2007 REGISTRATION DOCUMENT

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2007 REVIEW OF OPERATIONS4 Outlook< Contents >4.5 Outlook1CORE BUSINESSESFrench Retail Banking (FRB) is targeting 4% average annual growthin net banking income. With respect to individual customers, FRB plansto create a new lead in multi-channel banking, which is expected tofurther enhance service quality and customer satisfaction as well asexpand market share. By 2010, over 10% of sales are expected to bemade via the internet.FRB also intends to remain at the forefront of Private Banking in France.Its unique organisation in the country should help generate annualdouble-digit growth in assets under management.In corporate banking services, FRB will continue to capitalise on theadvantages of its Business Centre organisation. It will aim to becomethe main bank for a growing number of its customers, by continuing toexpand cross-selling with the Corporate and Investment Banking division,particularly in M&A, where it has been the leading player in the Frenchmarket for the past three years. BNP Paribas will also look to expand itscorporate client base by focusing on high-growth companies.In terms of operating efficiency, the French banking network is targetinga positive jaws effect of 1 point per annum.The objective regarding BNL bc is to finalise the integration process in2008 and unlock the remaining synergies expected in the 2007-2009plan.The momentum for change is set to continue, with multi-channelsolutions to be rolled out to individual customers from the bank’s Frenchoperating platform – an unrivalled offering in the Italian market. Allexisting branches will be renovated and 100 new branches will beopened .BNL bc’s objective is to become Italy’s leading bank for corporatecustomers, by leveraging CIB’s product expertise and the Group’s broadreachinginternational network, particularly around the Mediterraneanbasin.BNL bc is targeting 6% average annual growth in net banking incomeand a positive jaws effect of 5 points per annum, buoyed by best in-housepractices as well as economies of scale (particularly in IT) resulting fromits being part of a major international group.International Retail banking and Financial Services (IR FS) is targeting10% average annual growth in net banking income. Its strategy is rootedin further integration between retail banking networks and specialisedfinancing businesses. IR FS hopes to add 20 million new customers toits books by 2010, including around 6 million in retail banking networks.At the end of 2007, IR FS had 8.4 million retail banking customers,20.9 million direct Personal Finance customers, and 22.9 millioncustomers managed by Personal Finance.IR FS will also strive to grow net banking income per customer byintensifying cross-selling at all levels of the business:■ within each entity, by leveraging BNP Paribas’ commercial expertise inrecently acquired networks and expanding Personal Finance’s productoffering;■ within other IR FS entities, by making the products developed byspecialised companies such as auto loans available to the networks, andby offering banking services to clients of specialised companies;■ within the Group’s other core businesses, by expanding creditprotection insurance and private banking services, using CIB’s expertiseto develop international trade finance and capital market products,and creating an integrated leasing solution between EquipmentSolutions and the FRB/BNL bc networks.This growth drive will go hand-in-hand with improved operatingefficiency thanks to process reengineering at each entity and sharedplatforms, and should generate a positive jaws effect of 1 point perannum.Asset Management and Services (AMS) is well placed to benefit fromthe positive structural dynamics of the savings market, with developingcountries facing a growing elderly population and increased appetitefor precautionary savings, and emerging markets characterised by anexpanding middle class and a rise in the number of high net worthindividuals.AMS should continue to deliver sustained growth on the strength of itsunique organisational structure. The business combines an extensive rangeof products covering all asset classes supported by a multi-managementapproach, with multiple internal and external distribution channels thatallow it to access a global customer base. Its international expansionshould gather pace in Europe, with the business capturing a larger sliceof onshore and offshore markets and reinforcing its presence in emergingcountries. These currently represent 5% of the division’s net bankingincome, a percentage expected to rise to 10% by 2010. Overall, AMS istargeting 10% average annual growth in assets under management anda 10% increase in gross operating income per annum.Despite significant uncertainties in the market going forward, Corporateand Investment Banking (CIB) hopes to match this year’s recordperformance in 2008. Its ambitious objective can be achieved thanksto:■ BNP Paribas’ limited reliance on proprietary trading revenues;■ the limited size of the businesses directly hit by the subprime crisis:structured credit derivatives, securitisation and LBO originationbusinesses represented less than 10% of CIB’s net banking incomein 2007;■ an astute geographical positioning and business mix which allowsCIB to benefit from positive structural dynamics in derivatives andspecialist financing markets;■ the Group’s financial strength, which provides a clear competitiveadvantage at this phase of the business cycle.CIB will look to deepen its footprint in Europe, and especially in Italy. Itwill capitalise on strong positions in Asia and emerging countries (27%of client business in 2007) by boosting its presence in India, China, Russiaand the Gulf region.CIB will also step up business with financial institutions, building on BNPParibas’ expertise, high quality ratings and worldwide leadership.2345678910111022007 Registration document - BNP PARIBAS
