21/08/2025 - BCV - Banque Cantonale Vaudoise: Final Basel III Accord - Pillar 3 Report

Final Basel III Accord Pillar 3 Report

Market discipline

Final Basel III Accord - Pillar 3 Report at 30 June 2025 21 August 2025/Banque Cantonale Vaudoise/Version 1.0

TABLE OF CONTENTS

1. Objective and scope of this report 3

   1. Disclosure policy 3

   2. Scope 3

2. Capital adequacy and liquidity 4

   1. Key ratios 4

   2. Capital structure 7

   3. Risk-weighted assets 9

3. Comprehensive risk management approach 10

   1. Risk management objectives and governance 10

   2. Risk-taking strategy 11

   3. Classification of risks and risk-assessment principles 12

4. Credit risk 14

   1. Credit-risk framework 14

   2. Loans and debt securities 21

   3. Counterparty credit risk 39

5. Market risk 45

   1. Market risk in the trading book 45

   2. Risk on equity securities in the banking book 47

   3. Interest-rate risk in the banking book 47

   4. Liquidity risk 54

6. Operational risk 62

   1. Overview 62

   2. Key compliance risks 64

   3. Key security risks 65

   4. Principles governing the Bank's internal control system (ICS) 65

7. Climate-related risk 67

8. Appendix 69

   1. Reconciliation of financial statements and regulatory exposure 70

   2. Modeled versus standardized approach 78

   3. Leverage ratio 80

   4. Disclosure map, analytical classifications, and abbreviations 81

   5. Parent-company disclosures 91

1. ‌OBJECTIVE AND SCOPE OF THIS REPORT

   The objective of this report is to provide in-depth information on risk management at BCV Group to investors, analysts, ratings agencies, and supervisory bodies. In particular, it describes the Bank's capital adequacy, its risk-assessment methods, and the level of risk taken at BCV. This document was prepared in accordance with the Pillar 3 disclosure requirements set forth under FINMA Ordinance on the Disclosure Obligations of Banks and Securities Firms (DisO-FINMA), which is based on the recommendations of the final Basel III Accord (DIS Chapter).1

   1. ‌Disclosure policy

      For ease of access, this report is available in the investor relations section of BCV's website. It has been updated on a half-yearly basis ever since BCV became subject to Basel II on 1 January 2009. It is published within two months following the end of the first half of the financial year and within four months following the end of the financial year, in accordance with Swiss regulations (DisO-FINMA, Article 14).

      This version of the report corresponds to the closing of accounts on 30 June 2025.2 The description of the Bank's governance, methods, and processes reflects the situation at 30 June 2025; subsequent changes are not included.

      The Bank's external auditor verifies, as a general rule every three years, compliance with financial disclosure requirements based on FINMA Circular 2025/1 "Auditing," and states its opinion in its detailed audit report. The data contained in the Bank's Pillar 3 reports are calculated in accordance with the final Basel III Accord regulatory capital requirements. This calculation process was audited during FINMA's IRB approval process and is subject to oversight as part of the regulatory supervision process. Furthermore, BCV's Internal Audit Department periodically reviews the process for calculating capital requirements (final Basel III Accord, Chapter CRE36.59).

      The appendix to this report contains information that is useful for understanding this document, including a description of business segments and a list of abbreviations.

      The figures contained in the tables have each been properly rounded depending on the number of significant digits used for the table; this may result in discrepancies between listed column and row totals and the sum of individual column or row items.

   2. ‌Scope

      The parent company within BCV Group is Banque Cantonale Vaudoise, a corporation organized under public law with its headquarters in Lausanne.

      The companies that the Group is required to include in its regulatory reporting include companies over which BCV has control and companies in which it has significant influence over operations. These companies are fully consolidated. Significant influence is generally recognized by the Bank when it makes a profit from or bears the risks of a company's operations.

      Companies in which BCV has significant influence but no outright control (holdings of 20% to 50%) are accounted for using the equity method.

      1The correspondence between the tables in this Pillar 3 report and those in the final Basel III Accord is given in the Appendix (Section 8.4.1).

      2End-June figures are taken from BCV's interim financial statements, which are not audited by an independent auditor.

      The following companies are not included in the scope of consolidation:

      • Holdings of no material significance in terms of financial reporting and risk;

      • Significant holdings not held for strategic purposes and intended to be sold or liquidated within 12 months.

      Table 1. Group companies included in the regulatory scope of consolidation

      At 30 June 2025, BCV Group

      Group companies included in the supervisory review	Capital in millions	Shareholding (%)
      Private banks
      Piguet Galland & Cie SA, Yverdon-les-Bains (Switzerland)	CHF 24.4	99.7
      Fund-management companies
      Gérifonds SA, Lausanne (Switzerland)	CHF 2.9	100.0
      Gérifonds (Luxembourg) SA, Luxembourg	EUR 0.1	100.0
      Société pour la gestion de placements collectifs GEP SA, Lausanne (Switzerland)	CHF 1.5	100.0

      The regulatory scope of consolidation did not change in the first half of 2025.

      Companies taken into account for calculating capital requirements are the same as those included in the Group's consolidated accounts. All these companies are fully consolidated in the financial statements. No company is currently accounted for using the equity method. The Group has no subsidiaries in the field of insurance.

2. ‌CAPITAL ADEQUACY AND LIQUIDITY

   Monitoring capital adequacy and liquidity is a key component of BCV's financial strategy. Management carefully considers the potential impact on the Bank's capital and liquidity ratios before making any major decisions about the Bank's operations and the orientation of its business.

   The Executive Board monitors the capital and liquidity ratios monthly for the parent company. Both the Executive Board and the Board of Directors monitor these ratios every quarter for the parent company and every six months for the Group as a whole. FINMA monitors the parent company's capital adequacy and liquidity each quarter and the Group's capital adequacy and liquidity every six months using regulatory-required reports.

   1. ‌Key ratios

      FINMA's capital ratio requirement3 is based on the final Basel III Accord and is set forth in Article 41 of Switzerland's Capital Adequacy Ordinance (CAO). The minimum required total capital ratio for BCV was 14.0% at 30 June 2025. It comprises the permanent requirement for a category 3 bank (12.0%), a countercyclical capital buffer (1.0%), and an additional capital requirement (1.0%). The permanent requirement consists of the absolute minimum requirement for a banking license (8.0%) and the capital buffer for a category 3 bank (4.0%). The countercyclical capital buffer is a temporary requirement introduced by the Swiss Federal Council at the recommendation of the Swiss National Bank (SNB). The additional capital requirement is a temporary requirement set by FINMA in light of the low interest rates.

      3The capital ratio is equal to regulatory capital divided by risk-weighted assets.

