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LGD are backtested by the Risk Department’s teams to: V verify that the model is correctly calibrated;

V assess the model’s discriminating power; V assess the model’s stability over time.

The losses and estimates produced by the models are compared based on historical data covering as long a period as possible. The losses given default are calculated:

V on a statistical basis for the Corporate asset class;

V based on internal and external histories and an external benchmark for banks and sovereigns;

V using stochastic models if there is a claim against an asset. The losses given default arrived at using internal methods for the calculation of capital requirements are also monitored quarterly during Rating Analysis Committee meetings. Corporate and Bank LGD monitoring has therefore been rolled out over the past few months and is gradually being extended to all of the IRB-A-approved portfolios (Specialized Financing and Sovereigns).

The LGD, ELBE (see glossary) and CCF (see glossary) levels for the different lending scopes undergo backtesting at least once a year (based on the updated internal data), as do the rating models and the associated PD, to verify the reliability of the estimates over time. The parameters of the models for the Specialized Financing and Financial Collateral scope are regularly updated, so that they refl ect the business lines’ reality as accurately as possible. Both the market parameters and the recovery parameters are updated.

The backtesting indicators defi ned are used both to measure the modeling performance and to validate the model currently used. Two types of indicators are used:

V population stability indicators: these analyses are used to validate that the population observed is still similar to the population that was used to build the model. The model may be called into question if there are excessively large distribution differences depending on the segmentation variables or the LGD. All of these indicators are compared against the benchmark indicators (usually those calculated when the model was built or those issuing from external data or agencies). These analyses are applicable to both expert appraisal-based models and statistical models;

V the model performance indicators: the model’s performance is measured to validate the segmentation and also to synthetically quantify the differences between the forecast and actual figures. This is achieved by using statistical indicators, which are compared against those calculated during modeling.

The results of the backtesting may result in the risk parameter’s recalibration, where appropriate.

A backtesting report is produced once backtesting is complete presenting:

V all of the results for the backtesting indicators used; V any additional analyses;

V an overall opinion of the results in accordance with the Group’s standards.

The backtesting report and the reviews are presented to the Head of Risk and the Group Risk Standard and Method Committee (BPCE CNMRG). They are sent to the regulator once a year.

As part of its oversight function, the Risk Department makes sure the rules and commitments underpinning the Bank’s IRBA approval are respected, and also ensures the proper operation of the tools and processes used and the quality and consistency of data. It also coordinates training and provides support to Bank employees.

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Credit and counterparty risks (including country risk)

3.4.5

CREDIT RISK REDUCTION

TECHNIQUES

(Data certifi ed by the Statutory Auditors in accordance with IFRS 7)

Natixis uses a number of credit risk reduction techniques including netting agreements, personal guarantees, asset guarantees or the use of credit-default swaps (CDS) for hedging purposes.

The collateral or guarantees may include:

V personal guarantees, in which the credit protection consists of a commitment by a third party to pay in the event of default, e.g. on-demand guarantees, joint-and-several guarantees or ownership clauses;

V asset guarantees representing a transferable asset pledged to secure the reimbursement of a loan in the event that the borrower fails to meet its payment obligations (financial and tangible assets including cash, shares and bonds and pledges of stock, mortgages on real estate or ships, and so on).

The principles used for identifying, measuring and managing credit risk hedging instruments are determined by the recommendations of the Basel Committee accord. The decision on whether a guarantee’s risk-reducing effects make it eligible to be included in risk-exposure calculations is made on a case-by-case basis. Checkpoints are provided for throughout the process. They cover the approval of the transaction, the monitoring of credit risk exposure and the calculation of the resulting capital requirements (predominantly calculated according to IRBA since September 30, 2010).

Collateral and netting agreements give rise to:

V an analysis undertaken when loan applications are approved or reviewed, assessing the suitability of the instrument or guarantee provided and the associated improvement in risk quality; V verification, processing and documentation based on the use of

standard contracts or contracts approved by the Legal Department; V registration and monitoring procedures covering risk administration

and management systems.

Similarly, providers of sureties (via signature guarantees or CDS) are examined, rated and monitored, as with debtors.

Natixis may take steps to reduce commitments in order to lower concentration risk by counterparty, sector and geographic area. Concentration risk is rounded out with an analysis, based on stress test methodologies (migration of ratings according to macroeconomic scenarios).

Natixis may buy credit-default swaps and enter into synthetic securitization transactions in order to reduce all or part of the credit risk exposure attached to some assets by transferring the risk to the market. CDS-protected loans remain on Natixis’ balance sheet, but bear the counterparty risk attached to the credit-default swap sellers, which are generally OECD banks. Transactions with non-bank third parties are fully collateralized in cash.

3.4.6

COMMITMENT MONITORING

PROCEDURES

(Data certifi ed by the Statutory Auditors in accordance with IFRS 7)

Credit risk is supervised by making the various business lines accountable, and by various control measures overseen by a dedicated Risk Department team.

The business lines carry out day-to-day counterparty risk monitoring and the Risk Department conducts second-level controls. Each month, the Risk Department submits an overview of its monitoring activities to Senior Management and the Risk Committee (to the Audit Committee until December 2014).

Periodic reviews of sector-based risk policies also help to ensure that the risk budgets allocated by the Global Risk Committee chaired by the Chief Executive Offi cer are observed. This risk undergoes sector monitoring by the Risk Department, which, among other things, results in the producing of half-yearly market reviews covering the majority of the business sectors and whose (notably geographic) focus is tailored to the make-up of Natixis’ portfolio. The purpose of this process is to:

V monitor new information about each sector (main events and changes in trends);

V monitor objective indicators specific to each sector; V assess the change in the risks inherent to each sector;

V regularly rate business sectors/sub-sectors, independently of the individual counterparty rating process.

It is used particularly to review the change in Natixis’ exposures by business sector and the distribution of these exposures by geographic region and by rating. Aside from this regular and systematic monitoring, this sector monitoring may also give rise to occasional reports describing emerging sector risks or issuing warnings about changes in specifi c sector risks.

The limits governing country exposure (country caps) are examined at least once a year and approved by the Global Risk Committee in light of the countries’ ratings and situations. Where there has been a signifi cant change in a country, an analysis is presented to the Credit Risk Committee in order to adapt the monitoring and procedures relative to the country in question.

Moreover, the Credit Committee’s decisions regarding transactions with a signifi cant exposure in terms of the total amount, country situation or type of the transaction under review are based on an analysis of country risk.

The monthly Limit Breach Committee analyzes breaches of predefi ned limits using specifi c indicators (number, total, duration, business lines concerned, etc.), examines signifi cant breaches and monitors their correction.

Loans showing a deterioration in the level of risk are identifi ed as they occur and are reported immediately to the Risk Department and

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Credit and counterparty risks (including country risk)