2007 REGISTRATION DOCUMENT
2007 REGISTRATION DOCUMENT 2007 REGISTRATION DOCUMENT
5 NotesCONSOLIDATED FINANCIAL STATEMENTSto the financial s tatements p repared in accordance with I nternational Financial Reporting S tandards as adopted by the European Union< Contents >to companies developed in partnership with other groups, where theBNP Paribas Group participates in the strategic decision-making of theenterprise through representation on the Board of Directors or equivalentgoverning body, exercises influence over the enterprise’s operationalmanagement by supplying management systems or decision-makingtools, and provides technical assistance to support the enterprise’sdevelopment.Changes in the net assets of associates (companies accounted for underthe equity method) are recognised in “Investments in associates” onthe assets side of the balance sheet, and in the relevant componentof shareholders’ equity. Goodwill on associates is also included in“Investments in associates”.If the Group’s share of losses of an associate equals or exceeds thecarrying amount of its investment in the associate, the Group discontinuesincluding its share of further losses. The investment is reported at nilvalue. Additional losses of the associate are provided for only to theextent that the Group has a legal or constructive obligation to do so, orhas made payments on behalf of the associate.Minority interests are presented separately in the consolidated profitand loss account and balance sheet. The calculation of minority intereststakes account of outstanding cumulative preferred shares classified asequity instruments and issued by subsidiaries, and held outside theGroup.Realised gains and losses on investments in consolidated undertakingsare recognised in the profit and loss account under “Net gain on noncurrentassets”.1.b.3Consolidation p roceduresThe consolidated financial statements are prepared using uniformaccounting policies for reporting like transactions and other events insimilar circumstances.Elimination of intragroup balances and transactionsIntragroup balances arising from transactions between consolidatedenterprises, and the transactions themselves (including income, expensesand dividends), are eliminated. Profits and losses arising from intragroupsales of assets are eliminated, except where there is an indication thatthe asset sold is impaired. Unrealised gains and losses included in thevalue of available-for-sale assets are maintained in the consolidatedfinancial statements.Translation of financial statements expressedin foreign currenciesThe consolidated financial statements of BNP Paribas are prepared ineuros.The financial statements of enterprises whose functional currency is notthe euro are translated using the closing rate method. Under this method,all assets and liabilities, both monetary and non-monetary, are translatedusing the spot exchange rate at the balance sheet date. Income andexpense items are translated at the average rate for the period.The same method is applied to the financial statements of enterpriseslocated in hyperinflationary economies, after adjusting for the effectsof inflation by applying a general price index.Differences arising on the translation of balance sheet items and profitand loss items are recorded in shareholders’ equity under “Cumulativetranslation adjustment” for the portion attributable to shareholders, andin “Minority interests” for the portion attributable to outside investors.Under the optional treatment permitted by IFRS 1, the Group has resetat zero, by transfer to retained earnings, all cumulative translationdifferences attributable to shareholders and to minority interests in theopening balance sheet at 1 January 2004.On liquidation or disposal of some or all of the interest held in a foreignenterprise, the portion of the cumulative translation adjustment recordedin shareholders’ equity in respect of the interest liquidated or disposedof is recognised in the profit and loss account.1.b.4Business c ombinationsand m easurement of g oodwillBusiness combinationsBusiness combinations are accounted for by the purchase method. Underthis method, the acquiree’s identifiable assets, liabilities and contingentliabilities that meet the IFRS recognition criteria are measured at fairvalue at the acquisition date except for non-current assets classifiedas assets held for sale, which are accounted for at fair value less coststo sell. The Group may recognise any adjustments to the provisionalaccounting within 12 months of the acquisition date.The cost of a business combination is the fair value, at the date ofexchange, of assets given, liabilities assumed, and equity instrumentsissued to obtain control of the acquiree, plus any costs directly attributableto the combination.Goodwill represents the difference between the cost of the combinationand the acquirer’s interest in the net fair value of the identifiable assets,liabilities and contingent liabilities of the acquiree at the acquisitiondate. Positive goodwill is recognised in the acquirer’s balance sheet, andbadwill is recognised immediately in profit or loss, on the acquisition date.Goodwill is recognised in the functional currency of the acquiree andtranslated at the closing exchange rate.The BNP Paribas Group tests goodwill for impairment on a regularbasis.As permitted under IFRS 1, business combinations that took place before1 January 2004 and were recorded in accordance with the previouslyapplicable accounting standards (French GAAP), have not been restatedin accordance with the principles set out above.Cash-generating unitsThe BNP Paribas Group has split all its activities into cash-generatingunits (1) , representing major business lines. This split is consistent with theGroup’s organisational structure and management methods, and reflectsthe independence of each unit in terms of results and managementmethods; it is subject to regular review in order to take account ofevents likely to affect the composition of cash-generating units, suchas acquisitions, disposals and major reorganisations.12345678910(1) As defined by IAS 36.111162007 Registration document - BNP PARIBAS