      Given those low rates, and BCV's interest-rate-risk exposure as determined by FINMA, FINMA has set an additional capital requirement of 1.0% for BCV.

      BCV Group's total capital ratio was 18.5% at 30 June 2025, higher than the regulatory requirement of 14.0%. The Bank's Common Equity Tier 1 (CET1) ratio was 18.4%, also above FINMA's requirement of 9.8%. The difference between the Bank's total capital ratio and CET1 ratio is due to the fact that its Tier 2 capital (T2) comprises reserves on debt and equity securities carried under financial investments and stated at lower of cost or market, subject to a limit of 45% of unrealized gains.

      The increase in the capital ratio in the first half of 2025 (+1.4 percentage points) is due mainly to the entry into force of the final Basel III Accord. Regulatory changes in the areas of credit risk (+1.3 percentage points) and operational risk (+0.2 percentage points) contributed to the increase, while the new approach for calculating market risk lowered the capital ratio (-0.1 percentage points). The overall output floor, set at 72.5% of risk-weighted assets calculated using the standardized approach, is not binding (the transitional arrangements set out in Article 148(e) of the CAO are not applied).

      The leverage ratio4 was 5.5% at 30 June 2025 (see tables in Section 8.3). This ratio is above the regulatory requirement of 3% effective as of 1 January 2018.

      BCV Group's liquidity coverage ratio (LCR) was an average of 133% in the first half of 2025, above the minimum regulatory requirement of 100% (see Section 5.4).

      BCV Group's net stable funding ratio (NSFR) was 122% at 30 June 2025, above the minimum regulatory requirement of 100% in force since 1 July 2021 (see Section 5.4).

      4The leverage ratio is equal to Tier 1 capital divided by the total exposure measure.

      Table 2. Key metrics In CHF millions, BCV Group, KM15
      Available capital		a 30/6/2025	c 31/12/2024	e 30/6/2024
      1 Common Equity Tier 1 (CET1)		3,534	3,519	3,464
      2 Tier 1 (T1)		3,534	3,519	3,464
      3 Total capital		3,554	3,539	3,489
      Risk-weighted assets (RWA)
      4 Total RWA		19,259	20,894	20,349
      4a Total pre-floor RWA (CAO, Art. 45a.3)		19,259	n.a.	n.a.
      Risk-based capital ratios as % of RWA
      5 CET1 ratio		18.4%	16.8%	17.0%
      6 Tier 1 ratio		18.4%	16.8%	17.0%
      7 Total capital ratio		18.5%	16.9%	17.1%
      FINMA capital ratio requirements
      	Min. total capital ratio (CAO, Art. 42)	8.0%	8.0%	8.0%
      12a	Total capital buffer (CAO, Annex 8)	4.0%	4.0%	4.0%
      12b	Countercyclical buffer (CAO, Art. 44	1.0%	1.0%	1.0%
      	and 44a)
      12e	Total regulatory capital requirement in	13.0%	13.0%	13.0%
      	accordance with Annex 8 of the CAO
      	plus the countercyclical buffer (CAO,
      	Art. 44 and 44a)
      	Additional capital req. (CAO, Art. 45)*	1.0%	1.0%	1.0%
      	Total FINMA capital requirement	14.0%	14.0%	14.0%

      Basel III leverage ratio

      1. Total Basel III leverage ratio exposure measure

      2. Basel III leverage ratio (Tier 1 capital as % of total Basel III leverage ratio exposure measure, including the impact of any applicable temporary exemption of central bank reserves)

      Liquidity coverage ratio (LCR)

      64,120 63,442 63,601

      5.5% 5.5% 5.4%

      15 Total high-quality liquid assets (HQLA)	11,694	11,845	12,933
      16 Total net cash outflow	8,767	9,180	10,150
      17 LCR	133%	129%	127%
      Net stable funding ratio (NSFR)
      18 Available stable funding	42,057	40,314	39,484
      19 Required stable funding	34,471	34,072	33,035
      20 NSFR	122%	118%	120%

      *FINMA has set a temporary additional capital requirement of 1% for BCV, given the low interest-rate environment and BCV's interest-rate-risk exposure as determined by FINMA.

      5This table is a summary version of the Table KM1 required by FINMA. Only the FINMA capital ratio requirements are shown in this table; the Basel Committee requirements are less stringent and have not been included to avoid confusion. The full Table KM1 is provided in the Appendix (Table 32). The LCR figures represent the average for the six months preceding the indicated date.

   2. ‌Capital structure

      BCV Group's regulatory capital is composed almost entirely of CET1 capital, with a marginal amount of T2 capital. Regulatory capital is based on the Group's financial statements, which are drawn up in accordance with the FINMA Accounting Ordinance (FINMA-AO) of 31 October 2019, and the Swiss accounting rules for banks, securities firms, financial groups, and financial conglomerates of 31 October 2019 (FINMA Circular 2020/1 "Accounting - banks").

      CET1 capital comprises paid-in capital, disclosed reserves, and minority interests. At 30 June 2025, BCV's share capital amounted to CHF 86,061,900 and consisted of 86,061,900 fully paid-in registered shares with a par value of CHF 1. CET1 capital is adjusted for regulatory deductions such as any shortfall of provisions to regulatory expected losses and the net long position in own CET1 instruments. BCV has not issued any capital instruments that meet the criteria for inclusion in Additional Tier 1 (AT1) capital. In particular, BCV has no authorized or conditional capital and has not issued any dividend-right certificates. There are no outstanding convertible bonds or options issued by the Bank involving the BCV share.

      T2 capital comprises reserves on debt and equity securities carried under financial investments and stated at lower of cost or market, subject to a limit of 45% of unrealized gains, and general provisions allocated under the International Standardized Approach. BCV has not issued any capital instruments that meet the criteria for inclusion in T2.

      Table 3. Composition of regulatory capital

      In CHF millions, BCV Group, CC16

      a a-1 b

      Net figures References

      30/6/2025		31/12/2024
      Common Equity Tier 1 (CET1)
      1 Issued and paid-in capital, fully eligible	86	86	a
      2 Retained earnings, including reserves for general banking risks and net profit (loss) for the period	3,459	3,442
      3 Capital reserve, currency translation reserve, and other reserves	34	33
      5 Minority interests eligible as CET1	0	0
      6 CET1 before regulatory adjustments	3,579	3,561
      CET1 regulatory adjustments
      12	IRB shortfall of provisions to expected losses	30	29
      16	Net long position in own CET1 instruments	15	13
      28	Total regulatory adjustments to CET1	45	43
      29	Net CET1	3,534	3,519
      Additional Tier 1 capital (AT1)
      36	AT1 before regulatory adjustments	-	-
      43	Total regulatory adjustments to AT1	-	-
      44	Net AT1	-	-
      45	Net Tier 1 capital (net T1)	3,534	3,519
      Tier 2 capital (T2)
      46 Issued and paid-in instruments, fully eligible, net of amortization (CAO, Art. 30.2)	-	-
      48 Minority interests eligible as T2	-	-
      50 Valuation adjustments; provisions and impairments for prudential reasons; compulsory reserves on financial investments	20	20
      51 T2 before regulatory adjustments	20	20
      T2 regulatory adjustments
      52	Net long position in own T2 instruments	-	-
      57	Total regulatory adjustments to T2	-	-
      58	Net T2	20	20
      59	Total regulatory capital (Net T1 & Net T2)	3,554	3,539

      The increase in regulatory capital was due to the recognition of 70% of first-half net profit after deducting 50% of the dividend distributed for the 2024 financial year.7

      6The calculation of regulatory capital at 30 June includes 70% of first-half net profit after deducting 50% of the dividend distributed for the 2024 financial year. This table is a summary version of Table CC1, which is provided in full in the Appendix (Table 34).

