives of the Societe Generale Group shareholder’s oversight and decision-making business lines. bodies: From an operational standpoint, this system works • the Structural Risk Oversight Committee, which as follows: monitors production and analysis of interest rate • oversight targets are defined by Societe Generale indicators (as well as changes in these indicators Group and adapted to Crédit du Nord Group with the between two balance sheet dates) and compliance approval of the Group’s General Management; with established limits. This committee meets • the production and analysis of interest rate indicators quarterly and is chaired by Societe Generale Group’s is carried out by the ALM department, and these Chief Financial Officer. indicators are approved by the shareholder during • the ALM department attends meetings of the Models the various committee meetings of Societe Generale Committee, under the supervision of the Financial Group; Division and the Risk Division of Societe Generale • the ALM Department also makes hedging proposals; Group. This committee takes decisions related to ALM modelling. The ALM department also attends • these hedges are approved by the ALM Committee meetings of the Bank Validation Committee, on the basis of the levels of interest rate indicators chaired by Societe Generale Group’s Finance Division. monitored by the committee; This committee takes decisions on the normative • the transactions are carried out by the Treasury implementation of regulatory texts, in conjunction department.
Structural interest rate risk - measurement and monitoring system
Group objective in the calculation of this indicator. Fixed-rate gaps are The aim of structural interest rate risk oversight is to produced monthly using an ALM tool. make sure this risk is managed by reducing the level Assets and liabilities are generally analysed of the Group’s exposure and that of each subsidiary as independently, without any a priori matching. Maturities much as possible through appropriate hedges. of outstandings are determined by taking into account the contractual characteristics of the transactions or Measurement and monitoring of structural using adopted models and conventions. interest rate risk The development of this indicator requires modelling Crédit du Nord Group currently measures its interest work in order to take into account customer behaviours rate risk primarily through fixed-rate gaps and gaps in (deposit run-offs, credit line drawdowns, early repayment sensitivity to net present value (NPV). and renegotiations, etc.). These ALM models are Interest rate risk arises from mismatches between regularly reviewed and back-tested and are part interest rates on liabilities and assets, which may occur of Societe Generale Group’s annual review of ALM in each period. Fixed-rate gaps reflect fixed-rate liability models, with models being approved by the Societe surpluses or deficits relative to fixed-rate assets at future Generale Group Model Committee. New models are maturities, which materialise on the basis of “Liabilities- also presented at meetings of the ALM Committee prior Assets” positions. This indicator is calculated for all to implementation, and the associated impacts are on- and off-balance sheet transactions, on which fixed measured. rates are earned or charged by the Central Funding Department. Trading book transactions are not included
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 293 Risks and Capital Adequacy 5 Structural interest rate risk
Once the Group has identified the gaps in its fixed rate The following points emerged from Crédit du Nord positions (surplus or deficit), it calculates their sensitivity Group’s analysis of structural interest rate risks: to interest rate variations. The sensitivity of the fixed-rate • each on- and off-balance sheet transaction is backed gap is the change in the net present value (NPV) due to by interest rates according to its specific financial a +1% shift in the yield curves. This calculation does not characteristics (maturity, interest rates, explicit or include new loans (static NPV). This indicator represents implicit options). The oversight tool developed by the the sensitivity of the balance sheet’s economic value ALM department “notional balance sheet” is used to an interest rate variation. The sensitivity calculation to monitor interest rate risk management indicators, method is specified by Societe Generale Group. in particular a fixed-rate limit, as well as the risks This sensitivity is controlled by thresholds and limits in associated with options appearing on the balance euros and in currencies defined by the Societe Generale sheets of Crédit du Nord Group entities; Group Financial Committee. NPV sensitivity is calculated • optional risk is also regularly monitored and hedged monthly and presented to the ALM Committee. accordingly (purchase of caps); Corrective actions are defined for each threshold breach • demand deposits and regulated savings products to avoid exceeding the limit. are subject to specific modelling to lock in medium- Crédit du Nord Group keeps its overall sensitivity, as and long-term yields. The conservative nature of the well as its short-, medium- and long-term sensitivity models has enabled the Group’s banks to maintain within established limits. In order to observe these their interest margin. thresholds and limits, Crédit du Nord Group regularly hedges against structural interest rate risk by setting Hedging interest rate risk up appropriate hedges to reduce the exposure of the In order to hedge the bank’s balance sheet against Group’s entities to interest rate variations (via swaps certain market risks, Crédit du Nord Group has and fixed-rate borrowings in CHF for the CHF position). implemented hedges that are considered fair value These hedges cover all Crédit du Nord Group entities. hedges from an accounting perspective. Each entity is individually monitored and its transactions individually hedged. It also manages the exposure of its fixed-rate financial assets and liabilities (mainly loans/borrowings, security Crédit du Nord Group’s sensitivity limit for an issues and fixed-rate securities) to risks of fluctuations in instantaneous parallel shift in the curve of +10 basis long-term interest rates, by setting up hedges qualified points (all currencies) is set at -€11.25 million and the as fair value hedges for accounting purposes, principally threshold is set at -€9.0 million. using interest rate swaps and caps. In addition to these primary indicators, Crédit du Nord In order for these transactions to qualify as hedges, Group calculates the sensitivity of its net interest margin the Group documents the hedging relationship in on a quarterly basis. These results have been subject to detail from inception, specifying the risk hedged, the thresholds and limits since October 31, 2018. risk management strategy and the way in which the Crédit du Nord Group’s sensitivity limit for an effectiveness of the relationship will be documented. instantaneous parallel shift in the curve of +10 basis The purpose is to avoid the reclassification of hedging points (all currencies) is set at +€8.0 million and the derivative portfolios in the accounts to cover the bank threshold is set at +€8.8 million the first year; it is set at against unfavourable variations in the fair value of an item +€3.0 million and the threshold is set at +€6.0 million the which, as long as the hedging relationship is efficient, second year. has no impact on profit or loss, but could affect it if the Crédit du Nord Group is part of the IRRBB (Interest Rate item were eliminated from the balance sheet. Risk in the Banking Book) project launched by Societe Tests are regularly carried out to ascertain the hedging Generale Group, aimed at meeting regulatory and relationship and measure its effectiveness. These internal oversight requirements. Within this framework, tests are both forward-looking and retrospective. The the existing calculation methods follow an ongoing future effectiveness of the hedge is calculated using a improvement process and new indicators for the sensitivity analysis that integrates probable scenarios oversight of interest rate risk are regularly implemented.
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for changes in market parameters. Retrospective ratio between the two changes is in the 80%-125% effectiveness is assessed by comparing the variations in range (rolling quarter-on-quarter changes). fair value of the hedging instrument with the variations in This effectiveness is measured prospectively each fair value of the hedged item. quarter (expected effectiveness over future periods) and The hedge is deemed effective if changes in the fair retrospectively (actual effectiveness). value of the hedged item are almost fully offset by the changes in fair value of the hedging instrument, i.e. the
Structural foreign exchange risk
Structural foreign exchange risk is not described in the trading book is not included in the measurement of detail, as Crédit du Nord Group’s exposure to foreign structural foreign exchange risks, as it belongs to the exchange risk is very limited in light of its activity. Like category of market risks. interest rate risk foreign exchange risk associated with
5.8 Liquidity risk
Audited | Liquidity risk is defined as the Group’s incapacity to fulfil its financial obligations in a timely manner and at a reasonable cost. Funding risk is defined as the risk of the Group being unable to finance the development of its activities in line with its commercial objectives and at a competitive cost with regard to its peers. ▲
Governance and organisation
Audited | Crédit du Nord Group applies the liquidity This centralised management system relies on: risk management principles and standards defined by • an ALM department, operating on behalf of each Societe Generale Group. As Crédit du Nord Group is of the Group’s entities in terms of measuring and responsible for managing its liquidity and complying overseeing positions. This department is integrated with regulatory restrictions, it develops its own models, into the Financial Management Division and comes measures its liquidity positions and finances its activities under the authority of the Crédit du Nord Group’s Chief or reinvests surplus cash in accordance with the Financial Officer, a member of the Executive Committee; standards defined by the key shareholder. • a Treasury department, which validates all Group The liquidity risk exposure and funding requirements of hedging transactions. This department is able to raise each legal Group entity are monitored centrally by Crédit cash on the market with a maturity of over one month du Nord parent company, which serves as the central (Crédit du Nord is also able to draw on Eurosystem funding division for all Group entities. refinancing operations). This department also falls under the authority of the Chief Financial Officer of Crédit du Nord Group.
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This oversight system is governed by the decision- ALM modelling. The ALM department also attends making and oversight bodies specific to Crédit meetings of the Bank Validation Committee, under du Nord Group: the ALM Committee, chaired by the responsibility of the Societe Generale Group the Chief Executive Officer of Crédit du Nord Group. Financial Division. This committee takes decisions This committee meets once a month and takes all on the normative implementation of regulatory texts, decisions related to liquidity risk management, based on in conjunction with representatives of the Societe the associated metrics produced. The Crédit du Nord Generale Group business lines. Group Risk Division is represented at this committee. From an operational standpoint, this system works Representatives of the Financial Division and the Risk as follows: Division of Societe Generale Group are also present. • oversight targets are defined by Societe Generale This oversight system is also governed by the decision- Group and adapted to Crédit du Nord Group with the making and oversight bodies specific to the approval of the Group’s General Management; shareholder, in particular: • the production and analysis of liquidity indicators • the ALM department presents a report on the is carried out by the ALM department, and these production and analysis of liquidity indicators to the indicators are approved by the shareholder during Finance and Risk Divisions of Societe Generale Group the various committee meetings of Societe Generale via different committees (monthly LCR approval Group; committee, quarterly NSFR approval meeting, • the ALM department also makes refinancing monthly synthesis committee); transaction proposals; • monthly updates are carried out between the ALM • these transactions are approved by the Balance Sheet and Treasury departments of Crédit du Nord Group Management committee on the basis of the levels of and the Societe Generale Group Financial Division; liquidity indicators followed by this committee; • the ALM department attends meetings of the Models • these transactions are carried out by the Treasury Committee, under the supervision of the Financial department. Division and the Risk Division of Societe Generale Group. This committee takes decisions related to
Liquidity risk measurement system
Crédit du Nord Group currently measures and oversees run-offs, credit line drawdowns, early repayment and its liquidity risk and its refinancing needs primarily renegotiations, etc.). These ALM models are regularly through liquidity gaps (static and stressed) and reviewed and back-tested and are part of Societe regulatory liquidity ratios (LCR/NSFR). Generale Group’s annual review of ALM models, with Liquidity risk arises from mismatches between liabilities models being approved by the Societe Generale Group and assets, which may occur in each period. Liquidity Model Committee. New models are also presented at gaps reflect inadequate liabilities relative to assets, which meetings of the ALM Committee prior to implementation, materialise on the basis of “Liabilities-Assets” positions, and the associated impacts are measured. at various maturities. Mismatched maturities between Since 2013, financing deficits and surpluses measured cash outflows and inflows are calculated monthly for all by static liquidity limits have been subject to thresholds on- and off-balance sheet items, using an ALM tool. and limits defined by the Societe Generale Group The definition of liquidity gaps requires modelling work in Financial Committee. Any limit breaches are subject order to take into account customer behaviours (deposit to corrective actions. Crédit du Nord Group observes established thresholds and limits.
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In addition, Crédit du Nord Group has been required to establishment of a liquid asset buffer in respect of the disclose the liquidity ratios defined by Basel 3/CRD4 minimum ratio). since mid-2014. The ALM Department is currently The ALM unit is also in charge of oversight and responsible for producing and analysing the CRD4 projections of the LCR. The LCR oversight of Crédit du liquidity ratios (LCR and NSFR) of Crédit du Nord Group Nord Group is shared with the Treasury department in (1) and the liquidity sub-group . The LCR is submitted order to implement the necessary actions. These items monthly and the NSFR quarterly to the ACPR, in are discussed by the ALM Committee. accordance with regulatory requirements. Crédit du Nord Group has no difficulty meeting its Since October 1, 2015, after the liquidity sub-group was refinancing needs. It holds diversified customer deposits established, Crédit du Nord Group has been required (on-balance sheet deposits), which make up a significant to disclose the LCR for two scopes of consolidation share of its short-, medium- and long-term resources. (the Crédit du Nord sub-group and the Crédit du Nord It is also able to raise funds on the market. Refinancing Group (regulatory scope)). The liquidity sub-group needs are also integrated into Crédit du Nord Group’s exempts the individually subject solo entities of the sub- collateral management strategy in order to optimise the group from the ratio requirement (monthly reporting and bank’s refinancing costs. ▲
Liquidity reserve
Crédit du Nord Group’s liquidity reserve includes the by Lyxor, a subsidiary of Societe Generale Group. balance of its Central Bank account as well as the assets These HQLA securities meet the eligibility criteria for that can be easily monetised to address cash outflows in the LCR as defined by regulations. a stressed scenario. The reserve assets are available, i.e. Crédit du Nord Group can also make an additional not used in guarantee or as collateral on any transaction. drawdown on Eurosystem refinancing operations in Liquidity reserve comprises: respect of the 3G Pool (mainly by mobilising private debt • cash in banks, or non-HQLA securities). • funds deposited in the Central Bank, minus the The HQLA portfolio is structured in accordance with amount of the reserve requirement, Societe Generale Group directives and consists predominantly of very highly rated sovereign • High-Quality Liquid Assets (HQLAs), which are bonds. Crédit du Nord Group’s exposure to various securities that are quickly transferable on the market counterparties is in compliance with the limits set by via sale or repurchase transactions. These are Societe Generale Group. primarily government bonds and fund shares issued
(1) In accordance with regulatory provisions, the regulatory liquidity ratios are not produced by the legal entity but for a larger scope, comprising Crédit du Nord social, its 7 banking subsidiaries and the brokerage firm Gilbert Dupont, or the “liquidity sub-group”.
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Regulatory ratios
The Basel Committee recommends the international Crédit du Nord Group draws on the work carried out implementation of two standard ratios with harmonised by Societe Generale Group to transpose Basel and parameters, to regulate bank liquidity risk profiles: European texts and adapt them to the management • the Liquidity Coverage Ratio (LCR) aims to ensure that standards of Societe Generale Group. banks hold sufficient liquid assets or cash to survive a Crédit du Nord Group’s LCR is over 100%, with significant stress scenario combining a market crisis a comfortable safety margin above the regulatory and a specific crisis and lasting for one month. At the minimum, underscoring the Group’s sound request of the Basel Committee, this ratio entered management, and particularly its ability to withstand a into force on January 1, 2015. The minimum LCR one-month liquidity crisis. requirement at October 1, 2015 was 60% and will Crédit du Nord Group’s NSFR is also above 100%. This gradually be increased to 100% by January 1, 2018; indicator limits the bank’s transformation capacity by • the Net Stable Funding Ratio (NSFR) is a encouraging it to fund its operations with structurally transformation ratio and compares funding needs stable resources. with stable resources over a one-year period. The implementation date for this ratio is not known at this time; according to market estimates, it should fully enter into force in 2021.
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Disclosures on asset encumbrance
Model A – Assets 31/12/2019 Book value of Fair value of Book value of Fair value of encumbered assets encumbered assets unencumbered assets unencumbered assets 010 040 060 090 010 Filing institution’s assets 13,736.2 59,920.6 030 Capital instruments - - 213.8 213.8 040 Debt securities 514.7 514.7 3,571.1 3,571.1 120 Other assets - 4,057.3
Model B - Guarantees received
31/12/2019 Fair value of encumbered guarantee received or Fair value of guarantee received or encumbered own debt securities own debt securities issued available issued for encumbrance 010 040 130 Guarantees received by institution in question - - 150 Capital instruments - - 160 Debt securities -- 230 Other guarantees received - - 240 Own debt securities issued, other than own covered bonds or - - asset-backed own securities
Model C - Encumbered assets / guarantee received and related liabilities
31/12/2019 Asset, guarantees received and own Corresponding liabilities, debt securities issued, other than contingent liabilities or loaned covered bonds and encumbered securities asset-backed securities 010 030 010 Carrying amount of select financial liabilities 10,651.2 13,736.2
Model D - Information on the amount of fees weighing on assets
Encumbered assets are primarily receivables. Use of market resources predominantly obtained through the receivables (loans to business and individual customers) issuance of non-collateralised debt. They are used in and also securities used as collateral in refinancing secured financing operations on local or international operations are an additional source of liquidity markets, within the framework of the ECB monetary contributions for the Group, in addition to deposits and policy (TLTRO) or via covered bonds (SG SFH).
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 299 Risks and Capital Adequacy 5 Non-compliance, reputational and legal risks
5.9 Non-compliance, reputational and legal risks
Audited | Non-compliance risk (including legal and tax risk) refers to the risk of court-ordered, administrative or disciplinary sanctions, material financial loss or reputational harm, due to failure to comply with the provisions governing the banking and financial activities, whether these are of a legislative or regulatory nature, national or European, directly applicable, or are professional and ethical standards, or instructions of the effective leaders, in particular pursuant to the guidelines of the supervisory organ. ▲
Compliance
Compliance means to act in accordance with the Compliance Officer (RCSI), who holds the professional applicable banking and financial rules, ranging from laws card issued by the AMF, is responsible for compliance and regulations to professional and ethical principles or with regulations pertaining to investment services at standards, to internal standards. Crédit du Nord and at each of its banking subsidiaries. Fairness to clients and, in more general terms, integrity Crédit du Nord’s Chief Compliance Officer is assigned in banking and financial practices contribute decisively to the following duties: the reputation of our organisation. • ensuring the efficiency and coherence of the By ensuring that these rules are observed, Crédit du organisational structures and procedures related to Nord Group works to protect its customers and, in compliance; general, all of its counterparties and employees, as well • identifying new non-compliance risks and ensuring as the regulatory authorities that oversee the Group. that the necessary steps are taken to manage them; Compliance system • monitoring the deficiencies identified via the Group’s incident reporting system and assessing the Independent compliance structures have been set up effectiveness of corrective measures. within Crédit du Nord Group’s different businesses in order to identify and prevent any risks of non- He reports to the Group’s executive body, in particular compliance. Crédit du Nord Group’s Chief Compliance during the meetings of the Internal Control Coordination Officer reports functionally to the Group Deputy Chief Committee and of the Risk Committee, whenever Executive Officer and works closely with the Compliance necessary. He ensures communication with the Division of Societe Generale Group. compliance function of Societe Generale Group and, in particular, with the Head of Compliance for the French
Retail Banking scope. At Crédit du Nord and in each corporate entity of the A member of the Executive Committee of Crédit du Nord Group governed by banking and financial regulations, Group, the Head of Compliance informs this body of there is a Chief Compliance Officer whose name is recent regulatory changes, the progress of projects and transmitted to the French Prudential Supervisory action plans related to compliance. Representatives of and Resolution Authority. An Investment Services
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the compliance function take actions as needed in their reputational risk. It also provides expertise for the Group respective domains. and conducts controls at the highest level. Before being launched, all new products and key An integral part of the compliance function of Societe product transformations are subject to an examination Generale Group, it ensures the application of the by the Products Committee, co-chaired by the Head principles established in the standards documentation of Compliance and the Head of Risk, and attended by of Societe Generale Group. Some of the tools it uses the various heads of the Compliance Division (Banking, are Societe Generale Group pooled solutions (sanction RCSI, Financial Security, etc.), the customer service filters, etc.). Projects are underway in various domains departments and the Secretary General, to ensure that aim to align tools and processes (financial savings that risks are correctly identified and assessed. The consulting, the fight against money laundering, etc.). Committee’s validation is reviewed beforehand by the The Compliance Division is organised in three main Head of Compliance, who also examines and validates departments: internal instructions and sales documents related to new • the Financial Security Department: fighting money products. laundering and the financing of terrorism; embargoes Management and the internal control teams are and sanctions. The Department submits suspicious responsible for controlling compliance. activity reports to TRACFIN for all of Crédit du Nord Compliance Officers ensure that all employees receive Group (a directly reporting entity); the necessary directives on complying with regulations. • the Banking Compliance Department: customer They also see to it that appropriate compliance training • programmes are in place. protection, ethics, regulatory watch, support Regional Compliance Officers are appointed to support and validation of functional divisions (products, them, reporting directly to the Compliance Division. They agreements/partnerships, processes), relations with are primarily responsible for helping to roll out Crédit the ACPR and ECB, regulatory reports, oversight du Nord Group’s compliance systems by coordinating of customer complaints and banking compliance and overseeing these systems for each of the entities incidents; under their supervision, and helping to strengthen the • the Investment Services Compliance Division: employee compliance culture. regulatory watch, validation of the compliance of Finally, internal guidelines set forth the rules applicable investment products and investment, coordination to outsourced banking and financial services. Qualified of subsidiary RCSI activity, supervision of the market essential services are subject to special monitoring, abuse alert system, AMF relations and regulatory under the joint supervision of the Compliance and reports, ethics and conflicts of interest related to Operational Risk departments. investment services, control of market activities and investment services. Compliance Division With the entry into force of the European General The Compliance Division verifies that all compliance Data Protection Regulation (GDPR) on May 25, 2018, laws, rules and ethical principles applicable to the a Data Protection Officer was appointed for Crédit du banking and investment services activities of Crédit Nord Group as required by the regulation. The DPO du Nord Group and its subsidiaries are observed, reports directly to the Deputy Head of Compliance and and that all staff respect codes of good conduct and is in charge of compliance in terms of personal data individual compliance. It also monitors the prevention of protection.
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Finally, the Compliance Division also includes a Level on compliance issues, and current topics. The Crédit du 2 control group, which ensures the effectiveness and Nord Group Compliance Committee (COMCO) meets on efficiency of Level 1 controls performed on themes of a quarterly basis. compliance (managerial supervision, controls carried out Finally, the Crédit du Nord Group Compliance Division by permanent control). contributes to the deployment of the transformation The Chief Compliance Officer participates in the programme of the compliance function launched by Management Committee as well as the Incident Societe Generale Group and monitors its implementation Oversight Committee organised by the Head of in this scope (strengthening governance and resources, Compliance for French Retail Banking, which reviews implementation of various projects, development of the most significant incidents observed over the period, tools, processes, training and awareness-raising, etc.). the highlights and main corrective actions undertaken
Risks and disputes
No significant disputes at the Group level concerning Crédit du Nord Group are currently underway.