2007 REVIEW OF OPERATIONSOutlook 4CAPITAL M ANAGEMENTOn 1 January 2008, the new Basel II capital framework came into forcefor banks in the European Union applying advanced measurementapproaches to risk. The original Basel I framework introduced in 1998had represented a major step towards improving financial strengthin the banking industry. Basel II is a considerable improvement on itspredecessor, aligning capital requirements more closely to the underlyingeconomic risks that banks face. Nowhere is this more relevant than inthe current market climate.Thanks to the quality of its banking books, the Group’s transition to BaselII will result in a reduction of risk-weighted assets, although this will belimited by the applicable capital floor, set at 90% of Basel I risk-weightedassets in 2008. The calculation of eligible capital under Basel II is alsomore restrictive. In light of these opposing changes in the numeratorand denominator, the estimated Tier 1 ratio under Basel II is 7.6% at1 January 2008, representing an improvement of some 30 basis pointscompared to the Tier 1 ratio under Basel I.The Group will monitor the dynamics of this new ratio for a year beforedisclosing its target Tier 1 ratio under Basel II.BNP Paribas has opted for the advanced approaches allowed underBasel II. In accordance with the European Directive and its implementinglegislation in France, on 20 December 2007 the French banking supervisor(Commission Bancaire) approved the use of the Group’s own models todetermine its minimum capital requirements as from 1 January 2008. Thescope of entities authorised to use these internal risk models is significant,and includes BNP Paribas SA and Cetelem in France and abroad. However,for the time being there are a few notable exceptions such as BNL andBancWest. Other entities, such as subsidiaries in emerging countries,will only adopt these internal models after a number of years, oncethey comply with the conditions set by the Commission Bancaire andagreed by the Group.FIRST PILLAR: NEW MINIMUM CAPITALREQUIREMENTSCredit riskBNP Paribas has been using internal ratings-based models to calculatecredit risk for many years. The introduction of Basel II prompted theGroup to improve and perfect its techniques and aim for a more stringentquantification, documentation and reporting of risks.Corporate and Investment BankingCorporate and Investment Banking incurs the bulk of the Group’scredit risk on its corporate, banking and sovereign customers. GroupRisk Management (GRM) ensures that credit risk policies are appliedconsistently by all entities, irrespective of their legal form or country. Thesame credit risk management and measurement rules apply throughoutthe Group; they are centralised and calibrated on a global scale.Credit risk methodologies are based on the following three keyparameters:■ Counterparty Rating, which reflects the probability that the borrowermay default through the cycle;■ Loss Given Default (LGD), which is set as a function of the GlobalRecovery Rate or expected amount recoverable on a credit facilityif the borrower defaults. This is estimated before the facility isgranted;■ Exposure at Default (EAD), which represents the actual exposure forthe lender at the time of default.Borrowers are graded based on a series of documents and tools thatmake up the Group’s ratings methodology, including:■ core policies : Standard Ratings Policy and Specific Ratings Policiesadapted to certain business segments;■ ratings-based tools;■ a ratings process, which is part of the credit assessment procedure;■ control and oversight procedures, which involve validating andmonitoring the ratings methodology.Retail BankingRetail banking operations are carried out either by the parent company’snetwork of branches in France, or by certain subsidiaries including theCetelem, BancWest and BNL sub-groups.The methods for managing and assessing credit risk on internationalretail banking operations included in the Cetelem sub-group are basedon a central model calibrated on local data. BNL and BancWest subgroupswill adopt this model after a number of years, once their creditrisk approaches have been standardised and validated by central GRMteams and approved by supervisors in their host countries.The Standard Ratings Policy for Retail Operations provides a frameworkallowing Group core businesses and risk management departmentsto assess, prioritise and monitor credit risks consistently. This policy isused for transactions presenting a high degree of granularity, small unitvolumes and a standard risk profile. Borrowers are assigned scores inaccordance with the policy, which sets out:■ standard internal ratings-based principles, underlining the importanceof a watertight system and the ability to adapt to changes in thecredit environment;■ principles for defining groups of transactions with similar riskcharacteristics (Risk Groups);■ principles relative to credit models, particularly the need to developdiscriminating and understandable models, and model or observe riskindicators downstream in order to calibrate exposures. Risk indicatorsmust be quantified based on historical data covering a minimumperiod of five years, and in-depth, representative sampling. All modelsmust be documented in detail.Scoring techniques are not focused on grading individual borrowersbut on assigning them to risk groups presenting the same default riskcharacteristics. This also applies to the other credit risk inputs Exposureat Default (EAD) and Loss Given Default (LGD).Securitised exposures< Contents >Assets securitised as part of proprietary securitisation transactions whichrespect the eligibility criteria under Basel II, particularly regarding thesignificant risk transfer are excluded from the calculation of regulatorycapital. T he positions that BNP Paribas may hold in the securitisation andany commitments subsequently granted to the securitisation vehicle areincluded in the calculation using the external ratings-based approach.12345678910112007 Registration document - BNP PARIBAS 103
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2007REGISTRATION DOCUMENT
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1 TheTHE BNP PARIBAS GROUPBNP Parib
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THE BNP PARIBAS GROUP1The Group’s
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1 ShareholderTHE BNP PARIBAS GROUPi
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8 DocumentsGENERAL INFORMATIONon di
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8 YearGENERAL INFORMATIONended 31 D
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10 PersonPERSON RESPONSIBLE FOR THE
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11TABLE OF CONCORDANCE< Contents >H
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