      7This relates to the expected dividend mentioned in CAO, Art. 21.1(e).

   3. ‌Risk-weighted assets

      Credit risk accounts for over 80% of the Bank's total risk exposure, in keeping with its business model and risk-taking strategy.

      Table 4. Overview of RWA In CHF millions, BCV Group, OV18
      		a		b	c
      		RWA			Minimum capital requirements
      		30/6/2025		31/12/2024	30/6/2025
      1 Credit risk (excluding counterparty credit risk)		16,011		17,230	1,281
      2 Standardized approach (SA)		2,671		2,919	214
      Of which: non-counterparty-related assets		475		484	38
      3 Internal ratings-based approach (IRB)		4,926		7,292	394
      4 Supervisory slotting approach		6,593		7,019	527
      5a Effect of sector output floor for banks that apply the IRB approach for their Swiss mortgage portfolio		1,821		-	146
      6	Counterparty credit risk (CCR)	245	314	20
      7	Standardized approach for counterparty credit risk (SA-CCR)	229	288	18
      9	Other CCR approach	16	26	1
      10	Credit valuation adjustments for derivatives and securities financing transactions	198	242	16
      11 Equity positions in banking book under market-based approach			121
      13	Equity investments in funds - mandate-based approach	0	0	0
      14	Equity investments in funds - fall-back approach	6	6	0
      14a	Equity investments in funds - simplified approach	35	31	3
      15	Settlement risk	-	-	-
      20	Market risk	207	118	17
      20a	Simplified standardized approach	207	-	17
      21	Standardized approach	-	118	-
      24	Operational risk	1,774	1,995	142
      25	Amounts below the thresholds for deduction (250% risk weighting)	782	782	63
      26	Output floor applied	72.5%	80.0%	n.a.
      27	Floor adjustment (before application of transitional cap)	-	54	-
      28	Floor adjustment (after application of transitional cap)	-	54	-
      29	Total	19,259	20,894	1,541

      8An additional row has been added under "Credit risk" to indicate non-counterparty-related assets, which consist primarily of real estate and other tangible assets.

      The change in risk-weighted assets at 30 June 2025 (approximately CHF 1.6bn lower at 1 January 2025) is mainly due to the entry into force of the final Basel III Accord.

      The decline in assets weighted for credit risk and counterparty credit risk at 30 June 2025 is mainly due to changes in the final Basel III Accord with respect to the IRB scope (elimination of the scaling factor of 1.06 and reduction of the regulatory LGD on the unsecured portion of corporate exposures). The elimination of Bank-specific FINMA multipliers, including those applicable to mortgage loans for owner-occupied homes, and FINMA's application of the sector output floor to the mortgage loan portfolio in Switzerland had an overall neutral effect.

      Assets weighted for market risk have increased due to the application of the simplified standardized approach (CAO, Article 82.1(a)), which is more conservative than the standardized approach used previously.

      Assets weighted for operational risk have decreased because the risk weightings applied under the final Basel III Accord are slightly lower than those applied under the previous version of Basel III. Internal losses resulting from operational events are not taken into account when calculating capital requirements (i.e., the internal loss multiplier (ILM) is set at 1) because BCV's business indicator is below CHF 1.25bn.

      Additional risk-weighted assets were included at 31 December 2024 in order to comply with FINMA's floor requirements (FINMA Circular 2017/7 "Credit risk - banks" in force on that date, margin number 476). With these additional risk-weighted assets (see Table 4, row 27), BCV's total capital requirement, as calculated using the IRB approach for credit risk, remains above 80% of the requirement that would apply if calculated using the standardized approach at 31 December 2024.

3. ‌COMPREHENSIVE RISK MANAGEMENT APPROACH

   The framework for risk governance, risk exposure (risk appetite), risk-assessment principles, and risk reporting, as well as other operational guidelines relating to risk management, are defined in the Bank's Risk Management Policy and Strategy (RMPS). The RMPS is the institution-wide risk management framework. It is an internal framework document that is reviewed and approved each year by the Board of Directors.

   This section of the report sets out the Bank's risk-management principles, as required by FINMA for Pillar 3 disclosure.

   1. ‌Risk management objectives and governance

      Risk-management objectives

      BCV manages all its risks in an integrated and consistent way, using a process that encompasses all of the Bank's activities. The overall goals are to ensure that:

      • BCV's risk exposure is evaluated, monitored, and reported in a manner that is appropriate to the economic and regulatory environment;

      • BCV's risk-taking capacity is in line with its risk profile;

      • BCV earns optimal returns on the risks that it takes and hence on the equity capital committed.

        Risk-management governance

        All risks are managed according to the same basic principles of governance and organization. The main responsibilities can be summarized as follows:

      • The Board of Directors establishes the Bank's policy for managing risk and determines the strategy the Bank will pursue in taking on risk.

      • The Board of Directors' Audit & Risk Committee ensures that the risk-management policy set by the Board of Directors is implemented and operational.

      • The Executive Board is responsible for ensuring that the risk-management procedures are implemented and operational, and for monitoring the Bank's risk profile. The Executive Board monitors strategic and business risk and supervises the Executive Board Risk Management Committee (EBRMC) in monitoring and reporting these risks. The EBRMC is chaired by the Chief Financial Officer (CFO), and includes the CEO, other division heads, and the Chief Risk Officer (CRO).

      • Division heads are responsible for conducting and monitoring the activities of their divisions, regardless of whether the division has a front-line, steering, or business-support role. They have initial responsibility for overseeing, identifying, and managing the strategic, business, credit, market, and operational risks arising from the activities of their divisions.

      • The CFO puts forward the risk-management policy and strategy, monitors the Bank's aggregate risk profile, is responsible for capital adequacy, and helps foster a culture of risk management among staff, with the support of the Risk Management Department. Together with the Compliance Department, the CFO ensures that due diligence is taken to combat money laundering and the financing of terrorism, monitor market abuse, and comply with economic sanctions.

