BASES GENERALS QUE HAN DE REGIR LA CON VOCATÒRIA D’UN CONCURS PER A LA PROVI-

4.1 DEFINITION

The risks associated with balance sheet management (BSM) include structural market risk (interest rate risk, currency risk, on- and off-balance sheet equity risk generated by the business lines) and liquidity risk. The detailed definitions of structural interest rate risk, currency risk and equity risk are provided in the section on market risks.

Liquidity risk is defined as the probability that the bank will be incapable of satisfying its expected and unexpected current and future cash needs.

4.2 GOVERNANCE

Committees

Overall BSM risks are managed at the monthly meeting of the Group’s Asset & Liability Management Committee (ALCO). The Group ALCO sets limits and ensures that the appropriate strategy is adopted given the Group’s BSM overall risk. It decides which hedges must be put in place (investments/divestments to be carried out for the insurance activities) and validates the internal transfer pricing mechanisms used within the Group. Group entities have their own local ALCOs. They manage specific local risks under the guidelines defined by the Group ALCO.

The Funding & Liquidity Committee (FLC), by delegation from the Group ALCO, centralizes and coordinates the decision making process for all liquidity issues. The FLC is in charge of monitoring changes in short- and long-term funding needs and establishing Dexia’s overall funding strategy. It is also responsible for examining and updating the stress scenarios that must be considered with regard to liquidity; for establishing emergency

action plans and proposing corrective measures to improve the Group’s liquidity profile; and for coordinating the general reporting of liquidity to the Group’s various boards as well as to the rating agencies, regulators, central banks and states .

The FLC meets both weekly and monthly (expanded committee).

4.3 RISK MANAGEMENT

Risk measures

Interest rate risk

BSM is used to reduce the volatility of the income statement, in order to protect the profits generated by the business lines and to preserve the Group’s overall creation of value.

The different Group entities use the same methods to measure balance sheet risk. Currently, the primary indicator used is a calculation of the sensitivity of the net present value of the BSM positions. In 2010, Dexia will optimize the calculation of Earnings at Risk (EaR) in stress scenarios within the different Group entities in order to incorporate this indicator into the decision making process.

Exposure to risk, as measured in both economic and accounting terms, is generated primarily by long-term European interest rates and results from the structural imbalance between Dexia’s assets and its liabilities. Risk sensitivity measurements reflect the exposure of the balance sheet to first- and second-order sensitivity. VaR calculations are used to provide complementary measurements.

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MANAGEMENT REPORT

Risk management

Equity risk

The Value at Risk technique is used to measure the sensitivity of the portfolio to adverse changes in equity prices, volatility and correlation. Among others, the market risk management framework includes e arnings at r isk and s tress t est measurements that provide an indication of the maximum accounting loss under different scenario calculations. The equity portfolios of the banking entities have been placed in run-off.

Dexia Credit Local’s portfolio amounted to only EUR 2.9 million as of December 31, 2009.

Currency risk (structural)

Although Dexia’s reporting currency is the euro, many of its assets, liabilities, revenues and costs are also denominated in a number of other currencies. The Group ALCO establishes the hedges to be used to offset structural currency risk, in order to reduce the volatility of income.

BSM exposure

BSM exposure to interest rate risk (sensitivity)

Interest rate risk sensitivity measures the change in the net economic value of the balance sheet caused by a 1% increase along the entire interest rate curve. The long-term ALM sensitivity amounted to negative EUR 13 million as of December 31, 2009 (versus negative EUR 59 million the previous year). The limit of sensitivity to interest rates amounted to EUR 94 million as of December 31, 2009, versus EUR 162 million the previous year. This trend is fully consistent with the new BSM strategy, which seeks to minimize the volatility of the income statement while preserving overall creation of value.

BANK ALM SENSIVITY IN 2009

january 7, 09 february 6, 09 march 8, 09 april 7, 09 may 7, 09 june 6, 09 july 6, 09 august 6, 09 september 4, 09 october 4, 09 november 8, 09     december 3, 09 175 (EUR millions) 150 125 100 75 50 25 0 Sensitivity limit Change observed

The F inancial products portfolio had exposure of EUR 10.9 billion as of December 31, 2009. Interest rate risk amounted to negative EUR 6.2 million (compared to a limit of EUR 42 million).

4.4 LIQUIDITY RISK

Strong improvement of the liquidity profile

Substantial progress was made in improving liquidity in 2009.

In an amendment signed October 14, 2009, the guarantee on a significant portion of Dexia’s short- and long-term funding granted in October 2008 by the states of Belgium, France and Luxembourg was extended until October 31, 2010.

The following changes were made to the guarantee mechanism: • the ceiling on guaranteed outstandings was lowered from

EUR 150 billion to EUR 100 billion;

• the maximum term of new long-term funding commitments issued was lengthened to four years.