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5.10 Model risk
Audited | Model risk refers to the adverse consequences of decisions based on results and reports using incorrect models or using models incorrectly. ▲
Societe Generale Group is committed to maintaining For each model, risk management is based on a solid governance system in terms of model risk compliance with the rules and regulations defined for management in order to ensure the efficiency and all of Societe Generale Group by each LoD1 actor. It is reliability of processes of identification, conception, ensured by an effective challenge by the LoD2 and a implementation, independent review and approval of the uniform approval process. models used. A Model Risk Management Department The need to review a model is assessed according to (MRM) was formed within the Risk Division in 2017. the level of risk of the model, its model category and the The model risk management system in which Crédit applicable regulatory requirements. Independent review du Nord Group participates is carried out by three by the second line of defence is triggered in particular independent lines of defence. It is implemented as for new models, periodic model reviews, model change follows: proposals and cross-sectional reviews in response to a • the first line of defence (LoD1) is responsible for recommendation: the development, implementation, and use of • it refers to all processes and activities that aim to models, and for monitoring their pertinence over verify the compliance of the function and use of time, in accordance with model risk management models with regard to the goals for which they were approach; these teams are housed in the business designed and the applicable regulations, based on line departments or their support functions; the activities and controls put in place by the LOD1; • the second line of defence (LoD2) is made up • it draws on certain principles aiming to verify the of governance teams and independent model theoretical robustness (evaluation of the quality of review teams, and supervised by the Models Risk the design and development) of the models, the department of the Risk Division; conformity of the implementation, and continuous • the third line of defence (LoD3) is responsible for follow-up on the relevance of the model over time. evaluating the global efficiency of the model risk • it results in an independent review report, which management system. It is housed within the Internal describes the scope of the review, the tests Audit Department. performed, the results of the review the conclusions or the recommendations made.
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5.11 Risks related to insurance activities
Audited | Risks related to insurance activities refers to the risk of losses inherent in the insurer activity to which the Group is exposed through its insurance subsidiaries. In addition to the management of asset and liability risks (interest rate, valuation, counterparty and foreign exchange risks) this includes the pricing risk associated with premiums, mortality risk and the risk of a rise in the accident rate. ▲
Management of insurance risks • regular monitoring of indicators on product claims rates in order to adjust certain product parameters, There are two main categories of insurance risks: such as pricing or the level of guarantee, if necessary; • underwriting risks, particularly risk through life • implementation of a reinsurance plan to protect the insurance, individual personal protection and non-life business line from major/serial claims; insurance. This risk can be biometrical: disability, • application of subscription, purchasing and longevity, mortality, or related to policyholders’ reinsurance risk policies. behaviour (risk of lapses). To a lesser extent, the Management of risks linked to the financial markets and Insurance business line is also exposed to non-life to ALM is an integral part of the investment strategy and health risks. Such risks can come from pricing, as long-term performance objectives. The optimisation selection, claims management or catastrophic risk; of these two parameters is largely determined by the • risks linked to financial markets and the management balance of assets and liabilities. Liability commitments of assets and liabilities: The Insurance business (guarantees offered to customers, maturity of policies), line, mainly through life insurance, is exposed to as well as the amounts booked under the major items instabilities on the financial markets (changes in on the balance sheet (shareholders’ equity, income, interest rates and stock market fluctuations) which provisions, reserves, etc.) are analysed by the Finance can be made worse by policyholder behaviour. and Risk Department of the insurance business line. The management of these risks is a core activity of the The management of risks linked to financial markets Insurance business line. It is carried out by qualified and (interest rate, credit and equities) and to ALM is based experienced teams, with major bespoke IT resources. on the following principles: Risks are monitored and regularly reported, they are • monitoring short- and long-term cash flows (match guaranteed by risk policies validated by the Board of between the term of a liability and the term of an Directors of each entity. asset, liquidity risk management); The management of underwriting risk is based on the • particular monitoring of policyholder behaviour following principles: (redemption); • heightened security for the risk acceptance process, • close monitoring of financial markets; with the aim of guaranteeing that the price schedule matches the policyholder’s risk profile and the • hedging against interest rate risks (both rising and guarantees provided; falling); • defining thresholds and limits per counterparty, per issuer rating and asset class;
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• performance of stress tests, the results of which • application of asset and liability and investment risk are presented annually to the Board of Directors of management policies. the entities, within the context of the Own Risk and Solvency Assessment (ORSA), submitted to the ACPR after approval by the Board;
Modelling of insurance risk
The Risk Division reviews models related to insurance review process is completed by (i) a report that describes activities, which constitutes the second line of the review, the tests carried out, the results of the review, defence in model risk management. Reviews focus the conclusions or recommendations and by (ii) approval on theoretical robustness (evaluation of the quality of committees; and the model control process requires design and development) of models, the compliance regular reportings to be submitted to the appropriate of the implementation and the continuous follow-up on committees. the relevance of the model over time. The independent
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5.12 Other risks
Equity-related risks
Investment strategies and purpose The portfolio of industrial holdings was significantly Crédit du Nord Group’s exposure to its non-trading reduced in recent years, further to the disposal of non- equity portfolio relates to several of the Bank’s activities strategic lines. and strategies. These exposures include equities The holdings that are ancillary to the Group’s banking and equity instruments and holdings in the Group’s activity are monitored on a half-yearly basis by the subsidiaries and affiliates which are not deducted from Group’s Finance Division and, where necessary, value shareholders’ equity for the purpose of calculating adjustments are recognised half-yearly in accordance solvency ratios. Generally speaking, due to their with the Group’s provisioning policy. Private equity unfavourable treatment under regulatory capital, the activities in France are subject to dedicated governance Group’s future policy is to limit these investments. and monitoring, within the budgets periodically reviewed First, the Group has a portfolio of industrial holdings by the Group’s General Management. Investment or which mainly reflect its historical or strategic relations disposal decisions take the financial aspects and the with these companies. contribution to the Group’s activities into consideration (supporting customers in their development, cross- Moreover, Crédit du Nord holds a minority stake in a selling with flow activities, Corporate and Investment bank for strategic purposes. Banking, Private Banking, etc.). In addition, the equities that are not part of the trading book include Group shares in small subsidiaries which Valuation of banking book equities are not included in its consolidation scope and which From an accounting perspective, Societe Generale’s operate in France. This includes various investments and exposure to equity investments that are not part of holdings that are ancillary to the Group’s main banking its trading book is classified within financial assets activities (private equity activities in France, closely measured at fair value through net income or, using linked with banking networks, stock market bodies, the option, at fair value through other comprehensive brokerages, etc.). income (Cf. Consolidated financial statement – Note 3 Financial Instruments). Monitoring of banking book equity investments and holdings Crédit du Nord Group’s exposure to equities not included in its trading portfolio is equal to their book The portfolio of industrial holdings was significantly value, representative of a fair value determined by reduced in recent years, further to the disposal of non- market price or internal modelling. strategic lines. It now includes only a limited number of investments. It is monitored on a monthly basis by the Group’s Finance Division and, where necessary, value adjustments are recognised quarterly in accordance with the Group’s provision policy.
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TABLE 19: SHARES AND EQUITIES IN BANKING BOOK
(in €m) 31/12/2019 31/12/2018 Shares and other equity securities at fair value through profit or loss 160.1 193.6 Shares and other equity securities at fair value through other comprehensive income 44.1 52.9
Unrealized gains and losses related to changes in fair • recent transactions identified on entities from the value, since the end of the previous year are recognised same sector (earnings or NAV multiples, etc.). within: Dividends received on equity participations are • net income statement “Net gains and losses on recognised in the income statement under “Net gains financial transactions” for equity investment classified and losses on financial transactions”. into Financial assets at fair value through profit or In the event of a sale, gains and losses related to loss; and changes in fair value since the end of the previous year • other comprehensive income “Unrealised or are recognised within: deferred gains and losses that will not be reclassified • net income statement “Net gains and losses on subsequently into income” for equity investment financial transactions” for equity investment classified classified into Financial assets at fair value through into Financial assets at fair value through profit or other comprehensive. loss; and For unlisted securities, the fair value may be estimated • other comprehensive income “Unrealised or using one or several of the following methods: deferred gains and losses that will not be reclassified • quantitative method such as Discounted Cash Flows subsequently into income” for equity investment (DCF), Discounted Dividend Model (DDM); classified into Financial assets at fair value through • pro rata share of the entity’s net assets; other comprehensive. The gains and losses incurred on equities sold are transferred to reserves in the • recent transactions identified on the entity’s share accounting year following the sale. (stake acquired by third party, valuation assessed by experts);
TABLE 20: NET GAINS AND LOSSES ON EQUITIES AND POSITIONS IN THE BANKING PORTFOLIO
(in €m) 31/12/2019 31/12/2018 Gains and losses on the sale of shares and equity 26.4 76.8 Net gains and losses on banking book shares and equity 5.0 13.8
Regulatory capital requirements including the holdings in our insurance subsidiaries, To calculate the risk-weighted assets under Basel 3, a coefficient of 370%. Note that private equity shares the Group applies the simple risk weighting method for acquired before January 2008 can be weighted at the majority of its non-trading equity portfolio. Shares in 150%. Furthermore, if they are not deducted from private equity companies are assigned a risk-weighting equity capital, material investments in the capital of coefficient of 190%, shares in listed companies a finance companies are assigned a weighting coefficient coefficient of 290%, and shares in unlisted companies, of 250%.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 307 Risks and Capital Adequacy 5 Other risks
At December 31, 2019, the Group’s risk-weighted assets related to its non-trading equity portfolio, and its capital requirements, were as follows:
TABLE 21: CAPITAL REQUIREMENTS RELATED TO BANKING BOOK EQUITIES AND HOLDINGS
31/12/2019 31/12/2018 Risk- Risk- weighted Capital weighted Capital Equities and holdings Approach Weighting at Default assets requirements at Default assets requirements Financial securities Standardised 100% 91.1 91.1 7.3 91.1 91.0 7.3 Private Equity Simple 190% 10.0 19.1 1.5 10.0 19.1 1.5 Financial securities Simple 250% 224.4 561.0 44.9 218.9 547.3 43.8 Unlisted shares and insurance Simple weighting 370% 103.1 381.4 30.5 150.1 548.0 43.8 TOTAL 428.6 1,052.6 84.2 470.1 1,205.4 96.4
Strategic risks
Strategic risks are defined as risks inherent to the strategic investment projects and all operations, notably strategy selected or resulting from the Group’s incapacity acquisitions and disposals, that may significantly affect to implement its strategy. These risks are monitored by the Group’s results, the structure of its balance sheet, or the Board of Directors, which approves the Group’s its risk profile. strategic directions and re-evaluates them at least once per year. Moreover, the Board of Directors approves the
Environmental and social risks
The Group’s approach to environmental and social matters is detailed in Chapter 6 of this document.
Conduct risk
The Group is also exposed to conduct risk through each Stakeholders include customers, employees, investors, of its business lines. The Group has defined this risk as shareholders, and suppliers, as well as the environment, a result of actions (or inaction), or behaviour of the Bank markets, and the countries in which the Group operates. or its employees, that are incompatible with the Group’s The implementation of the system to monitor these Code of Conduct, and that could give rise to negative risks is one of the priorities of the Culture and Conduct consequences for its stakeholders, or place the longevity programme in 2019. or the reputation of the Bank at risk.
308 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Social Responsibility (CSR)6 In addition to regulatory requirements, Crédit 6.3 Non-financial risk policy for sustainable du Nord has made the voluntary decision to management of the business ______322 develop a positive-impact corporate project 6.3.1 Main non-financial risks and opportunities drawing on all the bank’s business lines ______310 associated with the business 322 6.3.1.1 Methodology and governance 322 6.1 Overview of CSR at CDN ______311 6.3.1.2 Main risks and opportunities identified 323
6.2 A business model that places CSR at 6.3.2 Conducting its business ethically the heart of the corporate transformation and responsibly 325 project ______313 6.3.2.1 A cornerstone of compliance (culture, conduct and governance): obligation of due diligence, management of E&S risks, data protection 325 6.2.1 Activity 313 6.3.2.2 Being a responsible and innovative employer for current 6.2.1.1 The Bank’s economic model 313 employees and future talent 331 6.2.1.2 Business model 314 6.3.2.3 A Social Compact to encourage employee loyalty 6.2.1.3 Customer bases by market 315 and improve our appeal among applicants. 331 6.2.1.4 Competitive positioning 315 6.3.2.4 Customer satisfaction 341
6.2.2 Internal organisation and resources 317 6.3.3 Showing solidarity with the regions 343 6.2.2.1 Location of branches 317 6.3.3.1 Responsible sourcing policy aimed at improving the Group’s regional and environmental footprint 343 6.2.2.2 Internal resources 318 6.3.3.2 Support for regional economic development 345 6.2.3 Corporate culture 318 6.3.3.3 Societal engagement 349 6.2.3.1 Business model: close relations, transparency, 6.3.4 Supporting the energy transition 351 responsiveness, mobility, simplicity 318 6.2.3.2 Values: Responsibility, commitment, team spirit, innovation 319 6.3.4.1 Development of sustainable, positive-impact finance 351 6.3.4.2 Green product and service offers 353 6.2.4 A transformation strategy placing CSR 6.3.4.3 Internal environmental policy to improve environmental at the heart of the project and drawing efficiency and reduce the carbon footprint 354 on all business lines 319 6.2.4.1 Trends and main factors that could have an influence Appendices ______359 on the future 319 6.2.4.2 Corporate transformation project 319 6.4 Independent verifier’s report on 6.2.4.3 CSR strategy 320 consolidated non-financial statement presented in the Management Report ___ 363
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 309 6 Corporate Social Responsibility (CSR)
In addition to regulatory requirements, Crédit du Nord has made the voluntary decision to develop a positive-impact corporate project drawing on all the bank’s business lines
Article 225 of French Act 2010-788 of July 12, 2010 setting out a national commitment for the environment (“Grenelle II Act”) and Directive 2014/95/EU of the European Parliament and of the Council of October 22, 2014 require the disclosure of non-financial, social and environmental information in the Management Report. In accordance with the provisions of Article L. 225-102-1 of the French Commercial Code, Order No. 2017-1180 of 19/07/2017 and Decree No. 2017-1265 of 9/8/2017, which transposed the European Directive of 22/10/2014 into French law, only Societe Generale Group (which establishes the consolidated financial statements) is required to consolidate and publish non-financial information. Crédit du Nord Group accounts for approximately 8% of Societe Generale’s NBI and 5% of its headcount. However, in addition to its regulatory requirements, Crédit du Nord Group made the voluntary decision to publish this non-financial information in its own report in light of the structure, governance and degree of maturity of CSR throughout the Group. This allows it to clarify the interconnectedness of its business model, its CSR objectives and its policies to reduce the environmental and social risks inherent to its activity.
310 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Social Responsibility (CSR) 6
6.1 Overview of CSR at CDN
CORPORATE CULTURE – 5.4% of headcount in work/study positions and – The 3 pillars of our banking model: regional roots, 351 work/study employees recruited in 2019 focus on relationships, customer satisfaction – 29 hours of training per employee on average in – Business model: Close relations, transparency, 2019, 87.8% of employees having undergone at responsiveness, mobility, simplicity least one training session, with managers being trained in appreciative management – 4 values: Responsibility, commitment, team spirit, innovation – 22% participation in the first employee CSR awareness-raising quiz on sustainable – A “culture and conduct” programme and a Code development with an average score of 11.9/20 of Conduct – 9.5% of employees holding part-time positions CSR AT THE HEART OF THE GROUP – new methods of work and organisation, TRANSFORMATION STRATEGY 1 new part-time formula, 1 Quality of Life at Work – “Using all our energy to promote interest in regional observatory, 1 commitment charter on work/ entrepreneurship OVER THE LONG TERM” life balance and discussions around employee – Transformation strategy Agir 3.0: the bank as a evaluation, the organisation of work, the business platform, banking where and when you need it, lines and the employer brand agile and responsible organisation – 1 head of disability issues and contact persons – 1 CSR governance with local correspondents in the regions/subsidiaries as part of Mission in each region/subsidiary and entity of the handicap; a rate of employment of persons with headquarters disabilities of 5.94% – 3 pillars of CSR development: Exercising our – 1 day per year and per employee dedicated to skills profession in an ethical and responsible manner, mentorship, or 14 days per person in 2019, 32 for supporting the energy transition, showing solidarity the day of solidarity. Nearly 140 employees are with the regions involved in this new solidarity initiative – 77% participation in the employer survey (vs. 79% MANAGEMENT OF ESG (ENVIRONMENTAL, SOCIAL in 2018) AND GOVERNANCE) RISKS – 71.3% of new appointments via internal mobility – Defence exclusion list, monitoring/identification list – 8.9% internal promotion – Nearly 70 transactions, onboardings and transactions have been identified as E&S – 7.8% absenteeism rate (compared with 7.9% in reputation risks (compared with 60 in 2018, or a 2018) +17% increase) – Male/Female manager salary difference: 13.6% in 2019 (vs. 15% in 2018) and for non-managers: A RESPONSIBLE AND INNOVATIVE EMPLOYER 3.3% (vs. 3% in 2018) – A Partnership agreement, organised around 3 – 98.3% of employees and 100% of exposed pillars: employment, healthcare and wealth aiming persons (243 senior managers and executives) at adapting social advantages to employees’ needs trained in anti-corruption strategies – 1 diversity charter to fight discrimination, company accord on professional equality, intergenerational and handicap rights, etc. signed in all CDN Group banks
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 311 6 Corporate Social Responsibility (CSR)
CUSTOMER SATISFACTION AND PROTECTION SUPPORTING THE ENERGY TRANSITION – 1 annual customer satisfaction survey that – New partnerships with actors in the energy places Crédit du Nord in the top three on the economy: Deepki, Econocom, Lumo, Ecojoko, Individual Customer and Corporate markets etc. – 20 days on average for the processing of – 1 green offer of products and services: Etoile complaints (non-mediated) +42.9% / 14 days in Express benefits for the financing of green vehicles 2018. The number of complaints processed fell by 4% from 2018. SUSTAINABLE FINANCE WITH A POSITIVE IMPACT – A cybersecurity approach coordinated by the head of information systems and operational risks – €74m in green financing or positive-impact financing (funding of public transit with Banque – 910 student loans for a total amount of €17.5m Laydernier) (+ 20% from 2018) (of which €10.1m (+7.8% from 2018) in medico-social equipment financed by Norbail Immobilier + €3.7m in financing for the healthcare/ ACTING IN SOLIDARITY WITH THE REGIONS hospital sector by Starlease) + €373m financing in – 1 responsible purchasing charter, 1 CSR clause affordable housing/elder care facilities – 1 catalogue of ESAT/EA service providers – €58m in outstandings for 6 company investment – €137.5k dedicated to ESAT purchases (+37.5% funds and 1 employee savings scheme with the / 2018) Socially Responsible Investment label (+36% compared with 2018) – €2.3m dedicated to volunteering and sponsorship (0.12% NBI), 1 charitable – Evaluation of CSR risks and opportunities by structured product to benefit 2 associations in the Products Committee 2018 for a total of €75k – 1 quality charter committed to guaranteeing INTERNAL POLITICAL ENVIRONMENT customers an appointment within 48h of their – Virtually all branches use 100% renewable request to the Franchise department energy-sourced electricity
– 1 specialised Corporate Finance team to meet – 1 policy to develop a fleet of low-CO2 emission the needs of family-owned SMEs/mid-caps clean vehicles
– 94% rate of branch accessibility – Reduction of CO2 emissions by 10 tonnes thanks to initiatives recognised via the internal carbon – Calculation of the socio-economic footprint of tax: 10 CDN initiatives awarded in 2019 for a total the BRA: 54% of local employees supported of €330,300
– 1.2 tonnes of CO2 emitted per occupant/year on average – Certification ISO 50001 of central office buildings for energy management
312 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Social Responsibility (CSR) 6
6.2 A business model that places CSR at the heart of the corporate transformation project
6.2.1 Activity
In conducting its business, Crédit du Nord Group Registration Document, which notably addresses takes into account economic, social and environmental consumer and home loans; challenges and impacts, while meeting the expectations – helping them to build up savings and wealth of its stakeholders as a model of a diversified and (management of their cash holdings and their balanced retail bank that builds on long-term relations payment instruments); with customers. – advising and protecting them in their activities 6.2.1.1 The Bank’s economic model (insurance, data protection, etc.). Crédit du Nord Group targets sustainable, consistent The Group is developing its expertise in working with profitability based on a robust financial profile, while professional and corporate customers, who now seeking in particular to maintain sufficient safety account for nearly two thirds of its revenue, as well as buffers in terms of liquidity risk and strictly managing its with wealthy customers. structural risks (interest rate, foreign exchange, etc.). In terms of the separation of banking activities, the Group conducts no own account trading activities; the Generation of the profit margin market activities conducted at Crédit du Nord by the Treasury and Foreign Exchange Department (DTC) are Net Banking Income (NBI) = Operating income – exercised in the sole interest of the Group’s customers. expenses arising from all financing activities Crédit du Nord Group’s specialised advisors generally Intermediation margin = Cost of deposit – Credit support local populations in their daily operations and margin their projects with products and services adapted to Activities: Intermediation (53% of NBI) and their needs. Insurance (2% of NBI) Crédit du Nord Group contributes to the financing of the local economy, as evidenced by the substantial The intermediation margin will directly depend on the increase in its outstanding loans (outstandings at end- credit outstandings that are correlated to the economic 2019: €42.7bn, +8.3% vs. end 2019). In 2019, Crédit environment (an increase in volumes linked to the growth du Nord maintained its 2018 performance in terms of activity, real estate, cash flow of companies, etc.). It is of financing loans to Professional and Corporate therefore imperative for our credit institution to determine customers, with €4.4 billion granted (+0.2% vs. 2018) in its vulnerability to the economic context and to interest the form of investment loans (-0.4%) or lease financing rate fluctuation. (+2.9%). The Group is committed to creating sustainable and This increase in production has supported the steady lasting value for all its stakeholders (adapted products growth of outstandings for Corporate customers, and services). To this end, it supports its customers by: totalling €15.2 billion. Outstandings saw growth of +5.3% over one year (including +6.3% in mid-to long- – offering to finance their projects (consumer loans, term loans). real estate loans). Financial earnings are detailed in Chapter 3 “Management Report” of the Universal
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 313 6 Corporate Social Responsibility (CSR)
6.2.1.2 Business model
OUR RESOURCES OUR AMBITION OUR VALUE CREATION
OUR CUSTOMERS “USING ALL OUR ENERGY FOR OUR CUSTOMERS 1.8 million active individual customers TO PROMOTE INTEREST 6 SRI-labelled company investment funds – €58m (+36% vs 2018) 238,000 professional customers IN REGIONAL ENTREPRENEURSHIP Satisfaction survey: Top 3 on the Individual & 60,000 customer associations OVER THE LONG TERM” Corporate customers markets 43,000 companies Number of complaints down 4% / 2018 R Green sales rebate on the purchase of an electric IONS ESP vehicle AT ON OUR TALENTS EL SI Green financing: €74m (+20% / 2018) R VE E N Tax amount of credit lines granted to SMEs: Nearly 8,400 employees S E €1.8bn O S 59% Woman / 41% Men L S Tax amount of financing to associations: C €4.1m Over 3,700 advisors dedicated to the bank’s business lines LDD outstandings: €1,751.12m 8 SUBSIDIARIES 910 student loans (+7.8% / 2018) HISTORICALLY Real estate loans: €26bn in outstandings OUR PRESENCE ROOTED IN Consumer loans:
S €1.7bn in outstandings
IN THE REGIONS I
Y
THE REGIONS: M
T P
A customer-centred bank I Courtois, Kolb, Laydernier, Nuger, FOR OUR EMPLOYEES
L L
I
with strong local roots in the regions Rhône-Alpes, Tarneaud, Société I
C
B Nearly 88% of employees trained + 29h of
Marseillaise de Crédit I
T
More than 800 bank branches O training
and Crédit du Nord. Y Partnerships with associations M 92.5% of jobs with permanent contracts 71.3% of positions filled through internal mobility 6.2% persons with disabilities OUR FINANCIAL CAPITAL 9.5% of employees with part-time contracts 5.4% of headcount in work/study positions €3,519M: comprehensive income TR CY ANSPAREN 77% participation in the employer survey Rating LT Fitch A 253 employees working remotely – 3% headcount 1 Social Compact: “work, health, employer value” 1 diversity charter signed by all the Subsidiaries Skills Sponsorship: 14 man-days FOUR SUPPORTING REDUCING OUR 1st “Printemps solidaire” (solidarity spring) VALUES OUR CUSTOMERS CARBON FOOTPRINT event: 32 man-days FOR THE GROUP AND SHAREHOLDERS TEAM SPIRIT Focusing energy and talents OUR CSR PRIORITIES: NBI: €1,809m on serving the needs of the 1 Exercising our profession in an ethical Net income: €328m community and responsible manner Incentives (€23.3m) & profit-sharing schemes (€0.8m) RESPONSABILITY 2 Supporting the energy transition of our Acting in a courageous and customer and employees, as well as FOR OUR REGIONS ethical manner the company’s €2.3m to volunteering and sponsorship (0.12% NBI) INNOVATION : Charitable structured product benefiting Sharing new ideas and 3 Showing solidarity with the regions 2 associations: €76m in 2018 contributing to the change process Rate of branch accessibility: nearly 94% OPPORTUNITIES AND RISKS Calculation of the BRA’s socio-economic COMMITMENT Management of environmental and social risks: footprint: 54% of jobs supported Fuelling the Group’s vision 70 opinions on transactions (+ 18% / 2018) and strategy and serving as FOR OUR SUPPLIERS an example for others by OUR CHALLENGES AND EXPERTISE embodying the Group’s values FOR THE FUTURE 1 responsible purchasing charter, 1 CSR clause, Selfcare, automation, artificial intelligence, innovation, supplier evaluations, 1 ESAT catalogue A programme – Culture green financing, customer advisory, e-commerce, Branches use 100% renewable energy- and Conduct – and a Code omnichannel, open sourcing sourced electricity of Conduct
314 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Social Responsibility (CSR) 6
6.2.1.3 Customer bases by market Data on customer bases by market are developed in Chapter 3 “Management Report” of this Universal Registration Document.