      • The Chief Credit Officer (CCO) is responsible for analyzing risk for all types of credit-risk exposure assumed by the Bank and, up to the limit of his approval authority (see below), for credit decisions and for monitoring risk exposure on a counterparty basis. The CCO is also responsible for developing and monitoring the models used to measure credit risk, particularly those used in the lending process, and for setting and implementing the criteria and rules governing lending decisions and monitoring.

      • The CRO, as the head of the Risk Management Department, is responsible for developing and improving the Bank's oversight principles and methods for credit, market, and operational risk; monitoring the Bank's risk profile; and overseeing and executing risk reporting. The CRO ensures that the Bank's operational internal control system is effective and in keeping with the Bank's needs, by coordinating the work of the entities responsible for level 2 oversight; it is also in charge of submitting all risk reports to the Bank's governing bodies. Finally, it is responsible for the overnight monitoring of market risk for BCV's trading floor.

      • The Compliance Department is responsible for setting up, implementing, monitoring, and adapting the internal regulations and control system needed to combat money laundering and the financing of terrorism, monitor market abuse, and comply with economic sanctions and tax law. It is also responsible for monitoring implementation of investor protection measures. The Department is actively involved in raising employees' awareness of the respective obligations and carries out independent checks to ensure that internal regulations are in line with the Bank's activities.

      • The Security Department is responsible for setting up, implementing, monitoring, and adapting the system that keeps the Bank's operations, IT systems, and data secure, and the people, infrastructure, and assets within the Bank safe and secure. It pays particular attention to cybercrime. It also makes sure that measures put in place to manage crisis situations and ensure business continuity remain effective and adequate over time.

      Audit function

      The remits of the Internal Audit Department and external auditors are set out in their respective audit programs and involve assessing the Bank's functioning and processes, and the methods of levels 1 and 2 of the internal control system.

   2. ‌Risk-taking strategy

      BCV's risk appetite (or acceptable risk profile) is determined in accordance with the Bank's business strategy and capital-management strategy. The risk appetite is set so as to be consistent with the Bank's business model as a full-service bank with strong local roots and focused on moderate-growth activities. Granting loans in Vaud Canton is a core element of the Bank's mission and strategy and one that gives rise to credit risk. Market risk arising from the trading book is intended to remain only a marginal source of risk for the Bank.

      The Bank has adopted a risk-taking strategy that spells out its risk-taking principles, overall limits, and target values, in order to keep its risk profile at appropriate levels. For credit and market risk, the Bank's RMPS establishes overall risk-exposure limits for a given portfolio or business line. It also includes risk-concentration limits for exposures to a given counterparty, underlying asset, or other risk-concentration factor.

      The Executive Board Risk Management Committee, through the CFO, oversees compliance with the RMPS. Any crossed limits or instances of non-compliance with the principles set out in the RMPS are escalated to the Executive Board, which then reports to the Board of Directors.

   3. ‌Classification of risks and risk-assessment principles

      Classification of risks

      The Bank's approach to analyzing risk comprises four dimensions:

      • Risk exposure, which relates to the fact that its activities and operations expose the Bank to risk;

      • Risk factors, which are sources of uncertainty that may adversely affect the Bank's risk exposure;

      • Risk events, which are triggered by a change in a risk factor, which, in turn, has an adverse effect on the Bank's risk exposure;

      • Risk impact, which is the negative impact that a risk event has on the Bank's interests. Throughout the Bank, four categories of risk are used to classify risk events:

      • Strategic and business risk. Strategic risk arises from economic or regulatory changes that have an adverse effect on the Bank's strategic choices; business risk is the result of competitive or economic changes that have an adverse effect on business decisions for a given strategy;

      • Credit risk. This arises from the possibility that a counterparty may default. Credit risk is inherent in all lending exposure;

      • Market risk. This arises from potential adverse changes in market parameters - particularly prices and implied volatility - and other market effects (e.g., correlation between asset prices and market liquidity). Liquidity risk, both in terms of the structural funding of activities and short-term liquidity management, is also deemed to be a component of market risk. Market risk is inherent in all market exposure;

      • Operational risk. This arises from a possible failure relating to inadequate processes, people, and/or information systems, or even malicious behavior. Operational risk includes the risk of noncompliance; i.e., the risk of the Bank breaching legal requirements, standards, and regulations. Operational risk is inherent in all business activity.

        For all risk types, the Bank seeks to protect itself against three types of potential impact:

      • The financial impact, that is, a decrease in the Bank's net profit and/or a drop in the book or economic value of the Bank's capital;

      • The regulatory impact, that is, an intervention by the authorities as a result of a failure by the Bank to comply with its legal and regulatory obligations;

      • The reputational impact, that is, negative publicity concerning the Bank; the severity of the impact will depend on the reaction of the Bank's main stakeholders. For example, there could be negative newsflow in the press or on social media, or a parliamentary inquiry or other major incident affecting relations between the Bank and the Vaud Cantonal Government or the general public.

        Risk assessment

        Throughout the Bank's businesses and portfolios and for every position and transaction, the Bank assesses and monitors its risk profile, i.e., its exposure to strategic, business, credit, market, and operational risks. The Bank assesses the potential financial, regulatory, and reputational impact of these risks.

        Risk assessment generally involves analyzing the following:

      • Risk exposure

        This involves determining which risk factors the Bank is exposed to as a result of its activities or operational processes.

      • Risk factors and events

        This involves identifying relevant risk factors and determining potential risk events. For strategic and business risk, this includes all economic and regulatory factors that may affect the Bank's business activities and its operational processes. For credit, market, and operational risk, the relevant risk factors and risk events are defined according to the nature of the Bank's activities.

        These risk factors include climate-related risk factors. Details of these risk factors and how they are incorporated into the Bank's risk assessments are provided in Section 7, "Climate-related risks," and in BCV's sustainability report, which has an appendix on this topic.

      • The impact of risks

        This involves determining the potential financial, regulatory, and reputational impact.

        For risks with a potential financial impact, i.e., that may result in a decrease in the Bank's net profit and/or in the value of its capital, this means defining loss metrics and risk metrics and determining capital requirements (in keeping with FINMA requirements). Loss metrics, which are used to determine the potential financial impact, are calculated in accordance with the guidelines set out in the RMPS; they are developed for each risk category set out above.

        Risk reports

        Risk-related reports are intended to provide an overview of the Bank's risk profile at a given point in time, in order to identify any increases in risk exposure or changes in risk profile. The CRO has overall responsibility for compiling these reports. If the reports show a material deterioration in the Bank's risk profile, the CRO informs the CFO, who then informs the Executive Board, the Chair of the Audit and Risk Committee, the Chair of the Board of Directors, and the Internal Audit Department.