In addition, since October 16, 2009, Dexia has renounced the benefit of the guarantee on all new contracts with a term of less than one month and on all new contracts with no fixed maturity date. Dexia was easily able to replace this guaranteed funding with unsecured funding.

On October 30, 2009, the European Commission temporarily authorized the extension of the guarantee until the end of February 2010. Under the terms of the agreement entered into with the European Commission on February 5, 2010, an early exit from the guarantee mechanism was announced.

In 2009, the Dexia Group raised a total of EUR 45.7 billion (of which EUR 33.9 billion for the Dexia Credit Local Group) in medium- and long- term debt securities, with an average term of five years. The share of the loans not covered by the tripartite sovereign guarantee increased continuously during the year, to 51% by year end.

This good performance was made possible by:

• the reopening of the covered bonds market in the second quarter of 2009, which enabled Dexia to issue a total of EUR 13 billion in covered bonds in 2009 through its three issuers, Dexia Municipal Agency and Dexia Kommunalbank Deutschland and Dexia Lettre de Gage Banque;

MANA

GEMENT REPORT

• renewed access to unsecured funding, especially starting in the third quarter of 2009, resulting in the sale by the Dexia Group of medium- and long-term unsecured issues totaling EUR 10.3 billion in 2009 (of which EUR 4 billion by Dexia Credit Local).

The short-term funding profile also improved significantly during the second half of the year due to the gradual increase in funds raised via the bilateral and triparty repo market and better access to unsecured short-term liquidity.

Overall, the Group’s short-term funding requirement fell sharply in 2009 due to the active balance sheet reduction strategy undertaken by the Group since the fourth quarter of 2008 (EUR 15 billion of assets in the run-off bond portfolio were sold in 2009, with an average term of 4.5 years) and the strength of the long-term issuance program.

The combination of all of these factors resulted in a significant reduction of outstanding short- and long-term guaranteed debt. These outstandings amounted to EUR 50.4 billion as of December 31, 2009, compared with a maximum of EUR 95.8 billion in May 2009.

In 2010, the efforts to improve liquidity are continuing, with a target of become completely unreliant on the guarantee by June 30, 2010, meaning that the Group will no longer issue any new funding covered by the tripartite central government guarantees after that date at the latest.

Management of liquidity risk

Dexia has revised its liquidity risk management strategy, due to the financial and liquidity crisis. The strategy is now based on the general principle that Dexia’s future funding requirements will never exceed its demonstrated ability to obtain secured financing. In other words, Dexia ensures that its short-term funding requirements can always be met through the use of liquid assets in the interbank market.

Dexia strives to maintain a liquidity buffer sufficient to meet all outflows of cash provided for under different scenarios. This liquidity buffer consists of unencumbered securities accepted as underlyings by those central banks to which Dexia has access.

The Group’s future funding needs are assessed dynamically and exhaustively, taking account of liquidity requirements generated by existing and planned transactions (both on- and off-balance sheet). The ability to obtained secured funding is determined in a prudent manner, drawing upon the lessons learned from the current crisis. Dexia’s ability to cover its future liquidity needs by obtaining secured funding is verified under both a normal scenario and a scenario with several stress factors

built in. These include stresses specific to the bank and market stresses, as well as a combination of the two.

Short-term funding requirements are monitored on a daily basis. Longer- term funding needs (up to three years) are monitored on a monthly basis. More generally, the management of liquidity risk lies at the very heart of the definition of Dexia’s three-year financial plan. The results of this monitoring are presented on a weekly basis to the Funding & Liquidity Committee, which determines the major strategic foci of the Group’s liquidity management. This supervision is subsequently verified and updated regularly in accordance with best risk management practices and incorporating all local regulatory constraints.

The diversity of Dexia’s sources of funding reduces the Group’s liquidity risk. Dexia’s main sources of funding are:

• retail deposits (mainly in Belgium, Luxembourg and Turkey); • long-term funding:

− secured debt,

− unsecured debt, with or without sovereign guarantees (including the debt securities distributed through Dexia’s network);

• short-term funding:

− bilateral and triparty repo transactions,

− central bank tender offers,

− a wide variety of unsecured short-term sources of funding, some with the benefit of sovereign guarantees.

Dexia takes a centralized approach to its liquidity risk management. Although the various Group entities manage their own liquidity positions, Dexia’s funding strategy is managed on a centralized and integrated basis. In June 2009, the Belgian Banking, Finance and Insurance Commission (CBFA) established a monthly stress test observation ratio for liquidity. This ratio measures the liquidity position of a bank under exceptional circumstances by comparing potential liquidity requirements with the bank’s available on- and off-balance sheet liquidity. This approach combines the impact of a so-called “idiosyncratic” (bank-specific) shock with the consequences of a general liquidity crisis.

The assumptions of this stress are based mainly on the impossibility of obtaining unsecured funding, the impossibility of selling or securitizing illiquid assets, and a limited or lack of recourse to certain sources of funding.