BNP PARIBAS FORTIS SA/NV ANNUAL REPORT 2019 ANNUAL REPORT 2019 REPORT ANNUAL | BNP PARIBAS FORTIS SA/NV FORTIS PARIBAS BNP The bank for a changing world INTRODUCTION BNP Paribas Fortis is a limited liability company (naamloze vennootschap (NV)/société anonyme (SA)), incorporated and existing under Belgian law, having its registered office address at Warandeberg 3, 1000 Brussels and registered under number BE VAT 0403.199.702 (hereinafter referred to as the ‘Bank’ or as ‘BNP Paribas Fortis’). The BNP Paribas Fortis annual report 2019 contains both the audited consolidated and non-consolidated financial statements, preceded by the report of the Board of Directors, the statement of the Board of Directors and a section on corporate governance including the composition of the Board of Directors. The audited BNP Paribas Fortis consolidated financial statements 2019, with comparative figures for 2018, prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, are followed by the audited non-consolidated financial statements 2019 of BNP Paribas Fortis, prepared on the basis of the rules laid down in the Belgian royal decree of 23 September 1992 on the annual accounts of credit institutions. The BNP Paribas Fortis annual report 2019 is available in English, French and Dutch. The English version is the original one while the other versions are unofficial translations. Every effort has been made to ensure that the language versions correspond to one another. If one difference should exist, the English version would take precedence. It is considered that the information included in the note 8.j ‘Scope of consolidation’, together with the information included in the report of the Board of Directors and in the corporate governance statement, complies with the requested information in article 168, §3 of the Belgian act of 25 April 2014 on the legal status and supervision of credit institutions. All amounts in the tables of the consolidated financial All information contained in the BNP Paribas Fortis annual statements are denominated in millions of euros, unless report 2019 relates to the BNP Paribas Fortis statutory stated otherwise. All amounts in the tables of the non- consolidated and non-consolidated financial statements and consolidated financial statements are denominated in does not cover the contribution of BNP Paribas Fortis to the thousands of euros, unless stated otherwise. Because figures BNP Paribas Group consolidated results, which can be found have been rounded off, small discrepancies with previously on the BNP Paribas website: www.bnpparibas.com. reported figures may appear. Certain reclassifications have been made with regard to the prior year’s financial The BNP Paribas Fortis annual report 2019 is available on the statements in order to make them comparable for the year website: www.bnpparibasfortis.com. under review. BNP Paribas Fortis refers in the consolidated financial statements to the BNP Paribas Fortis SA/NV consolidated situation unless stated otherwise. BNP Paribas Fortis refers in the non-consolidated financial statements to the BNP Paribas Fortis SA/NV non-consolidated situation, unless stated otherwise. CONTENTS Introduction 3 BNP PARIBAS FORTIS CONSOLIDATED ANNUAL REPORT 2019 9 Report of the Board of Directors 10 A word from the Chairman and the CEO 10 Economic context 13 Core Businesses 14 Corporate Social Responsibility 20 Changes in the scope of consolidation 24 BNP Paribas Fortis credit ratings at 29/02/2020 24 Forward-looking Statements 25 Comments on the evolution of the results 25 Comments on the evolution of the balance sheet 27 Liquidity and solvency 29 Principal risks and uncertainties 30 Statement of the Board of Directors 31 Corporate Governance Statement 32 BNP PARIBAS FORTIS CONSOLIDATED FINANCIAL STATEMENTS 2019 45 Profit and loss account for the year ended 31 December 2019 46 Statement of net income and change in assets and liabilities recognised directly in equity 47 Balance sheet at 31 December 2019 48 Cash flow statement for the year ended 31 December 2019 49 Statement of changes in shareholders’ equity between 1 January 2018 and 31 December 2019 50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2019 51 1 Summary of significant accounting policies applied by BNP Paribas Fortis 52 1.a Accounting standards 52 1.b Segment reporting 53 1.c Consolidation 54 1.d Translation of foreign currency transactions 58 1.e Net interest income, commissions and income from other activities 59 1.f Financial assets and financial liabilities 60 1.g Property, plant, equipment and intangible assets 70 1.h Leases 71 1.i Non-current assets held for sale and discontinued operations 73 1.j Employee benefits 73 1.k Share-based payments 74 1.l Provisions recorded under liabilities 75 1.m Current and deferred tax 76 1.n Cash flow statement 76 1.o Use of estimates in the preparation of the