        The Bank's Risk Report gives insight into the overall economic climate and trends in the Bank's business and strategic risk, credit risk, market risk, and operational risk. This report also helps assess the financial impact of those risks and determine whether risk exposure is within the limits set by the RMPS.

        For credit risk, the Risk Report provides information on the following items in particular:

      • For portfolios: breakdown between banks and non-banks and by industry, segment, region, and exposure to climate-related risk factors (based mainly on the energy profile of financed real estate, corporate clients' business sectors, and the type of goods involved in trade-finance transactions); impaired vs. non-impaired loans; provisions; expected losses; capital requirements; and compliance with limits in the RMPS for specific portfolios;

      • For counterparties: major risks; counterparties with the largest provisions; a watchlist for each business line; and compliance with limits in the RMPS for specific counterparties.

        For market risk, the Risk Report provides information on the following items in particular:

      • Trading book - Value of the trading book; use of funding limits; use of VaR limits; and compliance with limits in the RMPS;

      • Interest-rate risk in the banking book - Equity duration; the sensitivity of the net interest margin to major stress scenarios; and compliance with limits in the RMPS;

      • Liquidity risk - Short-term funding structure; total liquidity; concentration risk on short-term deposits; and compliance with limits in the RMPS.

        For operational risk, the Risk Report provides information on the following items in particular:

      • Key risk indicators (KRIs) for the main operational risks;

      • Provisions and losses resulting from operational risk, and risk-tolerance tracking (number of incidents having an impact each year, and the amount of the impact in Swiss francs each year);

      • The most significant new provisions and losses.

      Most data in the Risk Report are updated monthly. Every six months a report on the Risk Management Department's operations is included. The Executive Board Risk Management Committee reviews the Risk Report every month; the Executive Board, Audit and Risk Committee, and Board of Directors review it every quarter. Once approved, the quarterly Risk Report is also sent to the head of the Internal Audit Department, the Chief Compliance Officer, and the entity responsible for the Bank's independent audits.

4. ‌CREDIT RISK

   1. ‌Credit-risk framework Strategy and processes Guidelines for taking on credit risk

      The Bank's lending activities are focused on Vaud Canton; lending does however take place to a lesser extent in other parts of Switzerland and other countries for specific client segments and products. Through its lending activities, the Bank aims to contribute to the development of all areas of the private-sector economy, to mortgage lending, and to the financing of public-sector entities within the Canton. The Bank pays particular attention to the principles of economically, environmentally, and socially sustainable development.

      Lending at the Bank is based on the principle that a borrower must be able to fully repay any loan within a given period, or that the Bank may be released from any commitments it may have in regard to counterparties, while receiving fair compensation for the risks incurred and the work undertaken.

      The Bank applies a differentiated pricing policy according to the estimated degree of risk. Where preferential terms are requested due to the extent of the Bank's business relationship with the counterparty or business group, the overall return on the business relationship is taken into consideration.

      The Bank does not engage in name lending. The lending decision is based on the solvency of the counterparty, the project's earnings capacity, and the management's capabilities.

      The Bank avoids financing or supporting illegal or immoral activities through its lending facilities. The Bank also avoids facilitating, through its lending facilities, activities that could entail a risk of money laundering, insider trading, corruption, or activities that would breach in any other way the Swiss banks' code of conduct with regard to the exercise of due diligence or the money-laundering act and its ordinances. The Bank avoids operations that may damage its reputation or image.

      The Bank takes account of lending-related environmental and social risks and impacts. It has put in place a set of rules to ensure that it does not finance activities, projects, or counterparties that do not comply with its related standards (see BCV's Sustainability Policy). It has also developed indicators that it uses to monitor the lending portfolio and track specific risks (see also Section 7, "Climate-related risks").

      Standards and procedures for lending and loan renewals

      Before taking on credit risk, the Bank conducts an analysis of the nature and complexity of lending commitments, using the appropriate internal methods for that type of transaction. BCV will not grant, increase, or renew loans to debtors until it has assessed solvency, i.e., until it has determined the appropriate internal counterparty rating of the probability of default using established methods. Risks relating to transactions and the return on commitments are also analyzed. It is in this context that the collateral for the commitment is identified and evaluated. The Bank also takes account of how counterparties are managing the transition to a low-carbon economy and their level of cyber-risk preparedness.

      For both new and existing banking relationships, the Bank studies the economic background, the nature of and the reasons for the transaction, as well as the relationship between the parties involved. The Bank seeks to obtain a detailed view of the economic and personal situation of counterparties, and, as necessary, of the beneficial owners, the guarantors, or the beneficiaries of guarantees. The information obtained is carefully verified.

      The Bank develops, reviews, and uses standard criteria for lending decisions. For financing owner-occupied homes and income-producing real estate, these criteria were chosen, in particular, for their reliability and clarity.

      The Bank seeks to ensure its legal requirements are met, in particular with regard to the place of jurisdiction and the Bank's capacity to enforce its rights arising from its lending commitments. It also seeks to avoid any operations in which the risks are not managed. Contractual documentation for standard lending operations is drawn up using models and/or guidelines that have been validated by the Bank's Legal Department. For some lending operations, the Bank's legal department or, if necessary, external experts may be called upon. Contractual provisions aim to ensure that the funds are used in accordance with the stated purpose of the lending facility and that the Bank obtains any requested financial information within the stated deadlines. For medium- and long-term lending commitments, the contract is written in such a way as to ensure that the Bank's position as lender is not subordinated to that of other creditors without its agreement, in terms of both collateral and the counterparty's position within a business group. For long-term commitments that cannot be terminated at any time based on the Bank's General Conditions, or for which the Bank cannot call in additional collateral at any time, the Bank adds a termination clause to hedge against the increased risk.

      An application is prepared for all lending decisions. The application clearly states the reasons, conditions and contractual terms associated with the risk taken, and in particular the credit limit granted to the counterparty or business group. These applications are submitted for approval to the competent body according to a defined delegation chain.

      Reexamination of lending commitments and collateral

      Lending commitments are reviewed to assess any change in the counterparty's solvency or the value of the collateral, and to determine whether the commitments should be maintained at the existing level or reduced. The Bank uses an internal timetable to ensure that a periodic review is conducted of all lending commitments associated with a business group together with the contractual terms. A similar timetable is also used to review the level of collateral.

      In addition to these regular reviews, the Bank uses a system of alerts under which specific commitments are reviewed outside of the normal timetable if any deterioration is detected. These alerts could be triggered and a review required, for example, if payment deadlines are missed or if there is a delay in the submission of information required to properly monitor lending commitments.