Individual Professional Business Institutional Customer Base customers (2) customers (3) customers (4) customers (5) Associations (5) TOTAL CRÉDIT DU NORD GROUP (2019) (1) 1,800,013 159,332 43,227 4,151 18,699 Nord-Ouest (Northwestern France) 228,866 15,689 4,554 434 2,362 Nord de France (Northern France) 428,684 21,988 4,595 607 3,813 Crédit du Nord Ile-de-France et Loiret + DRE 234,166 25,903 8,009 1,081 2,027 Monaco 3,087 509 240 12 29 Banque Courtois 145,169 14,875 3,463 359 1,554 Banque Kolb 59,107 6,052 3,308 124 538 Banque Laydernier 83,088 8,160 1,543 248 1,067 Banque Nuger 29,533 4,115 939 53 469 Banque Rhône Alpes 132,038 13,403 4,458 266 1,416 Banque Tarneaud 119,197 11,774 3,948 291 1,520 Société Marseillaise de Crédit 336,375 36,914 8,170 676 3,904 (1) New database. (2) Customers active via propagation and inactive customers owning our products. (3) Active customers, excluding private business (professionals only). (4) Active customers, excluding the “bank” economic activity code. (5) Active customers, not including property owners’ associations.
The core target is the “Premium” customer segment, Professional Customers market comprises 159,000 which includes intermediate-sized enterprises, SMEs, customers enjoying close relations with the Group. professional customers, individual Private Banking Crédit du Nord Group does business with approximately customers, Wealthy Customers and High-End 19,000 associations. It boasts nearly 43,000 active Customers. corporate customers. We work with nearly 4,200 Totalling more than 1,800,000, Individual Customers institutional bodies and major associations. represent the majority of our customers in number. The
6.2.1.4 Competitive positioning
Each year, Societe Generale & Crédit du Nord Group – on the professional customers market, satisfaction call jointly on the research institute Kantar TNS a remained stable in an improved market. competitive customer satisfaction survey including At the same time, CDN Group conducts a survey of more a Net Promoter Score. These surveys are conducted than 55,000 interviews with individual, professional, and with 7,230 individual customers, 5,198 professional corporate customers, enabling it to deliver a satisfaction customers and 3,498 companies of the top 10 or 11 score for each of its branches. financial centre banks depending on the market. – the “overall satisfaction” score of the annual barometer places CDN Group: – 1st on the corporate market, – 2nd on the individual customers market,
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 315 6 Corporate Social Responsibility (CSR)
Customer Recommendation Index (Promoters – Detractors)
Definition DETRACTORS NEUTRAL PROMOTERS NPS = of Customer IRC = Promoters - Detractors Promoters- Detractors 012345678910
Crédit du Nord NPS
26% Individual -50 -45 -40 -35 -30 -25 -20 -15 -10 -50 5 nd customers market 2 Marché
24%
-50 -45 -40 -35 -30 -25 -20 -15 -10 -50 5 Professional Marché 2nd customers market
23%
-50 -45 -40 -35 -30 -25 -20 -15 -10-5 0 5 10 Corporate 3rd customers market Market
Significant change vs. previous wave.
Competitive Surveys performed by the research institute Kantar from January to April 2019 on 7,230 Individuals, 5198 Professionals and 3,498 companies of the top 10 or 11 financial centre banks, depending on the market.
316 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Social Responsibility (CSR) 6
6.2.2 Internal organisation and resources
6.2.2.1 Location of branches
Distribution of branches by region and regional banks
Banque Société Geographic Banque Banque Banque Banque Rhône- Banque Marseillaise Total zone Crédit du Nord Courtois Kolb Laydernier Nuger Alpes Tarneaud de Crédit Crédit Region / Ile de Nord de Nord Clermont- du Nord Subsidiary France France Ouest DRE Monaco Toulouse Nancy Annecy Ferrand Lyon Limoges Marseille Group Branches 127 119 100 2 1 74 40 43 21 72 67 139 805 Q4 2019
Local populations and communities – to develop a high degree of individual and collective Crédit du Nord and its regional banks are developing professionalism; a relationship-focused banking strategy rooted in close – to offer their customers state-of-the-art services and relations, professionalism and innovation across all retail technologies. banking markets in France. The quality and solidity of Crédit du Nord Group’s regional bank earnings is recognised by the market and Jobs and regional development underscored by the long-term rating of “A” awarded by Crédit du Nord Group was established through the Standard & Poor’s & Fitch to Crédit du Nord. combination of nearly 80 regional banks that have been Customer satisfaction and financing the economy are pooling their respective strengths and talents for more the core objectives of the banking model adopted by the than 160 years. eight Crédit du Nord Group banks, which draw strength Crédit du Nord Group customers enjoy the benefits of from their regional roots to play a leading role in the a regional bank on a human scale as well as those of a development of the regions. The Group provides nationwide group. jobs to local economies, supports the creation and The eight Crédit du Nord Group banks are independent development of businesses and offers funding for their in the management of their activities, ensuring rapid projects (see Ch. 6.2.3.2). decision-making and the capability to quickly meet their Independent directors on the Boards of the eight customers’ needs. Their strategy is centred on three regional banks are naturally pillars of local communities: core aims: presidents of the Chamber of Commerce and Industry, – to be a leading example in terms of the quality of its athletics clubs, and heads of well-known companies. customer relationships;
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 317 6 Corporate Social Responsibility (CSR)
6.2.2.2 Internal resources
At December 31, 2019, Crédit du Nord Group posted a headcount of 8,362 employees (versus 8,459 in 2018 and 8,585 in 2017) (permanent contracts, fixed-term contracts, active or on limited term contracts).
Headcount by bank / business line and advisors by market (December 2019)
Business line Market Number of employees Individual Customer Advisor 570 Private Banking Customer Advisor Advisor 1,111 Private Banking/Professional Customer Advisor Advisor 163 Individual Market Subtotal 1,844 Professional Customer Advisor Professional 795 Professional/Liberal Customer Advisor Professional 91 Very Small Business Manager Professional 73 Wealth Management Advisor Professional 214 Professional Market Subtotal 1,173 Corporate Customer Advisor Company 283 Institutional Customer Advisor Company 31 Corporate Customer Manager Company 305 Corporate Market Subtotal 619 MARKET TOTAL 3,636
6.2.3 Corporate culture
Crédit du Nord continues to develop its original model 6.2.3.1 Business model: close relations, of local and digital banking, with a special focus on transparency, responsiveness, professional and corporate customers, consistently mobility, simplicity targeting customer satisfaction. The characteristics that best represent Crédit du Nord By acting locally, the Group is able to build relationships and inform its business model are: founded on trust over the long term and contribute to – close relations: the economic development of all enterprising customers – each customer is first and foremost the customer in the regions. of one of the Group’s regional banks, This unique stance is what drives the strength of Crédit – all customers managed in our branches are du Nord Group, which is determined to make that followed by a dedicated and available Customer strength the foundation of its future development. Adviser; – no automatic transfer to a switchboard; In order to simultaneously maximise customer – transparency: each decision made is clearly satisfaction and economic performance, Crédit du explained to the customer; Nord has set a goal of prioritising the needs of the most – responsiveness: close relations allow for short complex customers that require all of its financial and channels of response (the Group guarantees its relationship banking expertise. customers a response within one day); – mobility: the Group is constantly investing in digital technology (tablets and Wifi, etc.); – simplicity: products that are easy to understand and use, a customisable secret bank card code.
318 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Social Responsibility (CSR) 6
6.2.3.2 Values: Responsibility, commitment, – innovation proposing new ideas and contributing to team spirit, innovation the process of change; To become the reference in customer-centred banking, – responsibility acting in a courageous and ethical all employees of Crédit du Nord Group agree to uphold manner; four core values on a daily basis: – commitment fuelling the Group’s vision and strategy – team spirit focusing energy and talents on serving and serving as an example for others by embodying the needs of the community; the Group’s core values.
6.2.4 A transformation strategy placing CSR at the heart of the project and drawing on all business lines
6.2.4.1 Trends and main factors that could 6.2.4.2 Corporate transformation project have an influence on the future The objectives of the corporate transformation With the rise of “selfcare” and automation as artificial programme Agir 3.0 are extensively and ambitiously intelligence moves rapidly forward, the relationship rethinking the means and methods of the Group’s between banks and their customers undergoing a radical operations in three key areas: change. The perception of added value is gradually – the customer-centred model: being the bank for shifting from fast and efficient processing of everyday enterprising customers transactions to advice and expertise sought at key milestones in the customer’s professional and personal The Group’s core mission is to encourage, support life. Meanwhile, the development of crowdfunding and drive the spirit of entrepreneurship wherever is raising the public’s expectations in terms of the it is found, giving life to the projects of Corporate, transparency and social utility of our financing solutions Professional and Individual customers. (i.e., the media campaign on the use of Sustainable – the operational model: being the bank that is Development and Solidarity passbook account funds). there for its customers when and where they The e-commerce market is rapidly growing, with France need it, in person and through digital channels at no. 5 globally: Crédit du Nord aims to participate in Crédit du Nord is committed to being on the ground, this trend. close to its customers, through agile and digitalised Unlike neobanks, the customers of our Group want ecosystems adapted to the era, combining reinvented Crédit du Nord to maintain a physical presence on branches, more mobile bankers and remote experts, the ground in addition to providing digital tools via an all key contributors to the project. omnichannel approach. Now more than ever, Crédit – the governance model: being a bank that makes du Nord is working to continuously anticipate and adapt quick decisions to the multiple uncertainties appearing on the horizon The region-based organisation of Crédit du Nord in the midst of today’s socio-political risks (Brexit, allows for rapid decision-making and action, and European elections, Yellow Vest movement, etc.), social agility in terms of experimentation and adaptation. and economic risks (slowdown in growth, timetable and The Group’s brands are a hallmark of satisfaction conditions of interest rate hikes, energy prices, etc.) and for its customers and a sense of purpose for its environmental risks (climate change, pollution, etc.) in employees. order to continue to generate sustainable and profitable growth. The Group’s mission is truly to “focus all our energy on serving enterprising customers in the regions service”; this translates to supporting start-ups, innovation for local development, and contribution to new forms of mobility.
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“Banking as a platform” – humanitarian and social initiatives, by being a The Bank will expand its offer and sales channels responsible and innovative employer that values into broad service groups (meeting the entire range diversity, and a partner to local institutions and of customer needs) and in the future, with selected initiatives promoting children’s healthcare, integration partners, will be able to sell banking and non-banking of youth and independence of senior citizens; services not directly manufactured by the bank itself. – cultural and athletic initiatives, by implementing an active cultural sponsorship and athletic patronage “Banking when and where you need it” program at the local level; This service group is based on new models of – environmental actor, by reducing the Group’s “flagship” branches, communal spaces for all our carbon footprint and supporting customers and customers, where the various concepts and adaptation employees in their energy transition in order to create modules have been tested. the conditions for sustainable growth. In addition to physical adjustments, a new organisational This commitment is rooted in governance, ethics and a model is being implemented in order to free employees culture of regulatory compliance and risk management, from the most repetitive tasks and to better integrate which are shared by all eight banks of Crédit du Nord remote banking solutions and ATMs, giving customers Group that carry out actions representative of this more independence in the management of everyday responsible and societal stance. transactions. This will allow advisers to concentrate on The Group’s goal is to strengthen the CSR culture and higher added value tasks. the positioning of Crédit du Nord Group in order to This new model will be implemented via the further improve its social, societal, and environmental streamlining and digitalisation of all customer footprint in the regions. Each bank adapts its own journeys with a threefold objective of customer societal responsibility to the regional context by setting satisfaction, operational efficiency and risk management. targets that call on the contribution of employees, At the same time, the Group is investing in Big Data and customers, partners, and providers. artificial intelligence in order to assist teams and offer The Group’s ambition is to support regional more personalised customer service. entrepreneurship in all its forms, not only through Agile and responsible organisation financing (focused in particular on the digital and energy transition) but also through sponsorship initiatives The bank’s strategy is to operate efficiently as a network (cultural, athletic, children’s healthcare) and by maintaining agile subsidiaries serving the needs of partnerships with innovative SMEs. the Group’s regional banks. This CSR strategy focusses on the satisfaction of all The Group also aims to promote a managerial culture stakeholders; that encourages responsibility, autonomy and creativity in the interest of collective success. appreciative – first and foremost among them, customers. We strive management as developed among our teams to exercise the banking profession in an ethical and now needs to evolve towards a truly participative responsible manner vis-à-vis our customers. For management that values each person’s contribution. entrepreneur customers, this support also takes the form of the financing of initiatives participating in the 6.2.4.3 CSR strategy fight against global warming. In 2019, €74 million Crédit du Nord demonstrates its dedication to the were devoted to these initiatives; development of the regions through: – the regions benefit from the initiatives carried out by – economic initiatives, by providing customers with the Group. Local communities are enriched by the top-level financing, consulting, products and services actions of a responsible bank committed to its region adapted to their needs; through support for entrepreneurship or through solidarity and sponsoring initiatives. In 2019, the Group gave €2.3 million to various associations.
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This CSR programme was presented for the first time – providing the central CSR team with the qualitative at the plenary meeting of the Board of Directors and quantitative data needed for the Group’s on October 25, 2018 as well as at the Crédit du Nord non-financial reporting and oversight, Group Management Committee meeting on January – overseeing internal CSR communication and 22, 2019. participate in the CSR digital community to propose and share ideas, actions and best CSR roadmap practices, The CSR strategy is implemented via a roadmap with – contributing to the development of expertise and four main objectives: local culture in terms of CSR, – developing the positive-impact sales offer to support – to ensure compliance with CSR regulatory our customers in their digital and energy transition; requirements, in connection with the Compliance – carrying out initiatives to improve the non-financial Division; performance of the operational model (our own A CSR team, working under the newly created account impact): HR policy, purchasing, energy Corporate Secretary - CSR Division, which is in efficiency, carbon footprint, waste management, etc.; charge of leading the network of officers, measuring – implementing CSR oversight and governance; and steering the Group’s non-financial performance and – promoting our actions by developing internal and reporting to the Group’s CSR sponsor, Management external communication on the CSR programme. Committee and Board of Directors, to Societe Generale Group’s CSR Division and to external auditors. This team Resources, tools, methods for success has an annual budget of €90k. To implement this CSR policy, the team has relied on: The CSR team also has: – through 2019, a national sponsor who is a – access to the Planethic Reporting tool to identify member of the Group Management Committee CSR indicators; and responsible for advancing CSR, and who reports – a strategic dashboard (under construction) and key to the Group’s General Management. performance indicators. – starting in 2020, 2 sponsors respectively in charge of In 2018, Crédit du Nord Group started to define a set business and own account operations of key indicators of its extra-financial performance, – in each of the Group’s regions, subsidiaries, and presented to the Management Committee in March divisions, the CSR sponsor is a member of the 2018 and to the Board of Directors on October 25, Management Committee in charge of validating 2018. They will be finalised over the course of 2020 and action plans, allocating the necessary budgets and monitored by Senior Management. reporting OT the Management Committee on the The Group defines a framework and national objectives, progress of CSR initiatives; but each bank maintains the freedom to determine – a network of CSR officers in the regions/ its own actions to contribute to reaching the Group’s subsidiaries and entities of the head office. Each objectives. CSR officer is in charge of the following for their scope: Communication – defining and implementing a local action plan Over the course of 2019, the CSR strategy and the consistent with the Group’s CSR objectives, and new governance have been presented to the various reporting on the plan to the sponsor, management bodies, and introduced through events at the head office (Management Committee in the regions/ subsidiaries and head office divisions).
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In the interest of disseminating this “CSR culture”, the and the Group’s commitments, results, and best team has created a number of communication tools practices; since the start of 2018: – an annual calendar of CSR events; – an internal collaborative platform, “CSR community” – a CSR email address: [email protected]; with nearly 500 members; – a training kit to be used by CSR officers; – an internal CSR logo that allows us to easily identify – finally, a new digital showcase is currently being and visualise CSR actions; developed. – a new CSR window on the Group’s intranet site which presents the CSR strategy, the key calendar dates,
6.3 Non-financial risk policy for sustainable management of the business
In the course of conducting its internal activities The Group is dedicated to making its own contribution (proprietary activities), Crédit du Nord strives to to the social, environmental and economic advancement responsibly manage its environmental footprint, smaller of the departments and regions where it operates while as it is than that of many industrial corporations. meeting the needs of its customers.
6.3.1 Main non-financial risks and opportunities associated with the business
defined by its parent company, aimed at managing the In conducting its business, Crédit du Nord is subject E&S risks associated with its activities. to a series of regulations that lay the foundation for risk management across the Group. In addition to its regulatory obligations, the Group applies processes 6.3.1.1 Methodology and governance See methodology note 2 in the Appendices
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6.3.1.2 Main risks and opportunities identified
Materiality matrix for main CSR issues
Financial loss for the bank related to the customer’s ESG risks VERY HIGH and the risks related to climate Leak of Leak of personal, Non-compliance change sub-contractor confidential data data Safety Discrimination shortcomings, health risk Attempted corruption, ethical risk Lack of training Poor Relations and career development working with a controversial Controversial Inappropriate content HIGH conditions supplier shareholders, Absence on social networks managers or poor quality of employer-employee dialogue Absence of equitable Absence of equitable remuneration, CSR criteria Attempted remuneration corruption, Customer dissatisfaction ethical risk
Relations Poor or lack of quality with a controversial of products and services provided customer AVERAGE Absence of career management
Non-equitable Too strong mutual remuneration dependence LOW
Leak of supplier data
IMPACT ON STAKEHOLDERS IMPACT LOW AVERAGE HIGH VERY HIGH IMPACT ON CRÉDIT DU NORD’S BUSINESS
CUSTOMERS AUTHORITIES EMPLOYEES SUPPLIERS SHAREHOLDERS/MANAGERS
Based on a risk pool of 23 main non-financial risks, – satisfying and protecting customers: quality, advice, three were identified as particularly high-risk, pricing. unchanged in 2019: And, to a lesser extent: – ensuring the Compliance (culture, conduct and – conducting a responsible sourcing policy: importance governance) of Group activities and data protection and sustainability of supplier relations; (customers, suppliers, etc.); – aiding and supporting the regions: showing solidarity – being a responsible and innovative employer: with the regions (including the sponsorship policy). diversity, gender equality, employability, career/skills management;
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CHALLENGES/OUR EXPERTISE: Self-care, automation, artificial intelligence, green financing, advice & expertise, e-commerce, omnichannel, open banking
STAKEHOLDERS RISKS/POTENTIAL IMPACTS MANAGEMENT SYSTEM/PREVENTIVE MEASURES
Leak of personal data, Data Protection Officer, Review of Operational Risks, CUSTOMERS customer dissatisfaction, management of complaints, Consumer Service legal risk, reputational risk
Corruption risk, Internal Rules, code of good conduct, training, procedures reputational risk, & controls, “Culture & Conduct” programme, Data AUTHORITIES legal and non-compliance risk Protection Officer, Review of Operational Risks, KYC, sector policies
Loss of attractiveness, recruitment Social compact, employer survey, telecommuting, difficulties, demotivation, absenteeism, “Culture & Conduct” programme, diversity charter, Mission EMPLOYEES turnover, discrimination, image risk Handicap, gender equality agreement, intergenerational agreement, strategic workforce planning (GPEC) agreement, HR interviews, training
Non-financing of the local economy, Strong regional roots loss of attractiveness and local REGIONS momentum, local recruitment difficulties
Supplier dependence, lack of quality of Sustainable sourcing charter, CSR clause, supplier SUPPLIERS products & services, leak of personal assessment, sustainable sourcing policy /PARTNERS data, reputational risk
RISKS: socio-political (Brexit, European elections, “gilets jaunes” (yellow vest) crisis, etc.); social and economic (slowdown in growth, timetable and conditions for the rise in rates, energy prices, etc.); environmental (climate change, pollution, etc.)
Climate change risks, whether physical (increased As the insurance activity accounts for only 2% frequency of extreme climate-related events) or of total NBI, it is not subject to a risk analysis, especially transitional (new carbon regulations), are not a new as the risk is borne by the insurance company, for which category of risk, but rather are identified as aggravating Crédit du Nord acts as a business introducer. factors of the Group’s existing risks, and particularly Crédit du Nord Group built its non-financial strategy by credit, operational and reputational risks. examining the main impacts of its major intrinsic risks, Proprietary environmental policy is not identified which are described in more detail below, in line with by the non-financial risk analysis as a major risk for the more than half of the United Nations Sustainable Group, which operates solely in the service industry. Development Goals (10 out of 17 SDGs). The risk What is more important is the impact of green financing. management policy for each main risk is developed below.