CONSOLIDATED FINANCIAL STATEMENTS5Notes to the financial s tatements p repared in accordance with I nternational Financial Reporting S tandards as adopted by the European Union< Contents >Testing cash-generating units for impairmentGoodwill allocated to cash-generating units is tested for impairmentannually and whenever there is an indication that a unit may be impaired,by comparing the carrying amount of the unit with its recoverableamount. If the recoverable amount is less than the carrying amount, anirreversible impairment loss is recognised, writing down the goodwillby the excess of the carrying amount of the unit over its recoverableamount.Recoverable amount of a cash-generating unitThe recoverable amount of a cash-generating unit is the higher of thefair value of the unit and its value in use.Fair value is the price that would be obtained from selling the unitat the market conditions prevailing at the date of measurement, asdetermined mainly by reference to actual prices of recent transactionsinvolving similar entities or on the basis of stock market multiples forcomparable companies.Value in use is based on an estimate of the future cash flows to begenerated by the cash-generating unit, derived from the annual forecastsprepared by the unit’s management and approved by Group ExecutiveManagement and from analyses of long-term trends of the marketpositioning of the unit’s activities. These cash flows are discounted ata rate that reflects the return that investors would require from aninvestment in the business sector and region involved.1.c FINANCIAL ASSETS AND FINANCIALLIABILITIES1.c.1Loans and r eceivablesLoans and receivables include credit provided by the Group, the Group’sshare in syndicated loans, and purchased loans that are not quoted in anactive market, unless they are held for trading purposes. Loans that arequoted in an active market are classified as “Available-for-sale financialassets” and measured using the methods applicable to this category.Loans and receivables are initially measured at fair value, which is usuallythe net amount disbursed at inception including directly attributableorigination costs and certain types of fees or commission (syndicationcommission, commitment fees and handling charges) that are regardedas an adjustment to the effective interest rate on the loan.Loans and receivables are subsequently measured at amortised cost. Theincome from the loan, representing interest plus transaction costs andfees/commission included in the initial value of the loan, is calculatedusing the effective interest method and taken to profit or loss over thelife of the loan.Commission earned on financing commitments prior to the inceptionof a loan is deferred and included in the value of the loan when theloan is made.Commission earned on financing commitments where the probability ofdrawdown is low, or there is uncertainty as to the timing and amountof drawdowns, is recognised on a straight-line basis over the life of thecommitment.1.c.2Regulated s avings and l oan c ontractsHome savings accounts (Comptes Épargne-Logement –“CEL”) and homesavings plans (Plans d’Épargne Logement – “PEL”) are governmentregulatedretail products sold in France. They combine a savings phaseand a loan phase which are inseparable, with the loan phase contingentupon the savings phase.These products contain two types of obligation for BNP Paribas: (i) anobligation to pay interest on the savings for an indefinite period, at a rateset by the government on inception of the contract (in the case of PELproducts) or at a rate reset every six months using an indexation formulaset by law (in the case of CEL products); and (ii) an obligation to lend tothe customer (at the customer’s option) an amount contingent upon therights acquired during the savings phase, at a rate set on inception ofthe contract (in the case of PEL products) or at a rate contingent uponthe savings phase (in the case of CEL products).The Group’s future obligations in respect of each generation (in the caseof PEL products, a generation comprises all products with the sameinterest rate at inception; in the case of CEL products, all such productsconstitute a single generation) are measured by discounting potentialfuture earnings from at-risk outstandings for that generation.At-risk outstandings are estimated on the basis of a historical analysisof customer behaviour, and equate to:■ for the loan phase: statistically probable loan outstandings and actualloan outstandings;■ for the savings phase: the difference between statistically probableoutstandings and minimum expected outstandings, with minimumexpected outstandings being deemed equivalent to unconditionalterm deposits.Earnings for future periods from the savings phase are estimated as thedifference between (i) the reinvestment rate and (ii) the fixed savingsinterest rate on at-risk savings outstandings for the period in question.Earnings for future periods from the loan phase are estimated as thedifference between (i) the refinancing rate and (ii) the fixed loan interestrate on at-risk loan outstandings for the period in question.The reinvestment rate for savings and the refinancing rate for loans arederived from the swap yield curve and from the spreads expected onfinancial instruments of similar type and maturity. Spreads are determinedon the basis of actual spreads on (i) fixed-rate home loans in the case ofthe loan phase and (ii) euro-denominated life assurance products in thecase of the savings phase. In order to reflect the uncertainty of futureinterest rate trends, and the impact of such trends on customer behaviourmodels and on at-risk outstandings, the obligations are estimated usingthe Monte Carlo method.Where the sum of the Group’s estimated future obligations in respectof the savings and loan phases of any generation of contracts indicatesa potentially unfavourable situation for the Group, a provision isrecognised (with no offset between generations) in the balance sheet in“Provisions for contingencies and charges”. Movements in this provisionare recognised as interest income in the profit and loss account.12345678910112007 Registration document - BNP PARIBAS 117