      Decisions made on the basis of these reviews are subject to a delegation chain similar to the one used to assess whether to grant a new line of credit.

      Limits, portfolio monitoring, and special measures

      Within the credit portfolio, global risk limits are defined, mainly for the purpose of tallying up exposures that taken together could have a major impact on the Bank's net profit and economic capital. These limits are defined and monitored:

      • For the exposure, the expected loss and the capital requirement for various client segments and for activities outside Vaud Canton and outside Switzerland.

      • For the amount and term of the lending commitments in each foreign country in which the Bank takes on credit risk. The limits are determined through an internal analysis of the financial and settlement risks associated with the financing in place in the various countries.

      • For the amount of aggregate positions for a given business group in order to monitor concentration risk.

        If necessary, in addition to setting and monitoring these limits, the Bank analyzes specific portfolios that are deemed to be exposed to potential or actual adverse conditions. These analyses may lead to proactive measures for a sub-grouping of the counterparties in question in order to enhance credit-risk monitoring.

        Furthermore, in case of extraordinary events, such as a significant decline in the local or broader property market, the dates on which collateral is reviewed may be moved forward for groups of collateral identified in accordance with various criteria (by region, property type, age of existing valuation, etc.) to avoid a situation in which the Bank's information systems contain obsolete and overestimated amounts

        for the market value of properties.

        Monitoring and treating counterparties reputed to be in financial difficulty and counterparties in default

        Counterparties that present a particularly high risk of default but are nevertheless considered to be performing are said to be "reputed to be in financial difficulty" (RD). These counterparties, along with counterparties that are "in default" (ID), are subject to closer monitoring.

        Lending commitments to RD or ID counterparties are treated by the Bank individually, quickly and with the necessary rigor, in accordance with ethical and compliance-related rules. These positions must generally be made sound over the course of three to four years. Where this strategy cannot be applied, the Bank takes the appropriate measures to minimize its losses.

        Structure and organization

        Responsibilities in the credit process

        In processing credit operations, the Bank as a general rule separates its client-facing divisions (Corporate Banking, Retail Banking, Private Banking, and Asset Management & Trading), which are responsible for advising, selling, selecting, pre-analyzing, and pricing the transactions, from the Credit Management Division, whose departments are in charge of the other phases of the lending process, such as analysis, granting loans, arranging the financing, and monitoring credit limits. In addition to the principle of separation, rules exist to avoid potential conflicts of interest between counterparties, on the one hand, and analysts and specialists, on the other.

        Delegation chain for credit-related decisions

        The decision-making process involves approving or reviewing a position and validating the internal counterparty rating of the probability of default as well as any overrides. To determine the competent body, the Bank applies a differentiated delegation chain that ensures that large and high-risk commitments are dealt with at the highest level, guaranteeing that Management is appropriately involved in taking on credit risk.

        The competent body depends on the nature of the commitments and the level of credit risk of the business group to which the counterparty belongs. Decision-making authority is attributed individually or to credit committees, in accordance with a set of approval limits for each type of commitment (e.g., loans and advances to customers, interbank lending, and loans to employees and members of the governing bodies). These limits, which are different for credit decisions and reviews of existing commitments, depend on the internal counterparty rating of the probability of default, the nature, amount and term of the lending commitment, and the level and quality of the collateral for the financing. In addition, should certain lending criteria not be met, any decision to grant or increase financing for single-family homes and income-producing real estate would have to be made higher up the credit-decision-making chain. For each type of lending commitment, there is a distinct set of approval limits for decisions relating to short-term overruns or overdrafts.

        The Board of Directors is at the top of the decision-making hierarchy and systematically reviews the most important credit-related decisions. Immediately below the Board of Directors are the Executive Board's Credit Committee (EBCC) and the Chief Credit Officer (CCO), who heads the Credit Management Division. The EBCC and the CCO have widespread lending authority, which encompasses all of the Bank's activities. For lower amounts, lending authority is allocated according to the activity, beginning with the sector-specific credit committees. Lower down still, the analysts in the Credit Management Division, with different levels of authority, have certain powers that are specific to their field. Finally, some low-risk forms of lending, such as standard mortgage loans, are approved on the basis of standardized criteria through an automated credit analysis, using scores obtained from rating models defined by the Bank.

        Lending commitments to RD or ID counterparties are subject to a separate delegation chain. There is an additional set of approval limits for decisions relating to taking on credit risk abroad.

        Decisions taken at a given approval level are checked a posteriori by the level above, through a full or selective review of lending decisions deemed to be significant.

        Responsibility for identifying and monitoring RD/ID loans

        Any entity within the Bank that is involved in the lending process may suggest that a counterparty be included in the RD and ID categories on the basis of criteria that are defined in the same way for all of the Bank's activities. Entities with lending authority are authorized to decide whether to include a client in these categories.

        A specialized department within the Credit Management Division monitors these commitments. It is separate from the front-line units that generate lending commitments. Once lending commitments are sound again, they are monitored by the front line.

        Internal documentation and regulations

        The guidelines for lending activities are set out in the Bank's Credit Policy. In particular, it sets out the basic principle for how authority for granting and reviewing loans is allocated. The delegation chain is then explained in detail in the Bank's Lending Policy Rule Book. Together with the Technical Standards (technical criteria and limits for lending), these documents form the framework for the Bank's lending activities, which is established in accordance with the Bank's RMPS.

        The Executive Board defines and develops the Credit Policy, upon the recommendation of the CCO, and submits it to the Board of Directors (BoD) for approval. The BoD reviews the Credit Policy periodically. All those involved in the lending process are responsible for monitoring the Credit Policy and ensuring that it is adhered to. The CCO oversees its application.

        The Lending Policy Rule Book sets out the rules and guidelines for decisions concerning the Bank's credit risk at the parent company level (delegation chain). It is established in accordance with the Bank's by-laws and Credit Policy.

        The EBCC develops and submits the Lending Policy Rule Book and its updates to the BoD.

        The Technical Standards define the type of collateral recognized by the Bank and, for each type of collateral, the loan-to-value ratio required for a loan to be consider secured. The Technical Standards are subject to validation by the BoD.

        At the operational level, lending activities are structured around a series of internal directives that provide details of the guidelines set forth in the framework documents.

        Risk assessment

        Risk event

        A credit-risk event is a default by a counterparty: the Bank considers a counterparty to be in default when the counterparty is past due more than 90 days on any material credit obligation to the Bank or when the Bank considers that the counterparty is unlikely to pay its credit obligations to the Bank in full. Impaired loans are the same as loans to counterparties in default, also known as defaulted loans.

        In accordance with accounting principles, loans where the counterparty is more than 90 days late on a payment obligation to the Bank are considered past due and interest on these loans is not recognized as interest income. All past-due loans are classified as defaulted loans through an operating procedure and lending decision. The volume of past-due loans that have not yet been classified as defaulted loans is very low.