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VERY HIGH
Responsible sourcing (suppliers, partners, sub-contractors) Responsible & HIGH innovative employer
Support for the regions
AVERAGE Environment & energy transition
IMPORTANCE FOR STAKEHOLDERS IMPORTANCE LOW
LOW AVERAGE HIGH VERY HIGH IMPACT ON CRÉDIT DU NORD’S BUSINESS
6.3.2 Conducting its business ethically and responsibly
6.3.2.1 A cornerstone of compliance Accordingly, in the conduct of its business, the Group is (culture, conduct and governance): committed to: obligation of due diligence, management of E&S risks, data – working with customers and partners whose protection practices are aligned with anti-money laundering and terrorist financing rules; Compliance means to act in accordance with the applicable banking and financial rules, ranging from laws – working with customers or performing transactions and regulations to professional and ethical principles or in accordance with the rules governing international standards, to internal standards. financial embargoes and sanctions; Because trust is essential in the banking industry, now – observing regulations and best practices in terms of more than ever it is the Group’s responsibility to make customer protection; integrity the driving force of its strategy. – preventing and managing conflicts of interest; Fairness to customers and, in more general terms, – protecting customer and employee data; integrity in banking and financial practices contribute – developing a culture of compliance among employees decisively to the Group’s reputation. and providing them with a whistleblowing system. By ensuring that these rules are observed, Crédit du Nord Group works to protect its customers and, in general, all of its stakeholders, counterparties and employees, as well as the regulatory authorities.
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Normative and regulatory framework – the Sustainable Sourcing Charter adopted by Societe Key regulations and standards include: Generale Group: https://www.societegenerale.com/sites/ default/files/2018/charte-achats-responsables_fr_0.pdf: – French Act No. 2016-1691 of 9 December 2016 – the Crédit du Nord Code of Conduct and Code (Sapin II Act) on transparency, the fight against of Tax Conduct, corruption and modernisation of the economy, – the General Data Protection Regulation, replacing published in the Journal Officiel of 10/12/16 the current Directive 95/46/EC on personal data (appendix to the Internal Rules of Crédit du Nord and protection and in force since 25 May 2018, whistleblowing mechanism); – the Crédit du Nord Instruction on conflicts of – French Act No. 2017-399 of 27 March 2017 on the interest, obligation of due diligence of parent companies – the anti-money laundering and terrorist financing and contracting companies. As a French company system, based in particular on the fourth AML with more than 5,000 employees, Societe Generale Directive (Directive No. 2015-849.), is subject to the Act of 27 March 2017, which calls – the Sanctions and Embargoes system and for the establishment, implementation and annual guidelines. publication of a due diligence plan starting in the fiscal year ended 31 December 2017. The Moreover, with regard to combating fraud and tax regulation is global in scope, including subsidiaries evasion (acts of 23 and 30 October 2018), Crédit du within the meaning of Article L. 233-16, section II, Nord’s policy is in line with that of the SG Group. i.e. subsidiaries over which Societe Generale holds exclusive control. Crédit du Nord and its subsidiaries Initiatives to prevent all forms of corruption, are not required to define their own due diligence money laundering and terrorist financing plan, but implement the plan defined by Societe Generale; With respect to customers – the French Labour Code, including in particular Since 1993 (Law No. 93-122 of 29 January), corruption the articles addressing gender equality in the and transparency of the economic environment and workplace (L. 1141-1 to L. 1143-3) and the principle public procedures have fallen within the scope of the of non-discrimination (L. 1132-1 to L. 1133-6). anti-money laundering and terrorist financing system Moreover, Crédit du Nord Group applies the in place at the Group’s various banking institutions. agreement signed in June 2015 by Societe Generale To that end, the Crédit du Nord Group Financial and international trade union UNI Global Union on Security Division conducts additional due diligence basic human rights and freedom to form unions, measures when the business relationship, product or which strengthens the commitments undertaken in transaction falls within the scope of one of the cases the Group Code of Conduct; mentioned in Article L. 561-10 of the French Monetary Code, as well as enhanced due diligence measures – with respect to Human Rights, Crédit du Nord has on certain transactions and customers (as stipulated identified a number of areas in which risks can be in Articles L. 561-4-1 and L. 561-10-1 I of the French addressed and opportunities embraced: access Monetary and Financial Code), as well as adapted to education (e.g. “Project Voltaire”), healthcare due diligence measures in situations designated by (e.g. Initiatives to prevent psychosocial risks), Tracfin, in accordance with Article L. 561-26 of the employment (e.g. skills sponsorship via the Unis-Cités French Monetary and Financial Code, on transactions partnership), gender equality (collective bargaining or customers presenting a high money laundering or agreements on gender equality), promotion of terrorist financing risk. diversity (e.g. collective bargaining agreement promoting the hiring of seniors), respect for collective In line with the Sapin II Act, a corruption prevention bargaining rights, elimination of discrimination in and detection mechanism applicable to all of Societe employment and professions, etc.; Generale Group, and in particular to Crédit du Nord Group, is in the process of being finalised. In – accordance with legal requirements, this mechanism contains the following eight measures: corruption risk
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mapping, an anti-corruption code appended to the The observation of certain key sensitive points (e.g. the internal rules generating potential disciplinary sanctions, procedure applied to secure external e-mail exchanges) a whistleblowing system, a third-party evaluation is subject to controls as well as supervision procedures procedure, accounting verification procedures, and using special tools and applications (Secure mail internal training/controls/evaluation of measures encryption certificate). undertaken. Combating money laundering, terrorist Crédit du Nord Group and its employees are strictly financing and managing international prohibited from committing any act that would breach embargoes and sanctions. applicable anti-corruption laws. The Financial Security Division, which reports With respect to suppliers directly to Crédit du Nord Group’s Chief Compliance For years, the Purchasing Division has included an Officer, oversees the prevention of money laundering anti-corruption clause in its contract negotiation and and terrorist financing (AML/CFT) for Crédit du Nord purchasing agreement procedures. Group. It also supervises compliance with embargo and economic sanction policies with the support of Societe The process for the approval of suppliers is the subject Generale Group resources. of a project conducted jointly with the Societe Generale Group’s Purchasing Division. The aim is to implement a For the Group, comprising local banks with strong detailed and enhanced process for the assessment of regional roots, the analysis of money laundering and suppliers (“KYS” information) which will be systematic terrorist financing risk takes these features into account, beyond a certain billing level. including in particular: – the classification of customers according to 4 AML/ With respect to employees CFT risk levels, in accordance with the Societe Crédit du Nord has developed a strong culture that Generale Group’s methodology. In this respect: guides the behaviour of all its employees to ensure that Advisors must collect information and supporting its businesses are conducted responsibly and ethically. documents enabling them to: This culture has given rise to core values (see 6.1.3.2) – establish and verify the customer’s identity, and, if and a model of exemplary managerial behaviour (through applicable, the customer’s beneficial owners, training in appreciative management). – establish their customer’s economic, financial and A system of continuous monitoring of employee tax situation, practices is in place at Crédit du Nord Group. – understand the purpose of this new relationship, In the “Employee Ethics” section of their Internal Rules, as well as the nature and volume of transactions the different Crédit du Nord Group banks set forth the envisaged by the customer. main rules their employees must follow in exercising their professional activity. A guide entitled “Rules of They must also carry out prior verifications: Good Conduct”, covering these guidelines in line with – with the Banque de France, the values adopted by Crédit du Nord in its customer – by consulting the list of Politically Exposed relations, is provided to each new hire and is made Persons, available to all Crédit du Nord Group employees via the – by consulting the list of Persons and Countries Intranet. The Group also notifies its employees whenever subject to financial or economic sanctions, a new version of the guide is available. – by assessing the customer risk with regard to Some categories of employees, given the nature of combating financial crime (money laundering, their activities or duties, are more exposed to conflicts terrorist financing, etc.), using a rating based on four of interest and have or may have access to inside levels: Low, Medium-Low, High, Medium-High. information more often. The bank determines which categories of employees are exposed and notifies them of their classification and associated obligations.
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All these operations must be conducted before customer Financial Security issues. Finally, certain in-depth in-class onboarding, i.e. prior to validation of the business sessions can be offered to exposed employees (as was relationship by Crédit du Nord Group and therefore, in the case in 2019 on embargoes). particular, before the customer account is activated. Enhanced whistleblowing mechanism The business relationship is validated: (obligation of due diligence) – by the manager of the branch or Business Centre for The whistleblowing system is covered by a guarantee Low or Medium-Low risk customers; of confidentiality and protection as required by the – by the regional Chief Compliance Officer for Medium- Sapin II Act on transparency, the fight against corruption High risk customers; and modernisation of the economy. All members of – by Financial Security for High risk customers. staff are free to call attention to acts of harassment, This validation entails: discrimination, corruption, and abuses of human rights, basic freedoms, personal health and safety, and the – in-depth knowledge of the customer base by environment. advisors; 80% of respondents to the 2019 employer survey for – a multi-service retail banking offer including the CDN Group would systematically exercise their transactions classified by AML regulations as subject whistleblowing right if they witnessed or were confronted to reduced vigilance and transactions classified as with inappropriate behaviour. subject to standard or enhanced vigilance. The anti-money laundering and terrorist financing system Crédit du Nord Group “Culture & Conduct” is also based on each account advisor’s responsibility programme in that they exercise their duty of due diligence daily The provision of banking products and services is a upon receiving the list of accounts to be reviewed (CAE fundamentally sensitive business, and as such calls for - automated AML/CFT transaction monitoring system). the principles of integrity and ethics. This list observes the risk-based approach as defined in With changes in our environment coming faster and the fourth AML/CFT directive, i.e. Directive 2015/849, in greater number, employees must work individually transposed into French law by Decree 2018-284 of and collectively to be blameless in the conduct of their 18/04/2018. business. The increase in reports filed with TRACFIN, and The rules of good conduct, laid out in a guide, uphold particularly the number of reports submitted by the the tradition and values of the banks in the Group; they network, has confirmed the growing risk awareness of must be understood and applied by all, and are based AML/CFT risks among employees and the involvement on the following principles and rules: of their managers. – banking secrecy; The system for the management of international embargoes and sanctions and asset freezes is based – professional secrecy; on third-party and transactional filtering processes – banking ethics – Insider employee; implemented in accordance with the Societe Generale – internal rules (“my rights and duties” and rules of Group’s policy on the subject. good conduct). In addition, AML and CFT, as well as international In addition to the e-learning module, all Group employees embargoes and sanctions training and awareness- are asked to evaluate their knowledge of the Group raising continued to be a priority in the “Business” and code of conduct, identify day-to-day situations and how “Induction” training modules offered to Crédit du Nord to handle them appropriately. The deployment of the Group employees. Mandatory e-learning modules were programme is carefully monitored and feedback is added this year to further stress the importance of collected.
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A programme in line with Group policy
Management of Environmental and Social (E&S) risks inherent in the Group’s activity
While Crédit du Nord Group does not directly generate Shipping Vessels, Palm Oil, Defence, etc.) and major environmental or pollution risks as a result of its cross-sector issues (Biodiversity). Sector policies are business, where possible it remains attentive to those available on the Societe Generale Group website: its customers might create. Accordingly, in addition to http://www.societegenerale.com/fr/mesurernotre- its regulatory obligations, the Group is gradually aiming performance/rse/finance-responsable. They represent to fully integrate the processes defined by its parent reference tools in the event of doubt. However, their company, aimed at managing the E&S risks associated application within Crédit du Nord is not the subject with its activities (deployment of Directive 14032 “E&S of a published procedure or controls to ensure their risk management”). systematic use; To implement these E&S principles in the loan approval – a list of prohibited activities stated in the E&S and customer onboarding processes, Crédit du Nord Guidelines; Group uses Group tools subject to regular review: – identification lists covering the projects, companies – 12 sector policies, defined by Societe Generale, or sectors/countries subject to criticism or campaigns which describe the main risks of failing to protect the by non-governmental organisations (NGOs) for E&S environment or the rights of local populations, and set reasons, thus calling for special due diligence; out criteria for assessing customers or transactions – blacklists covering companies that the Bank will carried out with sector players. They cover potentially not do business with due to their participation in the sensitive sectors (Nuclear, Oil and Gas, Mining, manufacture, distribution or maintenance of cluster Thermal Plants, Agriculture/Fishing/Food & Beverage, bombs or anti-personnel mines.
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Since the beginning of 2019 and the implementation of security: protecting the Group and customers” that the new E&S risk governance system, Crédit du Nord teaches about cybercrime and how to identify risky Group’s CSR team has conducted nearly 70 reviews situations and develop best practices. (onboarding, transactions, etc.) submitted to it for Each Crédit du Nord Group bank processing personal an opinion due to the sensitive nature of the sectors customer data reports this processing to the CNIL involved (vs. 60 in 2018, an increase of +17%). In (French Data Protection Agency). The reporting format some cases, the opinions resulting from these reviews is based on the degree of sensitivity of the information led to the rejection of a transaction or a potential new used in processing and the purpose of such processing. customer. The Digital Revolution has led to an explosion of data A project for the definition of an E&S analysis procedure generated around the world. In response to the growing based on a standardised analysis chart will be carried use of personal data in all economic sectors, and to out in 2020. the concerns expressed by European citizens, the European legislative authority (taking inspiration from the Data protection (customers, employees, supervisory authorities) published the GDPR: General suppliers, etc.) and cybersecurity Data Protection Regulation. Crédit du Nord Group has put this regulation into practice, which represents an Digital security and data protection opportunity to enrich the customer relationship and The Group has established an information system experience. Either online or by contacting their advisor, security risk management system run by an RSSI (Head customers are free to exercise their rights and give their of Information System Security). In an effort to combat consent from the start of their relationship with the bank. cybercrime, Crédit du Nord Group implements solutions The Data Charter is available (French version) on the to protect customer assets and transactions. Given the Group website: https://www.credit-du-nord.fr/instit/IPI/ widespread digital transformation in progress, one key cms/multicanal/Contenus/PDF/conformite/charte_des_ objective is to offer customers user-friendly, available donnees//Fichier. and highly secure digital services. To this end, Crédit du Nord Group is continuously making investments In accordance with Crédit du Nord Group’s societal to guarantee transaction security and data protection objectives, its Head of Information System Security for its customers. This is a critical goal in light of the (RSSI) is increasingly working with start-ups, providing growing number of cybercrime incidents. The Group expertise and advice to Fintechs. is responsible for ensuring data security and banking To strengthen the security of online payments Crédit secrecy. du Nord Group has offered dynamic-encryption Crédit du Nord Group is also continuing its initiatives to cards to its customers since April 2018. Thanks to this prevent phishing and social engineering acts targeting new technology, which enhances payment security on its customers, for example by providing its customers e-commerce sites against identity theft, it is becoming with free additional IT protection (firewall and anti-virus) impossible for criminals to reuse debit card data specifically designed for the banking industry (Trusteer). because the three-digit code is quickly obsolete. In this way, the Bank is expanding its range of payments In addition to the digital security experts working daily solutions to accommodate the exponential growth of on these types of issues, Crédit du Nord Group has online purchases. organised mandatory training for all employees on risk management, including a module entitled “Information
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Internal Personal Data Protection Policy As an employer, Crédit du Nord is required to collect, use and store its employees’ personal data, for the purpose of complying with legal and regulatory requirements and managing aspects related to employees’ employment contracts. In the era of the digital revolution and automated processing, Crédit du Nord Group has a duty to ensure that the personal data entrusted to it by its employees are used responsibly, appropriately and respectfully, and to ensure the confidentiality and security of such data. Under the Internal Employee Data Protection Policy (see link below), Crédit du Nord Group undertakes to provide employees with clear information concerning the use of their personal data. The proper application of the General Data Protection Regulation (GDPR) is also, most importantly, everyone’s business on a day-to-day basis. Best practices and the way in which employees can exercise their rights are published in the GDPR area of the intranet. Requests to access, rectify, delete, limit the processing of personal data and for a right to personal data portability should be sent by e-mail to: [email protected].
6.3.2.2 Being a responsible and innovative In terms of hiring, the “significant facts” method is employer for current employees systematically used. Prevention of discrimination in and future talent hiring practices is addressed in the “Conducting a hiring Crédit du Nord Group places great importance on interview” training course, offered to anyone participating building, retaining and motivating its human resources, in the hiring process (HR, managers). without whom the Group cannot create value or develop This commitment resulted in the signing of the diversity sustainably. charter by the Chief Executive Officer of Crédit du Nord, Françoise Mercadal-Delasalles, in the presence of 6.3.2.3 A Social Compact to encourage Philippe Calmels, Group Head of Human Resources, on employee loyalty and improve our appeal among applicants. 3 April 2019. By signing the diversity charter, Crédit du Nord undertakes to: Attracting new talent – raise awareness and provide training for its executive directors and managers with regard to the prevention New hires of discrimination; The banks of Crédit du Nord Group keep up a significant – promote the application of the non-discrimination hiring rate to replace departing employees (650 principle in all management actions; permanent-contract recruitments in 2019), primarily – encourage the representation of the diversity of in the businesses exercised in the operating network, French society; with a focus on two main recruitment methods: recommendations and work-study programmes. – communicate on this commitment to employees, customers, partners and suppliers; Developing diversity and preventing – make the development and implementation of the discrimination diversity policy a subject of social dialogue with staff Crédit du Nord Group does not practise any form of representatives; discrimination whatsoever, whether towards its staff – regularly assess the progress made and communicate and prospective employees or its customers, business this information both internally and externally. partners or suppliers.
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Numerous collective bargaining agreements signed with the union partners in recent years illustrate this mutual commitment: gender equality initiatives, support for persons with disabilities, maintaining seniors in employment, recruitment of young people, etc. All the Group’s subsidiaries have signed the diversity charter:
2019 Banque Société Crédit Banque Banque Banque Banque Rhône- Banque Marseillaise Total Crédit du Nord Courtois Kolb Laydernier Nuger Alpes Tarneaud de Crédit du Nord Group 100% of Date of signature of the diversity charter 25/02 19/12 19/11 29/11 10/12 10/12 14/11 18/11 subsidiaries
Breakdown of headcount by gender and age The total headcount for Crédit du Nord Group was 8,362 in 2019. 59% women and 41% men. The average age of Group employees was 41 (43 for men and 41 for women).
Headcount and average age of employees by bank:
2017 2018 2019 2019 Total Crédit Total Crédit Total Crédit Banque Société du Nord du Nord du Nord Crédit Banque Banque Banque Banque Rhône- Banque Marseillaise Group Group Group du Nord Courtois Kolb Laydernier Nuger Alpes Tarneaud de Crédit Average Age - Overall 41 41 41 41 43 39 41 42 42 42 43
Average seniority for Group employees was 13 years in 2019 (14 for men and 13 for women).
Average length of service of Crédit du Nord Group employees by bank:
2017 2018 2019 2019 Total Crédit Total Crédit Total Crédit Banque Société du Nord du Nord du Nord Crédit Banque Banque Banque Banque Rhône- Banque Marseillaise Group Group Group du Nord Courtois Kolb Laydernier Nuger Alpes Tarneaud de Crédit Average Seniority - Overall 13 13 13 12 15 11 13 13 14 14 15
Mission Handicap supports persons with The Mission Handicap disability officer and regional/ disabilities regional bank representatives are responsible for:
Organisation of Mission Handicap – organising awareness-raising initiatives for employees and information campaigns for managers; Crédit du Nord’s Mission Handicap association is led by a disability officer, who is the principal contact for – ensuring that employees with disabilities are able to employees and the various divisions, as well as for continue working; external stakeholders. Mission Handicap is represented – conducting hiring initiatives in conjunction with the in each of Crédit du Nord Group’s regions and regional appropriate HR teams. banks by an HR Manager.
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In 2019, Mission Handicap kept up the momentum built Banque Courtois, Banque Tarneaud, Banque Rhône- up in previous years, with: Alpes and Société Marseillaise de Crédit have also – a presence in forums specialising in disability; entered into an agreement promoting the employment of persons with disabilities. – a Group synergy between the disability officers of all entities; – development of dialogue with nationally renowned Below is a list of just a few initiatives undertaken: organisations (DIRECCTE, AGEFIPH, etc.). These – In 2017, Crédit du Nord launched the “Accessibility” efforts were highlighted in an internal communication project, aimed at helping blind and vision-impaired campaign conducted at the head office and the customers go online and use digital channels to branches (article on the Group intranet, awareness- perform transactions. Crédit du Nord Group has raising initiatives at company cafeterias, letter launched a new and improved, more modern written by Crédit du Nord Group’s Head of HR and and streamlined job site, illustrated with videos individually addressed to each employee). of employees presenting their jobs. At the end of – development of partnerships with medical teams to 2018, Crédit du Nord Group began using FACIL’ITI, raise the awareness of all employees; a solution designed to make the job site easier to browse. FACIL’ITI adjusts the website for the – awareness-raising initiatives for our employees browsing comfort of applicants, whether their needs throughout the year, via rh.net, virtual reality are permanent or temporary (vision problems, publications and other visible and invisible disability difficulty of expression or comprehension problems). workshops, etc.; – Employee awareness-raising: Virtual reality Mission Handicap has been featured on the HR intranet headset; sensory experience with massages site since 2015, with a logo making it easy to identify performed by vision-impaired or blind people, Mission Handicap initiatives. conference on dyslexia, co-theatre invisible disability workshops, sign language workshops and lastly workshops on the prevention of musculoskeletal disorders. – Mission Handicap also provides disability-friendly workstations (ergonomic chairs, special screens, vertical mouses, keyboards designed for persons Agreements signed with disabilities) and financing for hearing aids. In 2017 Crédit du Nord renewed its company agreement A showroom, aimed at enabling employees with promoting the employment and integration of persons disabilities to test the possible adaptations of their with disabilities at Crédit du Nord. This agreement, workstation according to their need(s) in a real life signed unanimously by the trade unions, covers the situation, has been set up in Paris (Anjou) and another period from 2017 to 2020. is also in the process of being set up in Lille.
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Employment ratio of disabled workers. Banque Société Total Crédit Source: DOETH (Mandatory Declaration Crédit Banque Banque Banque Banque Rhône- Banque Marseillaise du Nord of Employment of Disabled Workers) du Nord Courtois Kolb Laydernier Nuger Alpes Tarneaud de Crédit Group 2017 5.71% 6.16% 1.81% 6.28% 2.92% 5.23% 5.72% 6.41% 5.67% 2018 6.02% 6.66% 2.02% 5.98%3.74% 5.47% 6.43% 6.25% 5.91% 2019 6.13% 6.52% 2.31% 4.84% 5.78% 5.39% 7.17% 5.83% 5.94%
This result is particularly impressive given that the Preservation of the generation balance average ratio is 3.7% in the Banking-Finance sector, and Even though the “generation agreement” was eliminated 3.4% in the private sector. by the Macron administration on 24 September 2017, in Promotion of gender equality 2019 all Crédit du Nord Group banks continued to apply A gender equality and diversity agreement has been in the provisions that had been negotiated under contracts place at all Crédit du Nord Group banks since 2004. or action plans (over three or four-year periods), calling The agreement of 24/01/2018 for fiscal years 2018- for commitments in three specific areas: 2019-2020 focuses on four categories of initiatives: – employment of persons over the age of 45; recruitment, career development, remuneration and – integration of young adults under the age of 26 in the job classification, each of which is linked to quantitative job market; progress targets that are monitored for the duration of the agreement. The Group has set aside a budget for – transmission of knowledge and skills. reducing any wage gaps every year since 2008. Each bank has notably established, over the period The remuneration of all Crédit du Nord Group of the action plan or agreement, the goal of recruiting employees, regardless of position, contains both a “senior” employees and young adults as well as the fixed and a variable portion. Remuneration is assessed continued employment of persons over the age of 55. each year by the remuneration panel, which refers to Recruitment of work-study participants and interns is the results of the annual professional performance thus a key objective, as work-study programmes are evaluation. one of the primary sources of permanent-contract hires Efforts to reduce wage gaps will need to focus going with recommendations (466 recruitments: 351 work- forward on the difference in executive pay between men study participants and 115 interns). and women, which stands at 13.6% (only 3.3% for non- Skills development and career management, executive staff). employability and retention levers Crédit du Nord Group’s “Etoile Plurielle” association for women executives is meant to be a forum for dialogue, Talent management sharing, transmission of experience and learning with the Each bank in the Group bank is committed to building aim of furthering their professional development. Seven strong individual ties with its employees and customers years after it was created, the association has nearly 550 alike, making them preferred partners in a lasting members from all the subsidiaries and regions where relationship of trust. Now more than ever, Crédit du the Group operates. Nearly 180 attended the General Nord Group is determined to support those who devote Meeting of 9 October 2018. their time and energy to exciting collective projects that create wealth, bonds and vitality in their regions.
