FINANCIAL REPORT 2017

In the case of debt instruments (loans and fixed or determinable terms to classify and measure financial assets. income securities), IFRS 9 tests the business model and contractual terms to classify and measure financial assets. The three business models: • The collection only model where the intention is to collect the contractual cash flows over the life of the asset; • The mixed model where the intention is to collect the contractual cash flows over the life of the asset and to sell the asset if an opportunity arises; and • The sellingonlymodel where the intention is tosell theasset. The contractual terms (“Solely Payments of Principal & Interest” [SPPI] test): This second criterion is applied to the contractual terms of the loan or debt security to finally determine the accounting classification and measurement category to which the instrument belongs. When the debt instrument has expected cash flows that are not solely payments of principal and interest (i.e. simple rate), its contractual terms are deemed too complex and as a result, the loan or debt security is recognised at fair value through profit or loss regardless of their business model. This involves the instruments that do not satisfy the conditions of the “SPPI” test. Contractual characteristics (or SPPI) testing combines a set of criteria, examined cumulatively, to establish whether contractual cash flows meet the characteristics of simple financing (principal repayments and interest payments on the remaining amount of principal due). In simple financing, interest represents the cost of the passage of time, the price of credit and liquidity risk over the period, and other components related to the cost of carrying the asset (e.g. administrative costs). In some cases, when qualitative analysis of this nature does not allow a conclusion to be made, quantitative analysis (or benchmark testing) is carried out. This additional analysis consists of comparing the contractual cash flows of the asset under review with the cash flows of a benchmark asset. If the difference between the cash flows of the financial asset and the benchmark asset is considered immaterial, the asset is deemed to be simple financing. Moreover, specific analysis is conducted when the financial asset is issued by special purpose entities establishing a differentiated order of payment among the holders of the financial assets by contractually linkingmultiple instruments and creating concentrations of credit risk (“tranches”). Each tranche is assigned a rank of subordination that specifies the order of distribution of cash flows generated by the structured entity.

the underlying assets and the credit risk borne by the tranches subscribed under the “look-through” approach.

On the basis of the foregoing criteria: • a debt instrument is recognised at amortised cost when it is held to collect cash flows that are solely payments of principal and interest (SPPI test); • a debt instrument is recognised at fair value through other comprehensive income (items that can be reclassified) in the case of a mixed model to collect cash flows and sell where opportunities arise, provided its contractual terms also comprise solely payments of principal and interest (SPPI test); • a debt instrument that does not qualify for the amortised cost or fair value through other comprehensive income category (items that can be reclassified) is recognised at fair value through profit or loss. The same applies to debt instruments where the business model is selling only. This also includes non-consolidated UCITS units that are debt instruments that fail to satisfy the SPPI test regardless of the business model. In the case of equity instruments (investments such as shares), they must, by default, be recognised at fair value through profit or loss, except in the case of an irrevocable election to classify them at fair value through other comprehensive income (items that cannot be reclassified) (provided these instruments are not held for trading). In summary, the Group’s application of the classification and measurement criteria under IFRS 9 should lead to: • an increase in assets at fair value through profit or loss, given the reclassification of UCITS and the majority of equity instruments in this category, resulting in increased profit or loss volatility; • the classification at amortised cost of the vast majority of loans and receivables, provided they pass the SPPI test; • the classification of debt instruments at fair value through other comprehensive income (items that can be reclassified) or at amortised cost, depending on the documented business model at the date of initial application. Impairment IFRS 9 introduces a new impairment model that requires the recognition of Expected Credit Losses (ECL) on credit and debt instruments measured at amortised cost or at fair value through other comprehensive income (items that can be reclassified), on loan commitments and financial guarantee contracts that are not recognised at fair value, as well as on lease receivables and trade receivables. This new ECL approach is designed to bring forward as much as possible the recognition of expected credit losses, whereas under the IAS 39 provisioning model, it is subject to there being objective evidence that an impairment loss has been incurred.

ECL is defined as the weighted expected probable value of the discounted credit loss (principal and interest).

In this case, the SPPI test requires an analysis of the characteristics of the contractual cash flows of

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