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CONSOLIDATED FINANCIAL STATEMENTS5Notes to the financial s tatements p repared in accordance with I nternational Financial Reporting S tandards as adopted by the European Union< Contents >Testing cash-generating units for impairmentGoodwill allocated to cash-generating units is tested for impairmentannually and whenever there is an indication that a unit may be impaired,by comparing the carrying amount of the unit with its recoverableamount. If the recoverable amount is less than the carrying amount, anirreversible impairment loss is recognised, writing down the goodwillby the excess of the carrying amount of the unit over its recoverableamount.Recoverable amount of a cash-generating unitThe recoverable amount of a cash-generating unit is the higher of thefair value of the unit and its value in use.Fair value is the price that would be obtained from selling the unitat the market conditions prevailing at the date of measurement, asdetermined mainly by reference to actual prices of recent transactionsinvolving similar entities or on the basis of stock market multiples forcomparable companies.Value in use is based on an estimate of the future cash flows to begenerated by the cash-generating unit, derived from the annual forecastsprepared by the unit’s management and approved by Group ExecutiveManagement and from analyses of long-term trends of the marketpositioning of the unit’s activities. These cash flows are discounted ata rate that reflects the return that investors would require from aninvestment in the business sector and region involved.1.c FINANCIAL ASSETS AND FINANCIALLIABILITIES1.c.1Loans and r eceivablesLoans and receivables include credit provided by the Group, the Group’sshare in syndicated loans, and purchased loans that are not quoted in anactive market, unless they are held for trading purposes. Loans that arequoted in an active market are classified as “Available-for-sale financialassets” and measured using the methods applicable to this category.Loans and receivables are initially measured at fair value, which is usuallythe net amount disbursed at inception including directly attributableorigination costs and certain types of fees or commission (syndicationcommission, commitment fees and handling charges) that are regardedas an adjustment to the effective interest rate on the loan.Loans and receivables are subsequently measured at amortised cost. Theincome from the loan, representing interest plus transaction costs andfees/commission included in the initial value of the loan, is calculatedusing the effective interest method and taken to profit or loss over thelife of the loan.Commission earned on financing commitments prior to the inceptionof a loan is deferred and included in the value of the loan when theloan is made.Commission earned on financing commitments where the probability ofdrawdown is low, or there is uncertainty as to the timing and amountof drawdowns, is recognised on a straight-line basis over the life of thecommitment.1.c.2Regulated s avings and l oan c ontractsHome savings accounts (Comptes Épargne-Logement –“CEL”) and homesavings plans (Plans d’Épargne Logement – “PEL”) are governmentregulatedretail products sold in France. They combine a savings phaseand a loan phase which are inseparable, with the loan phase contingentupon the savings phase.These products contain two types of obligation for BNP Paribas: (i) anobligation to pay interest on the savings for an indefinite period, at a rateset by the government on inception of the contract (in the case of PELproducts) or at a rate reset every six months using an indexation formulaset by law (in the case of CEL products); and (ii) an obligation to lend tothe customer (at the customer’s option) an amount contingent upon therights acquired during the savings phase, at a rate set on inception ofthe contract (in the case of PEL products) or at a rate contingent uponthe savings phase (in the case of CEL products).The Group’s future obligations in respect of each generation (in the caseof PEL products, a generation comprises all products with the sameinterest rate at inception; in the case of CEL products, all such productsconstitute a single generation) are measured by discounting potentialfuture earnings from at-risk outstandings for that generation.At-risk outstandings are estimated on the basis of a historical analysisof customer behaviour, and equate to:■ for the loan phase: statistically probable loan outstandings and actualloan outstandings;■ for the savings phase: the difference between statistically probableoutstandings and minimum expected outstandings, with minimumexpected outstandings being deemed equivalent to unconditionalterm deposits.Earnings for future periods from the savings phase are estimated as thedifference between (i) the reinvestment rate and (ii) the fixed savingsinterest rate on at-risk savings outstandings for the period in question.Earnings for future periods from the loan phase are estimated as thedifference between (i) the refinancing rate and (ii) the fixed loan interestrate on at-risk loan outstandings for the period in question.The reinvestment rate for savings and the refinancing rate for loans arederived from the swap yield curve and from the spreads expected onfinancial instruments of similar type and maturity. Spreads are determinedon the basis of actual spreads on (i) fixed-rate home loans in the case ofthe loan phase and (ii) euro-denominated life assurance products in thecase of the savings phase. In order to reflect the uncertainty of futureinterest rate trends, and the impact of such trends on customer behaviourmodels and on at-risk outstandings, the obligations are estimated usingthe Monte Carlo method.Where the sum of the Group’s estimated future obligations in respectof the savings and loan phases of any generation of contracts indicatesa potentially unfavourable situation for the Group, a provision isrecognised (with no offset between generations) in the balance sheet in“Provisions for contingencies and charges”. Movements in this provisionare recognised as interest income in the profit and loss account.1234567891011<strong>2007</strong> Registration document - BNP PARIBAS 117
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