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Employee engagement is essential. Guided by Training policy excellence in interpersonal relations, the Group helps A distinctive and individually tailored training support them acquire the expertise customers are looking for as system has been in place for many years at Crédit they pursue their career with the bank. du Nord, in order to facilitate the employee induction Employees take part in a job-specific acclimation process, support employees who are taking on new programme when they join the group. They also receive roles, and provide ongoing training to employees as they one-on-one managerial support on a daily basis, regular advance in their career through refresher courses. This training and follow-up with a Human Resources advisor. system is adapted to each employee’s experience and The Strategic Workforce Planning agreement signed on professional needs. 18 April 2018 illustrates this commitment. Opportunities It is reviewed annually, particularly in light of changes in for career advancement are multiple and varied thanks Crédit du Nord Group’s strategy, tools and processes, to the Group’s operations in the different regions and and regulations, and adjusted in order to better meet business sectors. the needs of employees and the requirements of the The annual evaluation reflects Crédit du Nord Group’s Group’s eight banks. strong determination to support each member of staff in developing his or her career and expertise. The The annual training plan is structured around annual evaluation also affirms Crédit du Nord Group’s the following key areas: determination to pursue a policy of managing skills and Career paths developing the talent of men and women in order to respond to the transformation of the Bank. 23 Career Paths were offered in Crédit du Nord Group in 2019 and a total of 1,200 to 1,400 persons were trained within the framework of these Career Paths. All members of permanent staff attend an individual Career Paths cover the most representative jobs in the performance and development assessment each year. Group’s organisation and are intended to provide the This face-to-face interview provides an opportunity for skills base required for the job in question. the manager and employee to discuss the employee’s These training courses are intended for all employees achievements during the year, performance, contribution transferring to the targeted job, either through internal to the success of the team, objectives and expectations mobility or external recruitment. For customer advisor for the coming year. Managers identify skills acquired, jobs, an advanced training session takes place one year review training needs, and therefore engage their staff after the “fundamental” career path training. in an active process for the development of their skills. Numerous teaching methods are used (in-class or The HR teams meet with all employees every 18-24 remote training, real life working situations, exchanges, months for a Professional Evaluation. During this HR etc.) and help strengthen participants’ sense of interview, employees can discuss their motivations, belonging to the Group. training needs and career development outlook in detail. Each year, the training department revisits each of these The recruitment rate for seniors increased from 8.7% career paths, in conjunction with all its internal partners in 2018 to 10.7% in 2019. Changes related to seniors (customer divisions, compliance division, etc.) to ensure (change in level, assignment or job during the year) it continues to fully satisfy the needs of employees increased by 21.1% from 2018 to 2019. transferring to a new position within the Group.
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Major training courses and training catalogue Training courses related to the regulatory environment Training is a lever to support employees in implementing The regulations that apply to the banking business call the strategy. Each customer division is therefore required for training to help employees learn and understand the to define “major” training courses that will be provided regulatory obligations and the associated tools. Training on defined jobs for the targeted year, with the training modules on regulatory issues are rolled out throughout department. the year, in an in-class or remote (E-learning) format.
1/ Insurance 98% of employees (registered headcount) participated in a remote training course culminating in a test in 2019 Insurance was a development priority in 2019, and and 100% of exposed persons (243 senior managers the related training courses were therefore important. and executive directors) attended a 2-hour in-class The training courses also fall within the scope of the training course in 2019. IDD (Insurance Distribution Directive) regulation, which provides for 15 hours of training per year for employees Availability of teaching resources who distribute insurance. The “Form@ction” intranet site enables each employee A programme combining in-class training (1 day) and to play a role in their training. An essential tool for remote training (equivalent of 7 hours) was introduced employee training courses, this site provides factsheets, for 2019, with implementation by job category. e-learning modules, videos, quizzes, etc., on technical topics (loans, savings, etc.), regulatory matters (MiFID II, 2/ Major training courses for the different markets (Individual, Professional, Corporate and Institutional AML, etc.) and behavioural issues (time management, customers) negotiation, etc.). Management: agile culture and appreciative Every month, nearly 7,000 employees in the Group log management. on (excluding regulatory training courses) and visit on average 3 modules. 3 / Training courses in the catalogue The percentage of employees taking at least one training In addition to these major training courses, internships in course during the year rose from 88.2% in 2018 to the training catalogue, for which requests are collected 87.8% in 2019. through the annual evaluation, enable training courses to be individualised. In addition to the collective training Road risk prevention: eco-driving training at a preferential policy, Crédit du Nord incorporates employees’ personal rate. needs through these registrations based on the training Training hours catalogue.
2017 2018 2019 2019 Training Total Crédit Total Crédit Total Crédit Banque Société (calculation base du Nord du Nord du Nord Crédit Banque Banque Banque Banque Rhône- Banque Marseillaise 1 day = 8 hours) Group Group Group du Nord Courtois Kolb Laydernier Nuger Alpes Tarneaud de Crédit Percentage of employees who took at least one course during the year* 83.8% 88.2% 87.8% 87.7% 92.3% 90.8% 91.2% 92.9% 91.6% 93.5% 87.4%
* The percentage is calculated based on the headcount for the year, not the headcount at end-December, training hours are counted by the company where the employees work and not by the entity that hired them. Training hours also include courses taken by work-study participants. Providing satisfactory working conditions.
336 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Social Responsibility (CSR) 6
A Social Compact primarily meeting family – for Crédit du Nord, a second telecommuting protection requirements agreement was signed in April 2018 (valid through It is critical to improve the recognition and visibility of December 2019), and all the regional banks signed employee benefits in order to adapt them to the largest their own telecommuting agreement. Overall, possible number of employees, changing needs and the nearly 310 Crédit du Nord Group employees and challenging economic environment. This global approach over 30 subsidiary employees work from home. forms Crédit du Nord Group’s Social Compact. The very positive feedback has contributed to the signature of a long-term agreement on this The Social Compact rests on 3 pillars, in line with the issue, which does a good job meeting employee family protection banking model: expectations. – Work (quality of life in the workplace, strategic – the Work@nywhere programme aims to workforce planning, separation of private/professional gradually provide Crédit du Nord’s employees life, new work cycles, telecommuting, mobility working outside the office with a laptop instead assistance, etc.); of their current workstation, while keeping their – Health (mutual health insurance/personal protection peripherals (screen, printer, scanner, etc.) for insurance, prevention of psychosocial risks, health maximum convenience. These new facilities and well-being in the workplace, etc.); provide employees with greater flexibility in terms – aid in building up Employer Value (improvement of professional organisation by optimising travel in employee home loan conditions, top-ups on and promote a better work/life balance. At the employee savings plans, pension funding aid, etc.). In end of 2018, 300 employees had already received 2019, employees received an exceptional payment to their company laptop, including 90 Corporate their PERCO (company pension plan) and the option CRMs (Nord de France and Société Marseillaise of monetising the days accumulated in their time de Crédit). At end-2019, 1,970 employees had savings account. received company laptops, i.e. 23.5% of the workforce; Moreover, since 1 June 2019, the “employer value” component of the Social Compact has resulted – prevention of psychosocial risks: Crédit du Nord in more advantageous conditions for home loans saw the unanimous signing of the agreement on and personal loans granted to employees. This Work-Life Balance and Prevention of Psychosocial proposal by the General Management received the Risks on 17 May 2017, set up a joint qualify of unanimous agreement of the representative trade union life in the workplace observatory, PSYFrance: an organisations at Crédit du Nord (SNB and CFDT) on experimental psychological support call centre (Crédit 28 May 2019, enabling the implementation of these du Nord and Banque Tarneaud) which supplements improvements from 1 June 2019. the existing partnership with the Occupational Risk intervention agency PREVENTIS, and distributed Quality of Life in the Workplace (QLW) aims to “Manager HR guidelines”; promote and develop a fulfilling and engaging working environment, one that encourages hard work and thus – changes to the Bank’s training offer: distance boosts the company’s collective performance. Several training, comprehensive training for existing managers QLW measures have been taken or are being considered and managerial training including measures to under the Social Compact, including in particular: support the Bank’s transformation and prevention of psychosocial risks; – establishment of new working and organisational conditions designed to better reconcile work and – manager awareness-raising focused on the work- home life (Crédit du Nord’s pilot programme for life balance improvements they can make on a daily telecommuting and the four-day work week, the right basis (work-life balance guidelines are provided to all to disconnect, new options for parents, digital portal managers at Rh.net and Form@ction). for personal care services, etc.);
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Additional work-life balance initiatives included: risks and improving the working conditions of employees through an ongoing, balanced employer-employee – Personal care services: access to the personal care dialogue. services platform, Yoopies at Work. 1,450 employees registered. Support for employees assisting Moreover, in 2014, Crédit du Nord Group’s Executive vulnerable loved ones due to illness, disability or Committee signed the charter of “15 Work-Life advanced age, through the “Responsage” platform. Balance commitments”, launched by the Ministry Initiative recognised at the SG Labels Life At Work of Social Affairs, Health and Women’s Rights and by award. Help for young parents by providing them with the Work-Life Balance and Corporate Parenthood an opportunity to obtain a place in a creche thanks to Observatory. Crédit du Nord Group recognises the the partnership with Babilou (for Crédit du Nord) and basic importance of balance between personal and La Maison Bleue (for the Regional Banks). In 2019, professional life, which ensures better quality of life in 58 places were allocated to Crédit du Nord and 38 the workplace and better performance for the company. places were allocated within the Regional Banks. It has undertaken to support and promote constructive behaviour (managers who set good examples, respect – Organic food: range of organic products and of the work-life balance, organisation of meetings, vegetarian dishes offered at the Paris Works Council proper use of e-mails) in the organisation of work and cafeteria; delivery of organic fruit and veggie baskets relations between managers and employees. to the Multimedia Expertise Centre.
– Sports activities: access to sport with no Working hours/new working methods and more commitment and at a special rate with Gymlib. This agile organisations service was tested out in 2019. If the experience is Since 2000, each Crédit du Nord Group bank has had positive and results in numerous employees becoming its own agreement on the reduction and organisation members, it could be extended. 500 subscribers at of working hours, which provides for basic annualised Crédit du Nord. A pilot “Corporate Yoga” programme working time of 39 hours per week. for the teams of the Multimedia Expertise Centre and the Execution and Requisitions Department of the Since 2015, there have been two main work cycles: a Nord de France region and Banque Courtois. 39-hour work week and a 37.5-hour work week to meet the main organisational needs of the head offices and The Quality of Life in the Workplace Observatory has branches. At Crédit du Nord, there is an additional work met regularly since it was established by Crédit du Nord cycle of 36 hours over four days. An agreement has also in 2016. The QLW Observatory is a joint committee been signed with the unions on shift work. In 2016, the comprised of Management, the occupational physician other Crédit du Nord Group banks also implemented this of the Paris institution, and representatives of the trade third work cycle. unions. It is responsible for monitoring aforementioned QLW agreement and in general, through its work, for In 2019, the percentage of part-time employees rose to promoting quality of life at work, preventing psychosocial 9.5% (versus 9.1% in 2018) with the implementation of the new 90% cycle.
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Moreover, the rules of the Time Savings Account were relaxed in 2018.
2017 2018 2019 2019 Total Crédit Total Crédit Total Crédit Banque Société du Nord du Nord du Nord Crédit Banque Banque Banque Banque Rhône- Banque Marseillaise Group Group Group du Nord Courtois Kolb Laydernier Nuger Alpes Tarneaud de Crédit Percentage of part- time employees (*) 8.60% 9.1% 9.5% 10.4% 10.2% 10.6% 12.3% 11.0% 12% 7.9% 5.0%
(*) Employees counted by their hiring entity - excluding work-study participants and interns.
Absenteeism The rate of absenteeism at Credit du Nord Group reflects the composition of the employee population: close to 1/3 of total days of absence were due to maternity leave. At around 8%, the rate was stable compared to the previous year.
2017 2018 2019 2019 Absenteeism (*) Total Crédit Total Crédit Total Crédit Banque Société (in numbers of du Nord du Nord du Nord Crédit Banque Banque Banque Banque Rhône- Banque Marseillaise working days) Group Group Group du Nord Courtois Kolb Laydernier Nuger Alpes Tarneaud de Crédit Paid absenteeism rate 8.0% 7.9% 7.8% 8% 7.2% 7.6% 6% 4.3% 7.4% 6% 8.9%
(*) Calculation based on calendar days for fixed-term/permanent contract employees counted by their work entity at 31/12 and not by the hiring entity. Excluding work-study participants and interns. (**) As of 2017, Societe Generale employees seconded to the 8 Crédit du Nord Group banks are included.
Crédit du Nord, and the regional banks, took advantage The eight banks belonging to Crédit du Nord Group of 2019 to: have elected employee representatives that sit on their – negotiate company agreements on the exercise Board of Directors or Supervisory Board. of social and trade union rights resulting from the The SEC of each bank or region where Crédit du Nord Macron administration with regard to Employee operates, has taken over the responsibilities of the Representative Bodies; former Employee Representative Bodies which were – negotiate pre-election agreements prior to the assumed by employee delegates, the Regional Works organisation of staff representative elections; Councils, the Works Councils of the regional banks and the Occupational Health and Safety Committees. – organise staff representative elections via electronic These SECs are consulted for all matters concerning the voting in all the Group’s entities; general running of establishments and the company in – set up the Social and Economic Committee (SEC) at question. They also manage social and cultural activities the level of each bank and region where the Group for staff. operates, not forgetting the Central SEC for Crédit du The Central Social and Economic Committee (CSEC) of Nord parent company. Crédit du Nord parent company has a new Occupational At each Crédit du Nord Group bank, social dialogue is Health and Safety Committee (Central OHSC). a based on a process of exchanges and consultation Union representation continues to be provided by union between employer and employee representatives on representatives within the SECs. The national or central issues relating to the company’s economic and social union delegates participate in collective bargaining. policy. Applied at a Group-wide or individual bank or regional level, it can take various forms, from the simple exchange of information to consultation and negotiations with a view to signing an agreement.
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Promoting employee engagement and involving employees in citizen initiatives
Skills sponsorship and “Printemps solidaire” (solidarity spring)
Several initiatives are in place to encourage employees to get involved in a humanitarian cause: – Skills sponsorship in partnership with Unis-Cités, a pioneering civic service association in France. Since 2017, 75 Paris employees have taken part in coaching initiatives; – “Printemps solidaire” (solidarity spring) event: “Solidarity Day” for the benefit of a local association.
Division/ Number of First “printemps solidaire” event Local associations subsidiary employees
First day: restoring the premises of an emergency Head Office accommodation site. Second day: raising young people’s Respectively, Coallia and Veni Verdi 33 division awareness of the environment and nature Société Provence Durable and the Pure Ocean Marseillaise Collecting 35 kg of waste on the Frioul Islands 35 foundation de Crédit Banque Collecting more than 3 m² of waste on the banks Office International de l’Eau and Syndicat 20 Tarneaud of one of the branches of the river Vienne d’Aménagement du Bassin de la Vienne Action to preserve the ecosystem by the Banque Clearing a plot of land Conservatoire d’Espaces Naturels de 20 Laydernier Haute-Savoie (ASTERS) Luchon Aneto Trail: 750 km travelled with 2 secondary Banque school students carried in a “joëlette” trekking chair for Comité Handisport 31 30 Courtois persons with reduced mobility TOTAL 138 (32 MAN-DAYS)
CSR initiatives to raise awareness of sustainable – Launch of the 1st CSR quiz in February 2019 for development all employees of the CDN Group. The aim was to assess employees’ knowledge of Corporate Social – As of 2018, the CSR Team offers conferences and Responsibility and to strengthen the CSR culture and practical workshops to train and raise awareness of position of Crédit du Nord Group: Crédit du Nord employees in Paris of the Group’s CSR policy. – 22% of participants in this non-compulsory and non-challenging quiz (i.e. nearly 2,000 employees); Examples in 2019 – an average score of 11.9/20; – Food waste and the HopHopFood app, eco- consumption and smoothie party with PikPik – 6 out of 20 questions where the percentage of Environnement, “climate collage” event at the 1st CSR correct answers was below the average. seminar for regional/subsidiary CSR correspondents, circular economy on the recycling of coffee grounds with UPCYCLE/La Boîte à Champignons, “collecting bottle caps” with the association “Les Bouchons de l’Espoir”…
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Employee Survey 6.3.2.4 Customer satisfaction Crédit du Nord Group places great importance on Crédit du Nord Group continuously strives to satisfy its promoting lasting relationships with its employees as customers by providing quality service and advice, and part of a commitment to mutual development in an notably by developing a range of products and services environment favouring both individual and collective tailored to their needs. well-being. To assess the internal climate at Crédit du The Multimedia Expertise Centre (with its various Nord Group over time, Management decided in 2005 services: Etoile Direct, Etoile Direct Bourse, Etoile Direct to conduct an employee survey, similar to the one Pro, available 24/7) connects customers with an advisor, conducted for the last several years with its customers. from France or abroad, at extended hours (compared to The survey is performed every year and Management a branch). has undertaken to post the results for all employees. Since November 2018 and as part of the Agir 3.0 Once the results are posted at Group level, the regional project, this centre has been operating a pilot scheme Management Committees and Functional Divisions then among 6,500 customers of Banque Courtois and carefully analyse their own results in order to prepare Banque Nuger to address the issue of our customers specific action plans if necessary. These action plans with simple, day-to-day banking needs. The scheme are shared with employees using different channels. The aims to offer these customers a new relationship survey is conducted with the help of survey firm BVA experience with their bank, practices more in keeping (previously Ipsos Loyalty), ensuring the confidentiality of with their profiles and projects, for increased satisfaction. each employee’s answers. Furthermore, the company Customers keep their account number. However, they does not know which employees participated in the no longer have a dedicated branch advisor. The Etoile survey. All employee surveys conducted by BVA Direct service becomes their dedicated contact point for (previously Ipsos Loyalty) comply with GDPR standards the purpose of managing their account, in addition to in force. the functions offered on the Internet (app and sites). Only Their purpose is to obtain opinions covering 4 areas: the processing of a few transactions (in particular cash engagement, working conditions and managerial transactions), requiring a personal presence, remains in practices, well-being in the workplace, and ethical the branch. behaviour… The 2019 survey took place in September Crédit du Nord Group also offers the possibility of using and resulted in a participation rate for Crédit du Nord a branch that operates entirely online, Nordirect. Group of 77%. The large number of participants testifies to the Group’s value as an employer, and ensures that Accounts can be accessed at any time via the Internet, the results are statistically accurate and representative of mobile phone and tablet (account balances, internal and employee opinion. external credit transfers, nearest ATM location, savings and loan simulators, etc.). The overall take-away is positive, underscoring the loyalty and engagement of Crédit du Nord employees and the trust they place in their local managers.
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Customer Satisfaction
INDIVIDUALS PRIVATE BANKING PROFESSIONALS COMPANIES
75 % 2 74 % ND 70 % 5 77 % 1 OVERALL SATISFACTION
Because our customers’ expectations change, new Digitalisation of the complaints procedure methods for listening to the customer have been A new process has been implemented on the website introduced in order to continuously oversee customer of each of the banks in order to improve the complaints satisfaction, either through a questionnaire, or using a procedure. button from their management tools remotely. This new channel is currently being tested among customers of Measures in favour of consumer health and Banque Rhône Alpes. safety Crédit du Nord Group sets very high standards in Complaints and mediation the conduct of its business, particularly in terms of The number of complaints processed fell 4% year-on- customer satisfaction, the pace of business, fair pricing, year in 2018. The average processing time is 20 days synergies between markets and the expansion of the (within the regulatory timeframe of 60 days) (statistics range of products and services (especially multi-channel excluding mediation). offerings). Straightforward requests that can be handled within the It aims to provide a courteous and respectful service to day are addressed by dual-market branches. Through borrowers at all stages of the credit cycle, from approval the “Virement satisfaction” procedure, legitimate rebates to final repayment. This applies to consumer credit and can be offered under certain authorisation conditions. home loans for individual customers. The Customer Relations Divisions of the eight regional In the interest of consumer protection, Crédit du banks and/or Crédit du Nord’s Consumer Department Nord Group’s staff do not receive any fee-for-service handle more complex cases. remuneration (commission), which increases the If customers are not satisfied with the response, they impartiality of the advice given to customers. may contact the Mediator free of charge. Since 2005, the 8 Crédit du Nord Group banks have The free mediation services established by Crédit du offered a range of alternative payment solutions to Nord Group, which are intended to arrange an out- their customers without chequebooks (offer open to all of-court solution to disputes, are widely publicised by customers but they have to give up their chequebooks the bank including through information provided on the when they sign up). back of all account statements. All 8 Crédit du Nord For customers with a serious health risk, Crédit du Nord Group banks have undertaken to comply in full with Group offers products and services under the terms of all decisions taken by the independent mediator (Yves the AERAS agreement (s’Assurer et Emprunter avec un Gerard). Risque Aggravé de Santé).
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For customers interested in taking out a home loan, Since mid-2019, it has been possible to temporarily in accordance with the Order of 25 March 2016, lock/unlock cards, in real time, remotely in order to limit the eight banks of Crédit du Nord Group prepare a their use, if the card is thought to have been lost. personalised, standardised factsheet to help customers This new functionality is available: better compare the different loan offers. All eight banks – for customers on all terminals: websites and mobile, are committed to providing appropriate explanations mobile applications and tablets; throughout the credit application process, and perform an extensive check of the borrower’s solvency prior to – for advisors in the workstation via the link “Temporary lending. limits (in real time) and other functionalities”, offered at the level of a card’s features. Since 2016, in light of the many controversies associated with the organic compound “Bisphenol A”, It supplements the services already offered in the Crédit du Nord Group has decided to supply all of its “Cards” menu of our online banking services (contactless ATMs with new Bisphenol A-free paper despite the cost management, temporary increase in limits, cancellation). increase incurred. This decision was a precautionary measure aimed at protecting the Group’s customers and employees.