        The Bank does not use the concept of a restructured exposure.

        Risk exposure

        The Bank considers all credit-risk exposure that arises from its activities, including its activities as a custodian bank, with the following counterparties or groups of counterparties:

      • Retail and private banking clients;

      • Corporates, excluding trade finance;

      • Trade finance;

      • Fund-management companies;

      • Public-sector entities (municipalities and regional, local, and national governments);

      • Bank counterparties.

        For any counterparty, exposure to credit risk in the trading book and banking book (both on and off the balance sheet) occurs in the following forms:

      • Exposure in the form of a financial claim (mortgage loans, fixed-term advances, current accounts with credit limits, overdrafts, investments, and current accounts held by the Bank with other banks);

      • Off-balance-sheet exposure resulting from undrawn portions of notified limits, contingent liabilities (guarantees) issued by the Bank on behalf of the counterparty, guarantees or other forms of commitment (letters of credit, avalized drafts) received from the counterparty as collateral or for which the Bank takes over the risk;

      • Exposure resulting from forward contracts and OTC derivatives, taking into account netting agreements and collateral management agreements;

      • Exposure in terms of shares and other equity securities (including equity derivatives) for which the counterparty is the issuer (in the banking book and net positions in the trading book);

      • Exposure resulting from repos/reverse repos and securities lending/borrowing transactions;

      • Settlement exposure, especially on currency transactions. It should be noted that when positions are unwound through a simultaneous settlement system, such as CLS (Continuous Linked Settlement), settlement risk is not considered.

        The methods defined determine the amount of exposure by category.

        Loss metrics

        The Bank uses the following credit loss metrics:

      • Expected credit loss on non-impaired exposure: This is the amount that the Bank expects to lose in a "normal" year as a result of its credit-risk exposure to non-defaulted counterparties. The expected loss is usually determined individually for each loan on the basis of the probability of default and the loss given default. A general description of the method used for analytical purposes is provided below.9

      • New provisions on impaired exposure: The Bank sets aside provisions on newly impaired loans so that the expected credit loss over the loans' remaining lifetime is recognized as an expense during the period in which they became impaired. This approach ensures that the Bank's credit-risk provisions cover effective credit losses. The amount of these provisions is generally determined using a parameter-based method in which the provisioning ratio is determined and applied to credit-risk exposure. In some cases, for large commitments or for special or complex situations, the amount of the provision is based on a scenario analysis.

      • Effective credit loss: This is the actual loss recorded by the Bank a posteriori on its exposure to counterparties in default. It results from the write-down or write-off of loans on the balance sheet.

        For performing loans not relating to trade finance or real-estate development, the expected loss is determined on the basis of the probability of default and the loss given default.

      • Counterparties' probability of default, and rating of default risk

        Each counterparty is assigned an internal counterparty default rating depending on its probability of default. Throughout the Bank (parent company), there are seven main internal ratings (B1 to B7) and 16 sub-ratings (B1.1 to B7).

        9In order to meet the requirement to set aside provisions for inherent credit risk on non-impaired loans (FINMA-AO, Articles 25 and 28), the Bank also uses expected loss models to determine the provisions for each non-impaired credit-risk exposure. For non-impaired exposures that are not classified as having a high risk of default, provisions are set aside based on the 12-month expected loss using the method described in this section. For non-impaired exposures that are classified as high-risk (i.e., counterparties "reputed to be in financial difficulty"), provisions are set aside based on the expected loss at maturity. More detailed information on provisions for inherent credit risk is provided in the Annual Report.

        The ratings B1 to B5.2 are used for counterparties that are neither RD nor ID; B6 is used for counterparties that are RD, which are also considered performing. Counterparties rated B7 are ID or non-performing.

        A rating method is used to assign an internal rating to each performing counterparty. Counterparties (individuals, companies, banks, etc.) are distinguished by factors that may affect their solvency, the nature of available explanatory data and the level of loss-risk they represent. Rating methods are segmented into groups of counterparties so that counterparties that are deemed similar according to these analytical factors are handled in the same way.

        For each rating segment the rating method for performing clients comprises a "score" and an "analyst's assessment." Considered together, the score and the analyst's assessment are used to assign an internal rating to each performing counterparty.

        • For the score component of the rating method, an internal rating is identified using one of the following three procedures: applying a calculation function for the probability of default calibrated statistically or based on an expert's assessment, assigning the counterparty to a default probability slot, or transferring a counterparty from one rating to another in accordance with a system of rules. The Bank also employs standards and methods to recognize the impact on the probability of default of factors such as the business group or government support at a local, regional, or national level.

        • The "analyst's assessment" component of the rating method defines the guidelines to be followed by an expert when analyzing the counterparty's debt quality, alongside the score. The competent body sets and approves the internal rating that is eventually determined as well as the override, if necessary.

          Specific criteria are defined for the purpose of identifying RD counterparties. A counterparty is deemed RD when one of the following two conditions is met:

        • The Bank believes there to be a high risk that part of its exposure to credit risk on the counterparty will not be recovered.

        • A significant breach of the contract on any of the forms of credit extended to the counterparty by the Bank has occurred and has not been remedied without a temporary or definitive exemption being granted.

      • Loss given default

        To calculate the loss given default, the Bank takes into account the expected exposure at the time of default, the expected coverage ratio at the time of default, the nature of the collateral, and the rate of loss on secured and unsecured parts. The internal models used are calibrated so that the loss given default produced by the calibrated model corresponds to an effective loss that takes into account discounted values of all cash flows paid and collected by the Bank after the default, including fees associated with managing the loans of counterparties in default and with recovering loans.

        A supervisory slot is allocated to loans relating to real-estate development and trade finance in order to estimate the expected loss. The slot assignment is based on a structured analysis of the corresponding transactions. It meets the supervisory slotting criteria for specialized lending in Chapter CRE33 of the final Basel III Accord.

        Risk metrics

        The Bank's main credit-risk metrics are:

      • The expected loss (see above);

      • Loss under stress scenarios. The Bank applies cyclicality stress tests and global stress tests:

        • Cyclicality stress tests for credit risk indicate the extent of the change in capital requirements in the event of an economic slowdown. They are based on changes in two key credit-risk variables, which are probability of default and loss given default.

        • Global stress tests are part of the broad approach for estimating (by risk category) the impact of a number of stress scenarios on the Bank's net profit in order to assess capital adequacy. For credit risk, this allows the need for new provisions to be estimated for each stress scenario, should it occur. The stress scenarios are defined for the entire lending portfolio on the basis of historical observations (for example, the property market correction in the early 1990s) and macroeconomic analyses.

