These calculations are broadly based on the internal models used within the framework of the prudential system, where they exist, but with adjustments to determine an economic ECL. IFRS 9 recommends a Point in Time analysis while having regard to historical loss data and forward-looking macroeconomic data, whereas prudential regulation uses Through the Cycle analysis for Probability of Default and Downturn analysis for Loss Given Default (LGD). The accounting approach also involves recalculating certain Basel parameters, in particular to neutralise internal collection costs or floors imposed by the regulatory authorities for regulatory loss given at default (LGD) calculations. The methods for calculating expected credit losses are to be assessed according to the types of products: financial instruments and off-balance sheet instruments. The 12-month expected credit loss (Stage 1) is a portion of lifetime expected credit losses (Stages 2 and 3) , representing the lifetime cash flow shortfall occurring from a default within 12 months of the reporting date (or a shorter period if the financial instrument’s expected life is shorter than 12 months), weighted by the probability of default within twelve months. Expected credit losses are discounted at the EIR used for initial recognition of the financial instrument. ECL calculations take into account assets pledged as collateral and other credit enhancements that form an integral part of the instrument’s contractual conditions and that CFM Indosuez Wealth does not recognise separately. The estimate of expected cash flow shortfalls from a guaranteed financial instrument reflects the amount and timing of recovery of guarantees. In accordance with IFRS 9, the recognition of guarantees and collateral does not influence the assessment of a material increase in credit risk, which depends on changes in credit risk relating to the debtor without taking into account such guarantees. The models and parameters used are backtested at least annually. Forward-looking macro-economic data are taken into account in a methodological framework applicable at two levels: - at Group level for determining a shared framework for considering forward-looking data in forecasting PD and LGD parameters over the transaction amortisation period; - at the level of each entity with respect to its own portfolios. Significant deterioration of credit risk All Group entities must assess the credit risk deterioration for each financial instrument from the origin to each reporting date. Entities classify their transactions by risk category (Stages) based on this assessment of the change in credit risk. The Group plans to assess significant deterioration using a process based on two levels of analysis: - an initial level based on relative and absolute Group rules and criteria that apply to all Group entities (Forward Looking Central); - a second level linked to the assessment, based on the local Forward Looking expert opinion, of the risk borne by each entity on its portfolios, which may lead to an adjustment of the Group's criteria for downgrading to Stage 2 (switching the portfolio or sub-portfolio from 12-month ECL to lifetime ECL). Each financial instrument is monitored for significant deterioration, save for exceptional cases. No contagion is required for financial instruments from the same counterparty to be transferred from Stage 1 to Stage 2. Monitoring of significant deterioration must consider the change in the principal debtor’s credit risk without taking account of any guarantee, including for transactions with a shareholder guarantee. Projected losses in respect of amounts outstanding that consist of small debts with similar characteristics may be estimated on a statistical basis rather than on an individual counterparty basis. To measure the significant deterioration in credit risk since initial recognition, it is necessary to take the internal rating and PD (probability of default) at origination. The date of initial recognition refers to the trading date, when CFM Indosuez Wealth becomes a party to the financial instrument’s contractual provisions. For financing and guarantee commitments, origination means the date on which the irrevocable commitment was made. In the absence of an internal rating model, Groupe Crédit Agricole uses the absolute threshold of nonpayment for over thirty days as the ultimate threshold for significant deterioration and classification in Stage 2. For outstanding amounts (with the exception of securities) covered by internal rating systems (in particular exposures monitored by authorised methods), Crédit Agricole Group considers that all the information included in the rating systems allows for a more relevant assessment than the sole criterion of amounts past due for more than 30 days. If the deterioration since initial recognition ceases to exist, the outstandings are reclassified as Stage 1 (sound outstandings), and the impairment is reduced to losses expected over 12 months. To make up for the fact that certain significant deterioration factors or indicators may not be identifiable at financial instrument level, taken in Annual Report 2024 73
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