6.3.3 Showing solidarity with the regions
Crédit du Nord Group is a local regional bank and as – reduces its environmental footprint by choosing such actively contributes to the economic momentum of (among products/services of equal quality) products the regions, focusing in particular on helping customers or services that are better for the environment; make the energy and digital transition as drivers of the – promotes Corporate Social Responsibility (CSR) by third industrial revolution. prioritising suppliers and providers which, like Crédit du Nord Group, are committed to making progress 6.3.3.1 Responsible sourcing policy aimed at improving the Group’s regional in this area. and environmental footprint The Group’s responsible sourcing policy complies with Crédit du Nord Group’s responsible sourcing policy is a the normative requirements set by Societe Generale major component of its Corporate Social Responsibility. Group, as described in the “Conduct of responsible In purchasing goods and services, Crédit du Nord Group sourcing and rules of ethics applicable to sourcing” directly or indirectly: instruction. – supports the local regional economy, by using local This policy also meets the “obligation of due diligence VSEs/SMEs in a bid to maintain a tight-knit network; of parent companies and contracting companies” (French Act No. 2017-399 of 21 February 2017), which – contributes to the professional integration of requires the Group to prevent risks to the environment, persons struggling to find work, by using professional human rights and corruption in its own activities and in integration companies, and particularly companies those of its sub-contractors and suppliers in France and employing disabled persons; abroad. Lastly, it helps the Group guard against image and reputational risk liable to be caused by its relations with suppliers.
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Non-financial supplier assessment A list of services likely to be provided by these In accordance with its obligation of due diligence, Crédit companies has been published and is available on the du Nord Group requires its sourcing managers to use a intranet. supplier assessment form to evaluate (above a given Example: for the printing of the Convention Etoile revenue threshold): brochures, the assembly and insertion of slides was – the risks associated with starting a business carried out by ICCUB at Fleury-Merogis (reintegration of relationship with a potential supplier: economic risk people in prison). 55 persons worked on this project. (related to the supplier’s financial situation), financial 15 persons also worked on the mailing campaign which crime risk and reputational risk; was sent to 130,000 customers, by manually inserting the brochure in the cardboard envelope and applying – the supplier’s level of ethical commitment, in terms of the label. business ethics and prevention of corruption; – compliance with the Group’s environmental and social Local sourcing policies; and Whenever appropriate, the Group’s responsible sourcing – the supplier’s level of commitment to managing and policy encourages the use of local suppliers and improving the social, societal and environmental providers (at the regional level, or focused on a specific impacts of its activities. The gradual implementation city or smaller area) to obtain certain goods and services of supplier assessments only pertains to companies purchased by the regions and subsidiaries of Crédit du with more than 50 employees. Nord Group. Local sourcing aims to: CSR clause – contribute to the vitality of the local economic Furthermore, as of 2018 a CSR clause is included in landscape and maintain employment; all new sourcing contracts and partnership agreements. – support local VSEs/SMEs; CSR criteria will also be added to the rating system used – reduce the environmental impacts generated by the for RFPs. transportation of people and/or merchandise. Of course, giving priority to local suppliers and providers does not absolve Group entities from observing the Use of companies employing disabled persons other principles and rules of the responsible sourcing The Group works with companies that employ disabled policy. In particular, this choice cannot be made to the workers in order to promote the professional integration detriment of: of persons struggling to find work due to their disability. – open and fair competition among potential suppliers, Determined to promote the employment of persons and fairness and transparency of the selection struggling to find work and/or in precarious situations, process; the Group calls on companies employing disabled – a better offer from an economic, social and workers whenever possible for certain services; Banque environmental standpoint; Tarneaud, for example, uses them for laundry services – observation of due diligence in terms of the economic, and external maintenance of its branches. social and environmental practices of suppliers; – use of companies employing disabled persons or social and solidarity-oriented companies whenever possible. To this end, a list of sourcing areas eligible for local sourcing has been drawn up.
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Responsible Sourcing Charter designed for organisations calling on the generosity of On 6 September 2018, Françoise MERCADAL the public, such as associations, museums, hospitals, DELASSALLES, Chief Executive Officer of Crédit du foundations, research institutes, etc. Nord Group, signed the Societe Generale Group This partnership is part of a global approach to Sustainable Sourcing Charter on behalf of the eight innovation and reliance on trusted external parties to Crédit du Nord Group banks and for subsidiaries Gilbert expand the bank’s customer service offer. Dupont, Norbail Immobilier and Starlease. Through For several years, the Professional Customers market the signing of this charter, all 11 entities are required has been building partnerships aimed at supporting to observe and implement this policy: https://www. the development of its customers, by gaining a better societegenerale.com/sites/default/files/2018/charte- understanding of their needs, acquiring real professional achats-responsables_fr_0.pdf expertise and putting out special, customised or Concretely, they are required to: innovative offers: – include a CSR clause referring to the Charter in all – Examples: French Union for Oral and Dental Hygiene new supplier contracts and in all new RFPs; (2015), the official union for the dental industry for 50 – assess the Environmental and Social (E&S) years, representing 38,000 dental professionals. Its performances and risks of suppliers for all sourcing commitment in the field to the general public makes it contracts of €50,000 or more. a key player in the promotion of dental and oral health (raising children’s awareness, working at centres The objective, affirmed by the Sustainable Sourcing for disabled persons and centres for socially and Charter, is to ensure that purchases and partnerships economically vulnerable persons, providing education are conducted ethically. The principles of responsible at training centres for apprentices, performing sourcing are set out in Societe Generale’s instruction on dental screenings, etc.); Bpifrance (2015), with the the “conduct of responsible sourcing and rules of ethics signature of an agreement on delegating authority for applicable to sourcing”. decisions on guarantees in order to make it easier All purchases shall be made in a climate of mutual for professional, VSE and SME customers to obtain trust in order to ensure a constructive and balanced funding. With this agreement, the eight Crédit du dialogue between both parties; the winning bid is the Nord Group banks will benefit from the Bpifrance most attractive offer from an economic, social and guarantee in the best possible conditions. This new environmental standpoint. partnership is just one of the many efforts undertaken by Crédit du Nord Group banks to finance the local 6.3.3.2 Support for regional economic economy, allowing them to be increasingly proactive development in supporting their customers at each stage in the life As a local regional bank, a trusted intermediary in of their business; payments, investments and financing, a contributor to job creation and preservation, and a partner of creation Examples of non-banking services since 2019: and innovation, Crédit du Nord Group is dedicated – Online legal advice (Captain Contrat); automatic to supporting regional craftsmen, entrepreneurs and creation of a customised showcase site (Simplebo companies throughout their lives and business cycle. start-up dedicated to independent, small and medium-sized companies). This new partnership Development of new partnerships strengthens the Group’s open banking approach. In addition to its range of products and services for – To support the teams in the network in the associations and institutional organisations, the Bank presentation of the products and services resulting wants to help its customers make the digital transition from the enhanced offering, in May 2019, the Group and develop their fund-raising activities. The iRaiser launched the Partners site, providing a platform of online donation platform (a European leader in online both banking and non-banking services. Partnerships donations in the non-profit sector) is specifically are also classified by area of need.
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– Under the development strategy targeting Support for the development of franchise- Independent Medical Workers, a stand-out offer of holders payment protection insurance on business loans A Franchise and Associated Trade division supports and finance leases was launched in December 2018 the business development of the networks and their (AON-SWISS LIFE); franchise-holders. – An “Objectif Import Export” website provides a wide It holds regular meetings with franchisers and major range of services and information on international stakeholders in organised networks so that it can trade free of charge to all corporate customers in the better meet franchisee expectations, whether through regions to help companies win new markets; the national structure or through a dedicated advisor In addition, our offering has been expanded with new who knows the local market and monitors projects at solutions in order to support companies in their every step of the process while suggesting the most digital transformation project: appropriate financing. This advisor is also the main contact who advises the franchisee both professionally – Examples: with our partner Expensya, companies and privately, with the help of a Wealth Management can dematerialise the management of their expense CRM. reports and digitally archive them; with Clic&Pay by Crédit du Nord Group, 3 online card payment In 2019, Crédit du Nord Group took part in the Franchise solutions are available. trade fair in Paris for the eighth year in a row, and the Head of Franchise and Trade led two workshops. Since 2018, Crédit du Nord has been actively supporting innovative SMEs and ISEs in France as Crédit du Nord Group also continued its partnership with a result of the agreement signed with the European the FFF (French Franchise Federation) via the “Toute la Investment Fund (InnovFin guarantee). Franchise” directory and participation in the 16 regional conferences organised for the “Running a Franchise” Likewise, 2019 saw the continuation of the programme. For the second year in a row, Banque partnership established in 2018 with FIZEN, a Rhône-Alpes attended the Franchise Forum in Lyon. veritable tool for generating synergies between clients and their accountants, helping executive managers With its quality charter and “48h commitment”, the oversee their business online while saving time, Group promises to meet with the applicant franchisee. money and aggravation; With their extensive knowledge of the local economic – The Wealth Management, Asset Management and landscape, the eight Crédit du Nord Group banks are Private Banking division of Crédit du Nord Group fully committed to franchise development. Their close relies on experts to offer customers of its Regions and relations with customers and other regional players put Regional Banks conferences as well as round tables them in a position to make entrepreneurial plans a reality followed by Q&A sessions. and participate in the financing of the regional economy. Crédit du Nord Group undertakes many initiatives aimed Support for SME/ISE directors at strengthening ties with the local business community. Accordingly, Asset Management participates in Crédit du Nord Corporate Finance boasts a entrepreneur briefings (“Rendez-vous de l’Entrepreneur”) dedicated, specialised team that works with the regions organised by the Lille branch of MEDEF, where it and regional banks to meet the needs of the leaders and presents an overview of macroeconomic developments shareholders of small- to medium-sized family-owned and financial market trends. businesses in terms of financing growth and structuring and transferring their capital. The transactions carried out by Crédit du Nord Corporate Finance are intended to maximise the assets of the shareholders of these companies.
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Expertise in equity transactions: The goals of the study were 1) to communicate on this – M&A Advisory; footprint, based on objective and verifiable data, and 2) to identify ways to improve this footprint and enrich the – private equity; regions. – structured financing. Banque Rhône-Alpes was the first to test this approach with the help of the Footprint® methodology employed Measurement of BRA’s socioeconomic footprint by Utopies, based on data for fiscal year 2017. In October 2018, Crédit du Nord Group launched a At a time when the regions in France are at the centre study aimed at measuring the local socioeconomic of economic, energy and social transition, the teams of footprint of Banque Rhône-Alpes in order to better Banque Rhône-Alpes are convinced of their key role in understand the impacts of its activity on the local local development and supporting entrepreneurs. economy, and whose results were finalised at the end of the first quarter of 2019.
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Branch accessibility – recruitment website designed using FACIL’ITI for The Group is committed to making its services available the browsing comfort of persons with vision, cognitive to disabled customers. or motor impairments, virtual audible keyboards for blind or vision-impaired customers; Examples: – the ELIOZ system, managed in the Multimedia – adapting its facilities and providing user-friendly Expertise Centre and introduced in 2018, is applications: access to ATMs; accessible on each bank’s website. It puts deaf – disability-friendly branches; and hearing-impaired persons in contact with an interpreter.
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In 2015, all eight banks filed their Disability Access Plan (DAP):
Société Crédit du Banque Banque Banque Banque Banque Banque Marseillaise DAP filed in 2015 Nord Courtois Kolb Laydernier Nuger Rhône-Alpes Tarneaud de Crédit 2016 37 13 - 5 - 5 3 11 2017 28 10 - 4 -629 2018 21 11 - 3 - 5 2 16 2019 13 2 - 1 - - - 8 2020 13 - - 9 2021 24 - - 7
Société Rate of compliance Crédit du Crédit Banque Banque Banque Banque Banque Banque Marseillaise reported Nord Group du Nord Courtois Kolb Laydernier Nuger Rhône-Alpes Tarneaud de Crédit NO: 91.4% 2019 93.7% NDF: 93% 93.1% 100% 97.7% 100% 96% 100% 93% IDF: 73% NO 97.90% 2018 89.2% NDF 91.70% 94.90% 100% 97.60% 100% 92.80% 85.50% 98.40% IDF 66.10%
DRIF = Ile de France and Loiret, NM = Nord Métropole, NO = Nord Ouest, PDN = Provinces du Nord.
Crédit du Nord Group is working to gradually make all 6.3.3.3 Societal engagement branches disability-friendly and comply with standards, pursuant to the Act of 11 February 2005 on equal Sponsorship policy in accordance with the rights and opportunities, participation and citizenship of Group’s values persons with disabilities. Encouraging engagement in a bid to bring a little more At end-2019, the compliance rate of Crédit du Nord soul to the business and pride to the employees: such branches stood at 93.7%. is the goal of the sponsorship policy aimed at expanding contributions to society under the Group’s CSR policy. To this end, the Communication Division has defined The goal is to reach 100% by 2021 in accordance with three strategic areas: the Disability Access Plan. – the fight against childhood cancer; – youth integration; – cultural initiatives.
2017 2018 2019 2019 Total Crédit Total Crédit Total Crédit Banque Société du Nord du Nord du Nord Crédit du Banque Banque Banque Banque Rhône- Banque Marseillaise Group Group Group Nord Courtois Kolb Laydernier Nuger Alpes Tarneaud de Crédit Sponsorship, patronage, 2,341,527 donations (€) 2,807,922 2,302,098 (+1.7%) 400,000 847,170 54,650 66,952 109,876 305,310 268,939 288,630
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Sponsorship initiatives and partnerships in 2019 The main sponsorship initiatives conducted by Crédit du Nord Group in Paris and nationwide are:
THE FIGHT AGAINST YOUTH CHILDHOOD CANCER INTEGRATION CULTURAL INITIATIVES CROSS-SPONSORSHIP – Through its – The partnership – In 2019, we were – Since 2015, Crédit du longstanding support in favour of Unis a sponsor of the Nord has carried out an of Imagine for Margo, Cité, an association first “Immersive Art unprecedented cross- an association that that pioneers civic Festival” organised by sponsorship programme has collected funds initiatives in France Culturespaces at the with the “Imagine for Margo” since 2011 for gives employees Atelier des Lumières. association and the Musée European research on an opportunity The Festival was an d’Orsay. Each year, the special treatments of to volunteer one opportunity for 15 digital museum invites four children paediatric cancer. workday per artist collectives to with cancer and their families year for the skills compete for the first time to tour the collections, and – Each year, employees sponsorship within a festival context. organises 20 plastic arts from across the Group programme. workshops in the Paediatric rally to support this – Crédit du Nord is also and Juvenile Cancer ward of cause by participating – Since 2017, more a Major Sponsor of the Gustave Roussy hospital. in the “Children without than 100 Paris Musée d’Orsay, the Musée Cancer” race: 56 took employees have de l’Orangerie and the – Since 2018, Crédit du part in the very first taken part in Musée Jacquemart-André, Nord has set up a cultural race in 2012 and 224 coaching initiatives and is a member of the experience for Unis Cité in 2019. for Unis Cité youth, Cercle de l’Odéon. It also youth with three of its cultural including 27 in 2019. fully funded the restoration partners. Ten children were of the rotunda in the lobby able to attend a performance of the Opéra Comique. at the Odéon-Théâtre de l’Europe, ten more a performance at the Opéra Comique, and ten more toured the Impressionists Gallery at the Musée d’Orsay.
Regional/Subsidiary sponsorship initiatives included:
Financial support for the nomination of the Chaîne des Puys-Faille de Limagne Banque Nuger as a UNESCO World Heritage Site – Principal sponsor of the Théâtre des Célestins in Lyon Banque Rhône-Alpes – Fondation Banque Rhône-Alpes (BRA) for pain relief in sick children
Financial support for the Roque d’Anthéron piano festival (for 36 years running) SMC
A partner of the “Tous repreneurs” association since 2018, Banque Kolb renewed this sponsorship in 2019. “Tous repreneurs” focuses on detecting talented entrepreneurs/buyers, training and coaching them until they are Banque Kolb put in touch with business owners interested in selling their company.
Charitable structured product for Margo” and “Les Compagnons du Devoir et du Tour Loyal to its constant sponsorship policy for more than de France”. 30 years, centred on culture, sports and society, Crédit The minimum was largely exceeded, with €70 million du Nord Group wanted to offer a financial product collected for this product (i.e. €35,000 per association), embodying this spirit. with the aim of contributing to the funding of the At end-2018, the Private Banking division launched concrete charitable projects carried out daily by these a charitable financial product called “Onyx Partage”, associations. in favour of associations. In 2018, the two beneficiary This philanthropic initiative will be renewed in 2020. associations selected by private bankers were “Imagine
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6.3.4 Supporting the energy transition
6.3.4.1 Development of sustainable, – Environmental criteria: analysis of how well positive-impact finance companies manage their direct and indirect impacts on the environment, such as limiting their energy Assessment of “CSR risks/opportunities” by the consumption or reducing GHG emissions, etc.; Product Committee – Social criteria: measurement of the strategies Each division submits any new product, project, undertaken by companies to develop their human business or activity to a Product Committee chaired by capital (career management, training, equality, the Risk Division. diversity, etc.) and respect human rights; Before going to market, the committee makes sure – Governance criteria: analysis of how companies that all associated risks and opportunities have been incorporate all of their stakeholders (shareholders, identified, using an analysis chart. It notably ensures that employees, customers, suppliers, etc.) in the a product’s social and/or environmental impacts achievement of long-term goals. have been identified, and takes them into account in approving a product launch. In 2018, the Amundi Green Bonds fund was added to its range for certain customer segments, in addition to Since 2018, in addition to reputational risk and supplier the sustainable development fund Etoile Développement risk (reputation, governance, non-financial performance), Durable. It aims to participate in the energy transition the analysis chart has been expanded to include CSR by investing in the shares of European companies risks/opportunities, primarily based on: meeting environmental objectives by developing “green” – negative/positive socio-economic impact: technologies. employment, gender equality, non-discrimination, Promotion of Capital Protection on asset management health and safety, destruction of assets, etc.; sites under “Our financial management range” or “Our – positive/negative environmental impact: use of financial investment range” is a new phenomenon. resources, non-recyclable waste, air pollution, noise or visual pollution, etc. These CSR criteria are included in Sourcing procedure CAPITAL ESG PROTECTION requirements. CRITERIA
Socially Responsible Investment and ESR (Employee Savings and Retirement) This information is presented in the “Our financial Crédit du Nord prioritises funds that meet the specific investment range” guide for corporate and institutional characteristics of SRI and thus raise customer customers. awareness of these funds. – Capital protection: “the capital protection rate is Different approaches are examined, notably the valuation indicated in the Key Investor Information Document of a company based on E&S criteria or the exclusion of (KIID)”. certain sectors or companies. – ESG criteria: “thematic investment in companies Socially Responsible Investment deals with the meeting Environmental, Social and/or Governance behaviour of corporations in the Environmental, Social criteria. For more information, see the Key Investor and Governance (ESG) fields: Information Document (KIID)”.
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Employee savings - solidarity-based SRI Green finance In an effort to help employees build up their savings, Wind power, solar PV power and hydropower Crédit du Nord Group offers its customers opportunities to invest in different FCPEs (company mutual funds), Crédit du Nord has a team that focuses exclusively on including six qualifying for SRI (Socially Responsible project finance, particularly in the fields of wind power, Investment) certification by the CIES (Interunion solar PV power and hydropower, and offers bespoke Committee for Employee Savings): Amundi Label financing solutions, either via conventional loans under Equilibre Solidaire ESR, Amundi Label Obligataire ESR, the Crédit du Nord brand or finance leases through its Arcancia Actions Ethique & Solidaire, Amundi Label subsidiary Norbail Sofergie. The team is renowned for its Actions Solidaire ESR, Amundi Label Actions Euroland expertise in serving the customers of the Crédit du Nord ESR, Amundi Label Harmonie Solidaire ESR (Employee Group network and operates mainly as an arranger. Savings and Retirement). It should be noted that Crédit du Nord is a signatory For more information, see the Key Investor Information of the Equator Principles, which serve as a common Document (KIID) on the website: www.pee.credit-du- framework for the financial industry for the purpose nord.fr. of identifying, assessing and managing the E&S risks associated with funded projects.
Green finance increased 20% from 2018 to 2019 (+40% compared to 2017).
(in euros) 2017 2018 2019 Funding of wind farms 8,035,000 - 7,900,000
Funding of solar PV power plants 34,798,022 46,544,800 63,937,764 Funding of other renewable energy power plants (SMC public compressed natural gas station with natural gas used to fuel vehicles) 9,918,768 4,850,000 669,000 Funding of an energy efficiency improvement plan - 10,438,200 - Funding of a public transport project - - 1,486,047.10 TOTAL 52,751,790 61,833,000 73,992,811 +20% % increase - +17% (+40% vs. 2017)
Example: Funding for the construction of the Ker Park 2 to be 15 GWh, i.e. the equivalent annual electricity solar power plant for Générale du Solaire which is part consumption of approximately 5,080 households. of a general site renovation project that will revitalise For the first time, pure players (specialised in the town of Blajan. This power plant will help prevent renewable energy) eligible for green finance have been the emission on average of 215.7 to 621.7 g CO2 eq/ documented (they are not included in the amount of kWh, depending on the calculation methods. The energy green finance reported on the previous page): payback time of this plant is estimated at 3.5 years – Nord de France: Innovent; (i.e. the ratio between the total energy used during its manufacture, transportation, installation and recycling – SMC: Urbasolar, VSB EN; compared with the power produced annually). With a life – DGR: Akuo, Générale du Solaire, SUN’R, Neoen, of around 30 years, this power plant will therefore repay Photosol, Prosolia. its energy debt 8.5 times. Annual production is expected
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Financing of the healthcare/hospital sector - geographical area; voice biometrics to replace Starlease the password in order to access accounts; a – €3.707 m of new finance lease business (26 items of coaching tool for telephone interviews; intelligent equipment) - STAR LEASE. assistant (chatbot) to make appointments; pop-up digital acculturation workshops in branches in – Norbail Immobilier manages over ten real estate partnership with our partner LeChaudron.io… all financing deals in the healthcare and hospital initiatives that promote its approach based on a “test sector totalling more than €10.1 million. & learn” method. Financing of social housing and nursing homes – The ECONOCOM offer (New Product Committee 17/07/2019) provides an energy diagnosis of sites (in €m) 2019 and installations (advice), automated management Financing of social housing 185 of energy bills, project management assistance, the Financing of nursing homes 188 financing of work, etc. TOTAL 373 – Green & Energy: energy transformation (lighting, heating, ventilation, air conditioning, solar, 6.3.4.2 Green product and service offers photovoltaic) with an immediate return on investment. – Crédit du Nord Group has signed a partnership Financing of a hybrid or electric vehicle agreement with Lumo, a pioneering participatory Etoile Express (Individual Customer Market) financing platform supporting the energy administration fees are now offered and a preferential transition. It enables individuals and companies to auto insurance rate is provided in order to facilitate the optimise their savings by co-financing infrastructure acquisition of clean vehicles. projects for the production of renewable energy (wind, Operational leasing offered by ALD Automotive, a photovoltaic, hydropower, etc.) that contribute to the 100% subsidiary of Societe Generale: under the Social development of local economic wealth. With Compact, a preferential offer is provided on private the support of the eight regional banks of Crédit du operational leasing with our partner ALD Automotive. Nord Group, Lumo is able to increase its distribution capacity across France. Supporting the energy and digital transition of With this partnership, Crédit du Nord Group expands enterprising customers its positive-impact finance offering by providing its Examples: Individual customers with a local, meaningful and – Crédit du Nord Group has continued with innovative differentiating investment solution to diversify their experiments to test new approaches: internal savings. It is fully in keeping with the Group’s open development of a BlueBox, an artificial intelligence banking approach aimed at providing its customers tool that aggregates different data on a specific with an innovative offering of banking or non-banking products and services, tailored to their needs.