financial statements 77 4 2 Effect of IFRS 16 first time adoption 78 3 Notes to the profit and loss account for the year ended 31 December 2019 80 3.a Net interest income 80 3.b Commission income and expense 81 3.c Net gain on financial instruments at fair value through profit or loss 81 3.d Net gain on financial instruments at fair value through equity and on financial assets at amortised cost 83 3.e Net income from other activities 83 3.f Other operating expenses 84 3.g Cost of risk 84 3.h Corporate income tax 91 4 Segment information 92 4.a Operating segments 92 4.b Information by operating segment 93 4.c Country-by-country reporting 94 5 Notes to the balance sheet at 31 December 2019 95 5.a Financial assets, financial liabilities and derivatives at fair value through profit or loss 95 5.b Derivatives used for hedging purposes 97 5.c Financial assets at fair value through equity 101 5.d Measurement of the fair value of financial instruments 101 5.e Financial assets at amortised cost 112 5.f Impaired financial assets (Stage 3) 114 5.g Financial liabilities at amortised cost due to credit institutions and customers 115 5.h Debt securities and subordinated debt 115 5.i Current and deferred taxes 116 5.j Accrued income/expense and other assets/liabilities 118 5.k Equity – method investments 118 5.l Property, plant, equipment and intangible assets used in operations, investment property 122 5.m Goodwill 123 5.n Provisions for contingencies and charges 125 5.o Offsetting of financial assets and liabilities 126 5.p Transfers of financial assets 128 5.q Non-current assets classified as Held for Sale and Discontinued operations 130 6 Commitments given or received 132 6.a Financing commitments given or received 132 6.b Guarantee commitments given by signature 132 6.c Securities commitments 133 6.d Other guarantee commitments 133 7 Salaries and employee benefits 134 7.a Salary and employee benefit expenses 134 7.b Post-employment benefits 134 7.c Other long-term benefits 140 7.d Termination benefits 140 5 8 Additional information 141 8.a Contingent liabilities: legal proceedings and arbitration 141 8.b Business combinations and other changes of the consolidation scope 142 8.c Minority interests 144 8.d Significant restrictions in subsidiaries, associates and joint ventures 146 8.e Structured entities 146 8.f Compensation and benefits awarded to BNP Paribas Fortis’ corporate officers 149 8.g Other related parties 153 8.h Financial instruments by maturity 154 8.i Fair value of financial instruments carried at amortised cost 156 8.j Scope of consolidation 158 8.k Fees paid to the statutory auditors 164 8.l Events after the reporting period 164 RISK MANAGEMENT AND CAPITAL ADEQUACY 165 1 Risk management organisation 167 2 Risk measurement and categories 169 3 Capital adequacy 171 4 Credit and counterparty credit risk 174 5 Market risk 179 6 Sovereign risks 182 7 Operational risk 183 8 Compliance and reputational risk 184 9 Liquidity risk 185 6 REPORT OF THE ACCREDITED STATUTORY AUDITORS 187 BNP PARIBAS FORTIS ANNUAL REPORT 2019 (NON-CONSOLIDATED) 197 Report of the Board of Directors 198 Comments on the evolution of the balance sheet 198 Comments on the evolution of the income statement 199 Proposed appropriation of the result for the accounting period 201 Information regarding related party transactions 202 BNP PARIBAS FORTIS FINANCIAL STATEMENTS 2019 (NON-CONSOLIDATED) 203 OTHER INFORMATION 209 7 8 BNP PARIBAS FORTIS CONSOLIDATED ANNUAL REPORT 2019 REPORT OF THE BOARD OF DIRECTORS A word from the Chairman and the CEO BNP Paribas Fortis posted good results in 2019, achieving a net profit of EUR 2.2 billion on a consoli- dated basis. We were able to compensate for the persistent downward pressure exerted by the low interest rates in Belgium thanks to larger volumes, higher commission income and a rise in revenue at BGL BNP Paribas, Arval, Personal Finance and Leasing Solutions. Our Belgium Retail Banking division continued with undiminished vigour to finance the plans and projects of our individual and business clients, which saw our loan portfolio expand by 4.4% to reach EUR 110.8 billion. Total deposits in Belgium rose by 5.1%, ending the year at EUR 131.1 billion. The Bank’s cost of risk rose in the course of the year, remaining however at a still low level of 22 basis points. We were able to maintain our strong liquidity and solvency ratios. At operating level, we managed to limit the rise in costs to 2% due to, among other factors, efficiency measures, including the ongoing rationalisation of our branch network in Belgium. Our current investments for the future are based on five strategic pillars defined in 2019. These will guide us in our interactions with all our clients as we strive to serve and support them, and will act as a catalyst for positive growth as sustainability and digital will be the new normal.