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6.3.4.3 Internal environmental policy to improve environmental efficiency and reduce the carbon footprint
In keeping with the three pillars of the Group’s banking purchases as much renewable energy-sourced electricity model (regional presence, relationship-building and as it sells and distributes to clients; of course, this does customer satisfaction) which are now more relevant not guarantee the provenance of the electrons used, than ever and help to set us apart, Crédit du Nord aims since all electrons are combined in the ENEDIS network to reduce the environmental footprint of its internal that serves all energy producers and consumers. operations. However, as of 1 September 2019, all French Retail Crédit du Nord Group’s environmental policy strives to Banking branches (SG+CDN) under contract with EDF meet three major objectives: and ENGIE will be supplied with renewable energy- sourced electricity (European or French hydropower), – to reduce and minimise the direct and indirect impact i.e. 96% of network sites including 727 branches of the of its activities on the environment; Crédit du Nord Group. – to reduce natural resource and energy consumption through careful and efficient utilisation; Circular economy and waste treatment – to ensure constant attention is paid to employee For several years, paper/cardboard collection, sorting comfort and customer service. and recycling measures have been in place for the central buildings and branches of the 8 Crédit du Nord The Bank is supporting the dematerialisation trend by Group banks. At the central buildings, other waste continuing to improve the remote customer experience (batteries, toner, light bulbs, etc.) are also collected and (electronic signature, dematerialisation of contracts, recycled. development of distance selling, etc.) The 8 Crédit du Nord Group banks are all dues-paying Eco-responsible branches members of Valdelia, an organisation that recycles office Virtually all Crédit du Nord branches have used furniture. renewable energy-sourced electricity since 2017. Crédit du Nord regularly makes the effort to recycle or The contract guarantees that the energy provider eliminate waste.
For example:
RECYCLING REDUCTION/ OF OBSOLETE ELIMINATION OF ADVERTISING FOOD WASTE PLASTIC CONTAINERS OPTIMISATION OF SELECTIVE MATERIALS PROCESSING IN WATER FOUNTAINS WASTE SORTING
– Recycling of – Installation of a – Distribution of re-usable – Installation of new sorting advertising materials composter to manage bottles (Nuger, SMC, equipment to recycle plastic transformed into company cafeteria waste Tarneaud), paper cups bottles/drinks cans/other items (bags, pouches, (SMC) (Laydernier) waste (IDF); Installation of etc.) where 100% of – Recycling of coffee – Replacement of all water plastic/metal/coffee capsule production is outsourced grounds (Laydernier, jug dispensers with recycling containers (North- to French companies IDF). In Paris, over 1,000 fountains connected West region) that employee persons kg of coffee grounds directly to the water with disabilities and two – Paper recycling via recycling have been recycled private workshops. network (Kolb and bins (Kolb) since 2018, i.e. the Tarneaud) – Donations of obsolete equivalent of 86,000 – Since the launch of dynamic- goodies to associations cups of coffee encryption cards, implementation for sick children resulting of a special programme for in the recycling of 118 the collection and separate, kilos of materials (IDF) secure storage of old cards whenever new cards are issued to customers. The old cards are stored by a company employing disabled persons for subsequent recycling.
354 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Social Responsibility (CSR) 6
Prevention of food waste Only Crédit du Nord and Société Marseillaise de Crédit have company cafeterias. Menus are posted but are Examples of initiatives to reduce paper no longer displayed at the restaurants. Cafeteria-goers consumption: at the Paris offices also learned about food waste – Staff evaluations in electronic format, dematerialisation (distribution of ADEME “eat better, waste less” kits). of payslips; dematerialisation of transportation, Five of the Group’s eight banks also have separate childcare and nursery certificates since 2018; dining areas for management, managed by external dematerialisation of account statements for companies. In these areas, food waste is managed professional customers at the source because meals are served by invitation – At the Multimedia Expertise Centre, promoting only and the menus are pre-established based on the the sale of products via distance selling by e-mail number of guests. or customer recording, instead of sending paper contracts returned by the customer. This initiative Sustainable use of resources reduces the carbon footprint generated by paper In light of its banking activities and geographic location consumption, print-outs, and the delivery and (mainland France and Monaco), Crédit du Nord Group’s subsequent return of contracts by post. water and energy consumption (electricity, fuel oil, etc.) – are not significant, nor is consumption of resources associated with business travel. – Experiment with communal office bins in certain head office divisions, with a view to eliminating Similarly, as a service provider, Crédit du Nord individual bins. Group does not have any manufacturing activities. Consumption of raw materials, such as paper, is not Emissions of metric tons of CO2 per occupant, shown significant, although paper is the No. 1 consumable below, were calculated using data collected on the basis resource used by service activities, making it a sensitive of energy and paper consumption, waste production environmental issue. and estimated data for transportation.
2017 2018 2019 2019 Total Crédit Total Crédit Total Crédit Banque Société du Nord du Nord du Nord Crédit du Banque Banque Banque Banque Rhône- Banque Marseillaise Total CO2 emissions (metric tons per Group* Group* Group* Nord Courtois Kolb Laydernier Nuger Alpes Tarneaud de Crédit occupant) 1.237 1.197 1.167 1.191 1.056 1.674 1.240 1.259 0.790 1.421 0.867
* Not including the Monaco branch.
The P9XCA method was used. The variables were However, examples include: updated and adapted to Societe Generale, including in – Protection of the environment: Banque Courtois particular geographic distribution and sectors. supports the “Association du Club des Entreprises Mécènes du Canal du Midi”, whose mission is to Preserving biodiversity bring together all economic operators interested Not relevant. The nature of Crédit du Nord Group’s in preserving the Canal du Midi and planting activity and its geographic location (mainland France tree species, which is an emblematic ecological and Monaco) do not influence the preservation or and economic landmark of the region. The 42,000 development of biodiversity. plane trees bordering the canal are under threat by
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 355 6 Corporate Social Responsibility (CSR)
an incurable disease (canker stain: a microscopic A new RFP to manufacturers is scheduled for September fungus which settles inside the tree and kills it in just 2020 including: 2-5 years); – location of vehicle manufacture (France, EU); – Rooftop beehives (Tarneaud, SMC, Nuger) – vehicle attractiveness and comfort;
Clean company cars: encouraging responsible – electric and hybrid vehicles, and in particular plug-in employee mobility hybrid vehicles; The company car fleet contains 9 electric cars, 5 of – low levels of polluting emissions. which are used by Société Marseillaise de Crédit, 2 Car fleet projection and 2020 catalogue proposal, in by Crédit du Nord, 1 by Banque Rhône-Alpes and 1 accordance with the LOM (Mobility Orientation Law): by Banque Courtois. A growing number of electric or – gradual increase in low-emission vehicle renewals; hybrid cars are offered to employees under the Group policy aimed at reducing its carbon footprint generated – goal of 50% of low-emission vehicle renewal in by transportation and business travel. The goal is to 2030; ultimately offer only electric or hybrid vehicles. – concerns vehicles with less than 60 gr/km (electric, plug-in hybrid, hydrogen).
Car fleet projection
TODAY POSSIBLE NEW BREAKDOWN
Energy Volume % New energy Volume % Diesel 481 57% Hybrid, plug-in hybrid 287 36% Petrol 95/98 209 25% Diesel 242 30% Petrol Hybrid 143 17% Petrol 157 19% Electric 9 1% Electric 125 15%
Complying to the letter with the following power Banque Rhône-Alpes is also engaged in a CSR eco- allocation rule: mobility approach. It has adopted ALD Automotive’s – less than 10,000 kms/year: electric; bikes with car sharing solution for employees at its head office in Lyon. With this electric bike service, the – 10,000 - 20,000 kms/year: hybrid/plug-in hybrid; Bank offers its employees a new solution for their day- – 20,000 - 25,000 kms/year: petrol; to-day travel, whether personal or for business. – more than 25,000 kms/year: diesel.
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Internal carbon tax and Environmental Efficiency By incorporating this carbon neutrality (then reduction) Awards programme, Crédit du Nord Group has undertaken to Since 2007, Crédit du Nord Group has worked to foster a culture of environmental awareness. reduce the CO2 emissions generated by Societe To determine its internal carbon tax, Crédit du Nord Generale Group, which was one of the first banks to Group reports data to Societe Generale Group’s CSR instigate an internal carbon tax, a mechanism that reporting tool (Planethic Reporting), which improves now forms the core of its carbon footprint reduction oversight of environmental indicators and their scope of strategy. Each year, the business lines/subsidiaries application. All Group entities (regional banks, regions, are required to pay a tax on their carbon emissions central buildings) actively collect and transmit this data, (€10 per metric ton of CO2, i.e. €3.1 million in 2018). which contributes to the quality of reporting. This tax raises team awareness of carbon impacts, Implementation of a carbon neutrality-then-reduction encourages them to reduce carbon emissions and programme with a cross-business impact: guides them in their decisions. Since 2013, the funds raised from the tax have been used to finance internal – on real estate: defining principles for building environmental efficiency initiatives. Carbon tax revenues refurbishments and renovations (better use of are redistributed through “Environmental Efficiency space and of new technologies with a reduced Awards” (EEA), which recognise initiatives targeting environmental impact); buildings, IT systems, transport, paper consumption – on consumables: stricter policy on the use of and waste management. The award system encourages consumables, particularly paper, by being more each entity to cut its carbon emissions, while demanding when it comes to suppliers and reducing underscoring that environmental actions are also value the use of paper; creation and innovation opportunities for the bank. – on transportation: improved monitoring and control of business travel with greater use of alternative tools such as audio and videoconferencing systems.
Annual consumption decrease Number of initiatives Award Metric tons Metric tons Litres KwH Metric tons receiving awards received of paper of waste of fuel of gas of CO2 avoided 2017 7 €189,305 194.62 8 1,125 0 403.956 2018 9 €124,427 7.549 1.6 1,600 230,000 1,118.011 2019 10 €330,000 15.9 7.1 620 112,500 9.5
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 357 6 Corporate Social Responsibility (CSR)
In 2018, Crédit du Nord received an award for 9 initiatives for a total of nearly €125,000. In 2019, 10 initiatives received awards in the following categories:
PAPER WASTE TRANSPORTATION REAL ESTATE – Dematerialisation of – Composter in the Aubagne – Electric vehicle leasing – LED lighting the paper customer base company cafeteria – Fleet of electric bikes – Work on roofs, recap in branches – Installation of connected (Banque Courtois) terraces and – Electronic signature water fountains in the façades and branches and distribution of renovation of – Digital newspaper re-usable bottles bathroom facilities subscription – Donations of obsolete – Elimination of Paper advertising materials to General Terms and associations Conditions when onboarding Individual customers
Other initiatives (Work) Energy efficiency initiatives at the Paris office In keeping with the practices already in place at buildings several subsidiaries, and in accordance with the “office In 2018, four Crédit du Nord central office buildings renovation charter” in place since 2012: Replacement received ISO 50001 certification for energy of LED lights as part of the renovation carried out, management. This certification was issued by Bureau installation of motion-detecting lights to save Veritas Certification electricity and motion-detecting faucets in bathroom and is valid for 3 years, from 4 December 2018 to facilities in an effort to reduce water consumption. 3 December 2021. ISO 50001 is a standard applied to energy management systems used by organisations in the public and private sector. Its goal is to help organisations efficiently manage energy and thus reduce energy costs.
358 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Social Responsibility (CSR) 6
Appendices
Methodology notes The ultimate aim of this methodology is to create value 1.- Non-financial reporting for stakeholders and support positive transformation in society. The information presented in this report is based on the contributions of an internal network of CSR officers, Non-financial risks were mapped out in line with the in accordance with Societe Generale’s CSR reporting Group’s risk classification system (see Chapter 5 “ Risk protocol, using the “Planethic Reporting” tool for the factors and capital adequacy”, directly related to the standardised collection of indicators. bank’s ordinary activities), which includes operational risks; given that the Group’s primary vocation is to Environmental data are reported over a rolling 12-month generate profitable business and offer its stakeholders a period (October 2018 - September 2019) and social, profit-making model capable of ensuring its continuous sponsorship and business line data cover the calendar operation, each year Crédit du Nord Group defines its year. Risk Appetite, which then serves as a reference for all The CSR data and indicator collection process is Group entities for the purpose of ensuring the Group’s coordinated centrally by the CSR team/Corporate sustainable performance. Any failure to observe a given Secretary’s Office of Crédit du Nord. It is reviewed and Risk Appetite limit is reported to the Risk Division, optimised each year with all of Societe Generale Group’s General Management and the Board of Directors. CSR entities. Three lines of defence have been created to ensure that The entities (Crédit du Nord with its central office Risk Appetite is supervised and observed at all times: buildings, its regions and its 7 banking subsidiaries) that report in “Planethic Reporting” represent virtually all of FIRST LINE OF DEFENCE Crédit du Nord Group’s consolidated NBI. Only the non- Business Lines, Entities banking subsidiaries are excluded from this report (1.8% of Group NBI in 2019). SECOND LINE OF DEFENCE
2.- Assessment of non-financial risks & Finance Compliance Risk opportunities
Chapter 5 of the Universal Registration Document THIRD LINE details “Risk Factors” by category of risk: credit and OF DEFENCE counterparty risk; market risk; operational risks; GID* structural interest rate and foreign exchange risks; * General Inspection Division. liquidity and funding risk. The structure of the main non-financial risks and Furthermore, with respect to identified risks, Crédit opportunities, in compliance with the new Non- du Nord Group complies with the strictest legal and Financial Performance Reporting requirements, was built regulatory provisions governing the banking industry and by identifying the expectations of all stakeholders and has no tolerance for misconduct risk. determining the order of priorities in terms of the Group’s sustainable development goals:
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 359 6 Corporate Social Responsibility (CSR)
Non-financial risks are rated low, average, high or very emissions generated by their activity, and in particular by high, based on two criteria - 1) probability of occurrence the use of the goods and services they produce. For the and 2) the severity and extent of impacts - and using purposes of its corporate financing activity (emissions existing tools: generated), Societe Generale Group established a – the Compliance Risk Assessment tool method for assessing GHG emissions generated by (1) (COMPASS) in accordance with the Societe Generale the Bank’s on-balance sheet commitments in order to Group due diligence approach, resting on four pillars determine the sectors responsible for the highest carbon (2) (Human Resources and security, sourcing, activities, emissions . This method is based on a global approach data protection). CSR risk was included in this using official data provided by international organisations assessment for the first time in 2018; such as the United Nations or the OECD to determine, in relation to the impact on the climate of macro- – the advanced measurement approach applied to sectors (e.g. transportation, energy, industry, etc.), the operational risks (mapping out the levels of Inherent percentage of emissions associated with the Bank’s Risk and Residual Risk). commitments. It does not include GHG emissions In 2019, the non-financial risks assessment was associated with loans to individual customers. It offers a presented to the Crédit du Nord Corporate Secretary’s snapshot of financed emissions at a given time, serving Office, then to an Independent Third Party. as a diagnostic analysis. Based on this diagnostic analysis, conducted for the 3.- Calculation of greenhouse gas (GHG) emissions first time at the end of 2017, the three sectors with GHG emissions generated by the use of goods the biggest carbon footprint (Manufacturing Industry, and services produced by the company Transportation, and Agriculture and Land Use) accounted for 22% of EADs in the Corporate Customers Assessment of the carbon footprint generated by the market, which made up only 25% of Crédit du Nord bank’s on-balance sheet commitments: under Article Group’s total outstanding loans. 173 of the Energy Transition for Green Growth Act, companies are required to report on the major GHG
360 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Social Responsibility (CSR) 6
4- Dashboard
Key indicators - Results
Change CSR commitment Indicator 2017 2018 2019 2019/2018
Hiring of seniors - 8.7% 10.7% +22.9%
Part-time working Conducting our 8.6% 9.1% 9.5% +0.4 points business ethically (% of workforce) and responsibly DOETH (Mandatory Disability 5.67% 6.91% 5.94% +0.01 points Employment Statement) rate Being a responsible Employees equipped with 400 (4.7%) +18.9 points & innovative a Laptop (number and %) 1,970 (23.5%) employer
Employees taking at least one 83.8% 88.2% 87.8% -0.4 points training course during the year (%)
€2,341,527 Sponsorship €2,807,922 €2,302,098 +1.7% (0.12% of NBI)
Procurement (use of companies that employ persons with - €100,000 €137,475 +37.5% Showing solidarity disabilities) with the regions
Solidarity-based engagement --138 - “Printemps solidaire” (solidarity spring) (number of employees) - Skills sponsorship (number of employees) 44 31 27 (14 man-days)
Amount of energy transition €52,751,790 €61,833,000 €73,992,811 +20% financing (+17% vs. 2017)
Average emissions of car fleet 2,698 2,684 2,707 +0.8% (metric tons of CO2)
Total CO2 emissions 10,997 9,907 9,207 -7% (metric tons of CO2)
Total CO2 emissions per occupant Supporting the 1.237 1.197 1.167 -2.5% (metric tons of CO2) energy transition
1,625.42 metric 1,813.07 1,358.04 metric Paper consumption (PAP13C) tons -16.5% metric tons tons (-10% vs. 2017)
Total paper consumption 209.07 Kg 187.76 Kg 161 Kg -14.25% per occupant (PAP20C)
45,275,854 Energy consumption (KW) 47,372,358 42,499,399 -6% (-4% vs. 2017)
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 361 6 Corporate Social Responsibility (CSR)
5. Cross-reference table of Universal Registration Document chapters
Business model Items Chapter of 2019 Universal Registration Document/SDGs Activity Key Figures: NBI, results/Subsidiary Chapter 1, p. 6 Headcount, products and services, customers
Analysis of profit margin/NBI Chapter 6 § 6.2.1, p. 313 Positioning in the industry
Internal structure Geographic locations Chapter 6 § 2.2.1, p. 317 and resources Resources by business line, bank, etc. Chapter 6 § 2.2.2, p. 318
Corporate culture Business model, values Chapter 6 § 2.1.2, p. 314 Chapter 6 § 6.2.3, p. 318-319
Transformation Outlook strategy Agir 3.0 transformation plan & new CSR strategy Chapter 6 § 2.4.1, p. 319 Chapter 6 § 2.4.3, p. 320
Non-financial risk Main non-financial risks and opportunities Chapter 5, p. 235 policy associated with the business Chapter 6 § 3, p. 322
Conducting Compliance policy Chapter 6 § 3.2.1, p. 325 business ethically Management of E&S risks Chapter 5.9, Non-compliance risks, p. 300, and responsibly Sector policy, blacklists, watchlists Chapter 6 § 3.2.1, p. 329 Prevention of corruption, prevention of money- Chapter 3.2, Risk control and management procedure, laundering, whistleblowing, “culture and conduct” p. 62 and Chapter 5.2, p. 247 programme, data protection Chapter 6, § 6.3.2.1, p. 326-329
Being a responsible Attracting new talent Chapter 6 § 6.3.2.2, p. 331-340 and innovative Developing diversity and skills employer Combating discrimination Working conditions & Quality of life at work Collective bargaining agreements Employee engagement
Customer Customer satisfaction survey Chapter 6 § 6.3.2.4, p. 341-342 satisfaction and Complaint procedure protection
Showing solidarity Responsible sourcing policy Chapter 6 § 6.3.3.1, p. 343-345; with the regions Regional economic development Chapter 6 § 6.3.3.2, p. 345-347; Societal engagement in favour of sustainable Chapter 6 § 6.3.3.3, p. 349-350 development
Supporting the Sustainable, positive-impact finance Chapter 6 § 6.3.4, p. 351-353 and § 6.3.4.3 p. 354-358 energy transition Proprietary environmental policy (circular economy, food waste)
362 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Social Responsibility (CSR) 6
6.4 Independent verifier’s report on consolidated non-financial statement presented in the Management Report Year ended December 31, 2019
This is a free translation into English of the original report issued in the French language and it is provided solely for the convenience of English-speaking users. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France.
To the Board of Directors, In our quality as an independent verifier, accredited Independence and quality control by the COFRAC under number n° 3-1050 (scope of accreditation available on the website www.cofrac.fr), Our independence is defined by the provisions of the and as a member of the network of one of the statutory article L. 822-11-3 of the French Commercial code auditors of your company (hereafter “entity”), we present (Code de Commerce) and by the Code of Ethics of our report on the consolidated non-financial statement our profession. In addition, we have implemented a established for the year ended 31st December 2019 quality control system, including documented policies (hereafter referred to as the “Statement”), presented in and procedures to ensure compliance with ethical the management report pursuant to the provisions of standards, professional standards and applicable laws articles L. 225 102-1, R. 225-105 and R. 225-105-1 of and regulations. the French Commercial Code (Code de Commerce). Responsibility of the independent Responsibility of the entity verifier It is the responsibility of the Board of Directors to It is our role, based on our work, to express a limited prepare the Statement in compliance with the legal and assurance conclusion on: regulatory provisions including a presentation of the • the compliance of the Statement with the provisions business model, a description of the main non-financial of article R. 225-105 of the French Commercial Code; risks, a presentation of the policies applied regarding these risks as well as the results of these policies, • the fairness of the information provided pursuant to including key performance indicators. paragraph 3 of I and II of article R. 225 105 of the French Commercial Code, namely the results of the The Statement has been prepared in accordance with policies, including key performance indicators, and the procedures of the entity (hereafter referred to as the actions related to the main risks (hereinafter the the “Criteria”), the significant elements of which are “Information”). presented in the Statement. Nonetheless, it is not our responsibility to express any form of conclusion on the entity’s compliance with other applicable legal and regulatory provisions, in particular the French duty of care law and anti-corruption and tax avoidance legislation, nor on the compliance of products and services with applicable regulations.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 363 6 Corporate Social Responsibility (CSR)
Nature and scope of the work indicators selected, in accordance with the main risks and the policies presented, and Our work described below has been carried out in accordance with the provisions of articles A. 225 1 et – Corroborate the qualitative information (actions seq. of the French Commercial Code as well as with the and results) that we considered to be the most professional guidance of the French Institute of Statutory important (presented in the annex); Auditors (“CNCC”) applicable to such engagements and • we verified that the Statement covers the consolidated with ISAE 3000 : scope, i.e. all the entities included in the scope of • we obtained an understanding of all the consolidated consolidation in accordance with article L. 233-16, entities’ activities and the description of the main within the limitations set out in the Statement; risks; • we obtained an understanding of the internal control • we assessed the suitability of the Criteria with respect and risk management procedures implemented by to their relevance, comprehensiveness, reliability, the entity and assessed the data collection process neutrality and understandability by taking into to ensure the completeness and fairness of the consideration, if relevant, the best practices of the Information; industry; • for the key performance indicators and other • we verified that the Statement includes each category quantitative outcomes that we considered to be of information provided in article L. 225-102-1 III the most important (presented in the annex), we regarding social and environmental matters, as well implemented: as respect of human rights and the fight against – analytical procedures to verify the correct corruption and tax evasion; consolidation of the collected data as well as the • we verified that the Statement provides the consistency of their evolutions, information required under article R. 225-105 II – detailed tests based on samples, consisting of where relevant to the main risks and includes, where checking the correct application of the definitions applicable, an explanation for the absence of the and procedures and reconciling the data with information required under article L. 225-102-1 III, supporting documents. This work was carried paragraph 2; out with a selection of contributing entities listed • we verified that the Statement presents the business hereafter: Crédit du Nord, Banque Courtois, model and a description of the main risks related to Banque Kolb, Banque Laydernier, Banque Nuger, the activity of all the entities included in the scope of Banque Rhône Alpes, Banque Tarneaud and consolidation; including, if relevant and proportionate, Société Marseillaise de Crédit, covering 100% of the risks created through its business relationships, employees; products or services, policies, actions and results, of • we assessed the overall consistency of the Statement which the key performance indicators associated with based on our knowledge of the entities included in the main risks are part; consolidated scope. • we referred to documentary sources and conducted We believe that the work we have carried out by interviews to: exercising our professional judgment allows us to – assess the process undertaken to identify and express a limited assurance conclusion; an assurance validate the main risks as well as the consistency of a higher level would have required more extensive of the outcomes, including the key performance verification work.
364 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Corporate Social Responsibility (CSR) 6
Means and resources Conclusion Our verification work mobilised the skills of four people Based on our work, we have not identified any significant and took place between November 2019 and March misstatement that causes us not to believe that the 2020 on a total duration of intervention of two weeks. non-financial statement complies with the applicable regulatory provisions and that the Information, taken We conducted about seven interviews with the persons together, are fairly presented, in compliance with the responsible for the preparation of the Statement, in Criteria. charge of either the risk analysis, the definition and the implementation of the policies, the collection and the control of the information, or the writing of the texts published.
Paris-La Défense, 20 April 2020
Independent third party ERNST & YOUNG et Associés Hassan Baaj Caroline Delérable Partner Partner, Sustainable Development
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 365 6 Corporate Social Responsibility (CSR)
Annex: Information considered as the most important
Social information Qualitative Information Quantitative information (actions or results) (key performance indicators) – Attractivity and employees’ retention (well-being at work, – Average number of hours of training per employee talent management, recruitment) – Share of positions filled through internal mobility – Employees’ training
Environmental information Qualitative Information Quantitative information (actions or results) (key performance indicators) – Global environmental policy – Amounts of green financing
Societal information Qualitative Information Quantitative information (actions or results) (key performance indicators) – Definition and deployment of CSR roadmap – Amounts of positive impact funding – Responsible purchasing policy – Measures for territorial support – Deployment of the E&S reputational risk assessment and management process
366 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Additional disclosures 7
7.1 General description of Crédit du Nord ______368
7.2 Group activity ______371
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 367 Additional disclosures 7 General description of Crédit du Nord
7.1 General description of Crédit du Nord
Company name – any and all banking transactions; Crédit du Nord – any and all transactions related to banking transactions, including, in particular, all investment or related services as governed by Articles L. 321-1 and Address of the head office 321-2 of the French Monetary and Financial Code; and telephone number – any and all acquisitions of ownership interests in other Address: 28, place Rihour - 59000 Lille, France companies. Telephone: +33 (0)1 40 22 40 22 In accordance with the conditions set forth by the French Banking and Financial Regulation Committee, Legal form the company may also regularly engage in any and A limited liability company (Société Anonyme) registered all transactions other than those mentioned above, in France and governed by Articles L. 210-1 et seq. of including in particular insurance brokerage. the French Commercial Code. Generally, the company may, on its own behalf, on The company has the status of a bank governed by behalf of third parties or jointly, engage in any and all Articles L. 311-1 et seq. of the French Monetary and financial, commercial, industrial, agricultural or real Financial Code. estate transactions that are directly or indirectly related to the aforementioned activities or likely to facilitate the Registration number execution thereof. SIREN 456 504 851 RCS Lille (Lille Trade and Share capital Companies Register) Crédit du Nord’s share capital is set at €890,263,248, APE activity code divided into 111,282,906 fully paid-up shares with a face value of €8. 6419 Z The shares comprising the company’s capital are not subject to any pledge agreements. LEI (Legal Entity Identifier) 54930076YK05WVH25M52 Form of shares All shares must be registered. Creation and expiration date Crédit du Nord was founded in 1848 under the name Disclosure requirements Comptoir national d’escompte de l’arrondissement de Lille. No restrictions have been made to legal provisions It adopted the status of a limited liability company concerning ownership thresholds. (Société Anonyme) in 1870 and took the name “Crédit du Nord” in 1871. Share transfer approval The date of expiration of the company is set at The General Meeting of April 28,1997 ruled that the May 21, 2068, barring dissolution before this date or an assignment, sale or transfer of shares to a third party that extension thereof as provided by law. is not a shareholder, for any reason whatsoever, except in the event of the transfer of an estate, liquidation, Corporate purpose (Article 3 of the bylaws) communal property between spouses or transfer to a The purpose of the company, under the conditions set spouse or next-of-kin, is subject to the company’s prior forth by the laws and regulations applicable to credit approval. institutions, is to perform with individuals or corporate entities, in France or abroad:
368 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Additional disclosures General description of Crédit du Nord 7
Parent company documents Shareholders’ Meetings (extracts from Article The documents relating to Crédit du Nord, including its 19 of the bylaws) bylaws, financial statements, and the reports presented The General Meeting, which meets on a regular basis, at its Shareholders’ Meetings by the Board of Directors represents all shareholders and exercises all powers or Statutory Auditors, can be consulted at the Bank’s devolved to it by law. Corporate Secretariat/Corporate Office at 59, boulevard It is convened to rule on those issues listed on the Haussmann, 75008 Paris, France. agenda in accordance with currently applicable legal and regulatory provisions. Fiscal year The right to take part in the Meeting is subject to From January 1 to December 31. registration of shares in the name of the shareholder at least five days before the date of the meeting. Appropriation and distribution of earnings (Article 22 of the bylaws) Profit-sharing Net income for the year is determined in accordance A profit-sharing system is in force at Crédit du Nord. with all currently applicable laws and regulations. At The legal calculation is applied to determine the profit- least 5% of net income for the year, less any previous sharing budget. Its breakdown is proportionate to wages accumulated losses, must, by law, be set aside to form reserved, with wages taken into consideration within the a legal reserve until this reserve reaches one-tenth of limit of 3x the Annual Social Security Cap (PASS). share capital. An incentive agreement was also signed on May 15, Net income available after said allocation to legal 2019 which applies to fiscal years 2016 through 2021. reserves, as well as any retained earnings, constitutes AII payments therein are calculated on the basis of “income available for distribution” from which dividends 8.75% of Crédit du Nord’s gross operating income may be paid out and/or funds allocated to ordinary, adjusted for certain parameters. It is paid out as follows: extraordinary or special capital reserves as approved – 50% of the profit-sharing budget, capped at by the Shareholders’ Meeting on the basis of the €5 million, is paid in proportion to the employee’s recommendations made by the Board of Directors. presence during the fiscal year; The General Meeting called to approve the financial – 50% is paid in proportion to the gross taxable wages statements for the fiscal year may, in respect of all or part for the fiscal year, excluding performance bonuses. of final or interim dividends proposed for distribution, For each year in which the agreement is applied, total offer each shareholder the choice between payment incentive pay is capped at: of the final or interim dividends in cash or in shares, – 8.75% of gross fiscal remuneration paid to all under the conditions set forth by currently applicable company employees in 2019; legislation. Shareholders must exercise this option for – 8.85% of gross fiscal remuneration paid to all the entire amount of final or interim dividends to be company employees in 2020; received for the fiscal year. – 8.95% of gross fiscal remuneration paid to all Except in the case of a reduction in share capital, no company employees in 2021. distribution to shareholders may take place where In addition, the total amount paid under profit-sharing shareholders’ equity is or would as a result of said and incentive plans is capped at 12% of gross fiscal distribution be lower than the sum of the company’s remuneration. share capital plus any legal reserves which, in In the event this amount is exceeded, incentive pay shall accordance with the law or under the company’s bylaws, be reduced by the percentage exceeding the maximum. are not available for distribution. Crédit du Nord makes an additional “employer’s contribution” where employees pay any profit-sharing or incentives into the Company Savings Plan or into the Company Pension Savings Plan (PERCO), in accordance with pre-defined scales and limits.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 369 Additional disclosures 7 General description of Crédit du Nord
Change in capital
2019 * Shares outstanding 111,282,906 Par value per share (in €) 8 Capital stock (in €) 890,263,248 Maximum number of shares to be created ** - Total number of potential shares 111,282,906 Potential share capital (in €) 890,263,248
* No change since the last capital increase, carried out on September 15, 2010 for €150 million, mainly for the purpose of the acquisition of SMC. ** Created by converting bonds or exercising stock options.
Ownership and voting rights at December 31, 2019
Societe Generale 100% Members of Management bodies - Employees (via specialised fund managers) -
Double voting rights None.
Changes in ownership in the last three years No change.
Dividend payments – A dividend per share of €2.50 was paid out in respect of fiscal year 2015. – A dividend per share of €1.53 was paid out in respect of fiscal year 2016. – A dividend per share of €2.05 was paid out in respect of fiscal year 2017. – A dividend per share of €3.06 was paid out in respect of fiscal year 2018. – On May 7, 2020, a proposal will be put forward to the Shareholders’ Meeting to pay no dividend in respect of fiscal year 2019.
Securities markets Not applicable: Crédit du Nord shares are not listed on any markets.
370 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Additional disclosures Group activity 7
7.2 Group activity
Use of patents and licences Insurance Not applicable. General policy Legal risks Crédit du Nord’s insurance policy aims to obtain the best coverage with respect to the risks to which it is exposed. Crédit du Nord is a credit institution authorised to A certain number of major risks are covered by policies operate as a bank. As such, it may engage in any and all taken out as part of Societe Generale’s Global Insurance banking transactions. Policy, while others are covered by policies taken out by It is also authorised to provide any and all investment or Crédit du Nord. related services as referred to in articles L. 321-1 and L. 321-2 of the Monetary and Financial Code. As an Risks covered by the Societe Generale investment service provider, Crédit du Nord is subject Global Insurance Policy to the applicable regulatory framework, in particular the prudential rules and controls of the ECB, ACPR 1. Theft/fraud and AMF. All managers and employees are bound by These risks are included in a “global banking” policy that professional secrecy, the breach of which is subject to insures the banking activities of Crédit du Nord and its criminal penalties. subsidiaries. Crédit du Nord is also an insurance broker. 2. Professional liability insurance Litigation and extraordinary The consequences of any lawsuits are insured under the global policy. The level of coverage is the best available circumstances on the market. To date there are no extraordinary circumstances and/or ongoing litigation that may have, or may have had in the 3. Operating losses recent past, a significant effect on the business, income, The consequences of an accidental interruption in financial position or assets and liabilities of Crédit du activity are insured under the global policy. This policy Nord or its subsidiaries. complements the business continuity plans.
Other special risks 4. Third-party liability insurance of the To the best of Crédit du Nord’s knowledge, no such risk corporate officers currently applies. The purpose of this policy is to cover the company’s managers and directors in the event of claims filed against them and invoking their liability.
5. Liability insurance linked to operations This insurance covers any pecuniary damages to third parties incurred by all persons or equipment deemed necessary for the company’s operations.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 371 Additional disclosures 7 Group activity
Risks covered by Crédit du Nord policies Other risks linked to activities Within the framework of all Group contracts, Crédit du Buildings and their contents Nord offers customers death and invalidity insurance on – Buildings and their contents are insured by a multi-risk their loans (property, consumer loans, etc.). policy with a ceiling of €19,900,000 for sites smaller
than 2,000 m2; – and a ceiling of €80,000,000 for sites larger than 2,000 m2.
372 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Person responsible for the Universal Registration Document 8
8.1 Person responsible for the Universal Registration Document ______374
8.2 Certification by the person responsible for the Universal Registration Document and the Annual Financial Report ______374
8.3 Statutory Auditors ______375
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 373 Person responsible for the Universal Registration Document 8 Person responsible for the Universal Registration Document / Certifi cation by the person responsible for the Universal Registration Document and the Annual Financial Report
8.1 Person responsible for the Universal Registration Document
Person responsible for the Registration Document Françoise MERCADAL DELASALLES, Chief Executive Officer of Crédit du Nord.
8.2 Certification by the person responsible for the Universal Registration Document and the Annual Financial Report
I hereby certify, having taken all reasonable measures to this end, that to the best of my knowledge, the information contained in this Universal Registration Document is true and that there are no omissions that could impair its meaning. I certify that, to the best of my knowledge, the financial statements were drawn up in accordance with applicable accounting standards and present fairly, in all material respects, the financial position and results of the parent company and of the entire Group as constituted by the consolidated companies, and that the Management Report (including the cross-reference table for the annual report, in Chapter 9, which indicates the content) accurately reflects the development of business, results and the financial situation of the parent company and of the entire Group as constituted by the consolidated companies, and describes the main risks and uncertainties to which they are exposed.
Paris, April 24, 2020
Françoise MERCADAL DELASALLES, Chief Executive Officer of Crédit du Nord
374 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Person responsible for the Universal Registration Document Statutory Auditors 8
8.3 Statutory Auditors
ERNST & YOUNG et Autres DELOITTE & ASSOCIES Represented by Vincent ROTY Represented by Marjorie BLANC LOURME
Adress: 1/2, place des Saisons Adress: 6, place de la Pyramide 92 400 Courbevoie - Paris-La Défense 1 92 908 Paris-La Défense Cedex
Date of nomination: 04 May 2000 Date of nomination: 04 May 2000
Date of last reappointment: Date of last reappointment: May 18, 2018 for six fiscal years May 18, 2018 for six fiscal years
Expiry of the current term of office: at the end of Expiry of the current term of office: at the end of the Ordinary General Shareholders’ Meeting convened to the Ordinary General Shareholders’ Meeting convened to approve the financial statements for the fiscal year ending approve the financial statements for the fiscal year ending December 31, 2023. December 31, 2023.
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 375 8 Person responsible for the Universal Registration Document
376 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Cross Reference tables 9
9.1 Table de concordance du Document d’Enregistrement Universel ______378
9.2 Table de concordance du Rapport Financier Annuel ______381
9.3 Table de concordance à destination du greffe ______382
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 377 Cross Reference tables 9
9.1. Cross Reference table for the Registration Document
In accordance with Commission Delegated Regulation (EU) 2019/980 of March 14, 2019 supplementing Regulation (EU) 2017/1129 of the European Parliament and of the Council of June 14, 2017 and repealing Commission Regulation (EC) No. 809/2004 of April 29, 2004, the following information is included by reference in this Universal Registration Document: • the individual and consolidated financial statements for the fiscal year ended December 31, 2018, the related Statutory Auditors’ reports and the Group Management Report appearing respectively on pages 73-194, pages 200-246, pages 195-199, pages 247-251, and pages 46-68 of the Registration Document filed with the AMF on April 17, 2019 under No. D.19-0352; • the individual and consolidated financial statements for the fiscal year ended December 31, 2017, the related Statutory Auditors’ reports and the Group Management Report appearing respectively on pages 70-169, pages 179-222, pages 170 and 175, pages 223-227, and pages 46-68 of the Registration Document filed with the AMF on April 16, 2018 under No. D.18-0333; The chapters of Registration Document Nos. D.19-0352 and D.18-0333 not listed above are either not applicable for investors or are covered in another section of this Universal Registration Document. Both aforementioned registration documents are available on the websites of Crédit du Nord :(www.credit-du-nord.fr) and the AMF (www.amf-france.org). The websites referred to in this Universal Registration Document are mentioned solely for information purposes. The information they contain is not part of this Universal Registration Document unless it is expressly incorporated by reference in the Universal Registration Document. To assist with the reading of the Universal Registration Document, the following cross-reference table below refers to the main chapters required by Annex 1 (on referral from Annex 2) of Commission Delegated Regulation (EU) 2019/980 of March 14, 2019, supplementing Regulation (EU) 2017/1129 of the European Parliament and of the Council of June 14, 2017 and repealing Commission Regulation (EC) No. 809/2004 of April 29, 2004.
Chapter URD page n°. 1. Responsibility for the registration document 1.1. Name and title of the persons responsible for the Universal Registration Document 374 1.2 Statement by the persons responsible for the Universal Registration Document 374 1.3. Statement or report attributed to a person serving as an expert N/A* 1.4. Information from third parties N/A* 1.5. Statement by the issuer 3 2. Statutory auditors 2.1. Name and address of the Statutory Auditors 375 2.2 Resignation, dismissal or non-reappointment of Statutory Auditors N/A* 3. Risk factors 238-246 4. Information about the issuer 4.1. Company name and commercial name of the issuer 368 4.2. Place/number of registration and LEI of the issuer 368 4.3. Incorporation date and lifespan of the issuer 368 4.4. Registered office ad legal form of the issuer, applicable law, country of incorporation, address and telephone number of the registered office and website 368
378 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Cross Reference tables 9
Chapter URD page n°. 5. Overview of activities 5.1. Main activities 5-11; 313-316 5.2. Main markets 127; 315 5.3. Major exceptional events in the development of the company’s businesses N/A* 5.4. Strategy and objectives 44-47; 248; 319-321 5.5. Degree of issuer dependence on patents, licences, industrial, commercial, and financial contracts, and on new manufacturing processes 372 5.6. Basis of issuer statements concerning its competitive position N/A* 5.7. Investments 167-170; 183 6. Organisational structure 6.1. Overall description of the Group 4 6.2. List of major subsidiaries 4; 94-97; 172-173; 227-228; 317 7. Overview of financial position and results 7.1. Financial position 53-58 7.2. Operating income 53-58 8. Cash flow and capital 8.1. Information on the issuer’s capital 77-80 8.2. Source and amount of the issuer’s cash flow 81 8.3. Information on the issuer’s funding requirements and financing structure N/A* 8.4. Information concerning any restrictions on the use of capital having influenced or capable of significantly influencing the issuer’s businesses N/A* 8.5. Information concerning the expected sources of financing needed to honour the commitments listed in chapter 5.7.2 N/A* 9. Regulatory environment 16; 25-27; 62; 252-253 10. Information on trends 60-61 10.1. Main recent trends impacting production, sales and inventories, costs and selling prices since the end of the last fiscal year. Any material changes in the Group’s financial performance or provide an appropriate negative statement 61 10.2. Trend, uncertainty, constraint, commitment or event reasonably likely to significantly influence the issuer’s outlook, at least for the fiscal year in progress 61 11. Profit forecasts or estimates N/A* 12. Administrative, Management and Supervisory bodies and General Management 12.1. Board of Directors and General Management 14-16 12.2. Conflicts of interest involving the administrative, management and supervisory bodies and General Management 18-23 13. Compensation and benefits 13.1. Amount of compensation paid and benefits in kind 24-30 13.2. Total loss allowance set aside or recorded by the issuer for the payment of pensions and other benefits 153-161
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 379 Cross Reference tables 9
Chapter URD page n°. 14. Corporate Governance 14.1. Expiry date of current term of office 18-26 14.2. Service agreements binding members of the administrative bodies N/A* 14.3. Information on the issuer’s Audit Committee and Compensation Committee 16; 18 14.4. Statement indicating whether or not the issuer complies with corporate governance policy 15-40 14.5. Potential material impacts on corporate governance, including future changes in the composition of the Board and Committees N/A* 15. Employees 15.1. Number of employees 55; 318; 332 15.2. Ownership interests and stock options of Directors 29-37 16. Key shareholders 16.1. Shareholders owning more than 5% of the share capital or voting rights 370 16.2. Other voting rights 370 16.3. Ownership of the issuer 370 16.4. Agreement of which the issuer is aware, the implementation of which could lead to a change in ownership at a future date N/A* 17. Related-party transactions 153 18. Information concerning the issuer’s financial situation and results 18.1. Past financial information 6-7; 32-33; 76-176; 185-228 18.2. Interim financial and other information N/A* 18.3. Audit of past annual financial information 177-181: 229-233 18.4. Proforma financial information N/A* 18.5. Dividend policy 370 18.6. Legal and arbitration procedures 371 18.7. Significant change in the financial or commercial situation N/A* 19. Additional disclosures 19.1. Share capital 368; 370 19.2. Articles of incorporation and bylaws 368-369 20. Major contracts N/A* 21. Documents on display 369
* N/A: Not Applicable
380 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report Cross Reference tables Cross Reference table for the Annual Financial Report 9
9.2. Cross Reference table for the Annual Financial Report
In accordance with Article 222-3 of the General Regulations of the Autorité des Marchés Financiers (French Securities Regulator), the annual financial report mentioned in Section I of Article L.451-1-2 of the French Monetary and Financial Code includes the items described in the following pages of the Universal Registration Document:
Annual financial report Chapter URD page n°.
Certification of the person responsible for the registration document 374 Management Report - Analysis of the results, financial situation, and risks of the parent company and the consolidated group and list of powers delegated for the purposes of capital increases (Article L.225-100 and L.225-100-2 of the French Commercial Code) 44-69 - Information relating to share buybacks (Article L.225-211 paragraph 2 of the French Commercial Code) N/A* - Information relating to establishments and activities (Article L.511-45 of the French Monetary and Financial Code) N/A* Financial statements - Annual financial statements 182-228 - Statutory Auditors’ report on the annual financial statements 229-233 - Consolidated financial statements 76-176 - Statutory Auditors’ report on the consolidated financial statements 177-181
* N/A: Not Applicable
Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report 381 Cross Reference tables 9 Cross Reference table for the Annual Financial Report
9.3. Cross Reference table prepared for the Clerk’s Office
In accordance with Article L. 232-23 – III of the French Commercial Code, it is stipulated that the Universal Registration Document contains the following documents on the following pages and/or in the following chapters of this document:
Annual financial report URD Chapter page n°. Financial statements - Annual financial statements 188-228 - Statutory Auditors’ report on the annual financial statements 229-233 - Consolidated financial statements 76-176 - Statutory Auditors’ report on the consolidated financial statements 177-181
Management Report (Article L. 225-100 of the French Commercial Code) 44-69 Businesses exercised by the Company and the Group/Statement of non-financial performance/Other 6-11; 44-73; 174-176 Appendices Corporate Governance Report and related Statutory Auditors’ Report 15-40; 41-42 Independent Third Party’s Report 363-366 Results for the last five years 185
* N/A: Not Applicable
382 Group Crédit du Nord - Universal Registration Document 2019 including the annual fi nancial report This Universal Registration Document is available online at www.groupe-credit-du-nord.com Person responsible for the information contained in this report: Michel GASSIE – Tel.: +33 (0)1 40 22 45 45 – E-mail: [email protected]