      Unless otherwise indicated, credit-risk metrics address a risk horizon of 12 months.

      Capital requirements for credit risk

      For most of its credit-risk exposure (around 80% of risk-weighted assets), the Bank determines its regulatory capital requirements (Pillar 1) using the foundation internal ratings-based approach (F-IRB). For exposure outside the scope of the F-IRB approach, capital requirements are determined using the International Standardized Approach (SA-BIS).

      Table 5. Credit-risk exposure by approach applied

      In CHF millions, at 30 June 2025, BCV Group, CRE10

      Credit risk

      Counterparty

      credit risk

      Asset class	F-IRB	SA-BIS	F-IRB	SA-BIS	Total
      Central governments, central banks, and supranational institutions	-	100%	-	0%	10,729
      Banks	44%	36%	20%	0%	1,868
      Swiss mortgage bonds	-	100%	-	-	4,058
      Non-central govt. public-sector entities and multilateral development banks	35%	61%	2%	1%	3,010
      Corporates	92%	7%	1%	0%	18,069
      Retail	96%	4%	0%	0%	23,410
      Other positions	-	100%	-	-	594
      Total	67%	32%	1%	0%	61,739

      Exposures outside the scope of the F-IRB approach include those for which the Bank does not intend to put in place a rating model that meets the F-IRB criteria. These exposures include the SNB; the Swiss Federal Government; Swiss cantonal governments; the Mortgage-Bond Bank of Swiss Mortgage Institutions; the Central Mortgage-Bond Institution; some foreign bank and sovereign bond issuers; SMEs that do not have financial statements or that only have loans that are fully secured by cash, securities, or a joint and several loan guarantee as described in Article 3 of Switzerland's Covid-19 Joint and Several Loan Guarantee Ordinance; insurance companies; investment funds; counterparties with no loan agreement (i.e., for overdrafts); and exposures at the Bank's subsidiaries.

      10Exposure at default (EAD) after applying credit conversion factors. Credit risk and counterparty credit risk excluding credit valuation adjustments and central counterparties. Asset classes defined by FINMA (Tables CR4 and CR7), also described in Section 8.4.2.

      Table 6. Risk-weighted assets by approach applied

      In CHF millions, at 30 June 2025, BCV Group, CRE

      Credit risk

      Counterparty

      credit risk

      Asset class	F-IRB	SA-BIS	F-IRB	SA-BIS	Total
      Central governments, central banks, and supranational institutions	-	100%	-	-	0
      Banks	64%	26%	11%	0%	649
      Swiss mortgage bonds	-	100%	-	-	406
      Non-central govt. public-sector entities and multilateral development banks	45%	50%	3%	1%	667
      Corporates	90%	9%	1%	1%	9,600
      Retail	84%	15%	0%	0%	2,547
      Other positions	-	100%	-	-	552
      Total	80%	19%	1%	1%	14,421

   2. ‌Loans and debt securities

      This section covers loans to customers and banks (excluding securities financing transactions and derivatives) and debt securities in the financial investments portfolio. These loans and debt securities correspond to the credit-risk exposure set out in DisO-FINMA. Securities financing transactions (repo and reverse repo agreements) and derivatives are discussed in Section 4.3, "Counterparty credit risk."

      1. Portfolio quality

         Most loans to customers are located in Vaud Canton (76%). They are composed primarily of on-balance-sheet exposure in the form of mortgage loans and various financing in the form of current accounts (e.g., loans for construction, operational, investment, or cash-management purposes).

         Most of the exposure to banks and debt securities is in Switzerland (89%) but outside of Vaud Canton. These exposures mainly comprise cash held with the SNB, investments with the Central Mortgage-Bond Institution and the Mortgage-Bond Bank of Swiss Mortgage Institutions, and exposures to other Swiss banks. Exposure in Europe arises mainly from cash-management and trading transactions, whereas exposure in the rest of the world is a result of trade-finance activities.

         Table 7. Credit-risk exposure by type of exposure and region

         In CHF millions, at 30 June 2025, BCV Group, CRB11

         Exposure Provisions and impairments

         Non- Non-

         Region	Total	impaired	Impaired	Total	impaired	Impaired
         Customer loans	48,472	48,280	192	95	25	70
         Vaud Canton	36,713	36,580	134	61	15	47
         Rest of Switzerland	10,308	10,267	41	20	5	16
         European Union and North America	626	615	12	2	2	0
         Rest of world	824	818	6	11	4	7
         Bank loans and debt securities	17,466	17,466	-	2	2	0
         Vaud Canton	0	0	-	0	0	-
         Rest of Switzerland	15,544	15,544	-	0	0	-
         European Union and North America	1,488	1,488	-	0	0	-
         Rest of world	434	434	-	2	2	0
         Total	65,937	65,745	192	97	27	70

         Table 8. Credit-risk exposure by risk segment

         In CHF millions, at 30 June 2025, BCV Group, CRB

         Exposure Provisions and impairments

         Risk segment	Total	Non- impaired	Impaired	Total	Non- impaired	Impaired
         On- and off-balance-sheet exposure	58,820	58,628	192	97	27	70
         Retail	13,382	13,352	30	4	2	1
         Private banking	9,173	9,109	63	15	1	14
         SMEs	6,134	6,079	54	33	7	27
         Real-estate professionals	12,587	12,578	9	5	5	0
         Large corporates	3,199	3,171	28	27	5	21
         Public-sector entities	2,433	2,433	-	0	0	-
         Trade finance	971	964	7	12	5	7
         Banks	10,942	10,942	-	2	2	0
         Debt securities	6,524	6,524	-	-	-	-
         Equity securities	31	31	-	-	-	-
         Non-counterparty-related assets	563	563	-	-	-	-
         Total	65,937	65,745	192	97	27	70

         The Bank classifies counterparties into eight risk segments according to their type, main business, and extent of the banking relationship with BCV.12

         11Tables 7 through 9 show exposure at default (EAD) before applying credit conversion factors.

         12Risk segments are described in Section 8.4.2.

         A large percentage of the Bank's exposure (34%) represents lending to retail and private banking customers in the form of mortgages and Lombard loans.

         Companies account for 35% of total exposure, which is divided among SMEs, real-estate professionals, large corporates, and trade-finance counterparties.

         Public-sector exposure mainly consists of limits granted to the Swiss Federal Government, municipalities, and the Vaud Cantonal Government.

         Bank counterparties account for 17% of total exposure, comprised mostly of cash deposited with the SNB.

         Debt securities account for 10% of total exposure and include investments with the Mortgage-Bond Bank of Swiss Mortgage Institutions and the Central Mortgage-Bond Institution in the amount of CHF 4.1bn.

         Table 9. Breakdown of exposure by residual contractual maturity

         In CHF millions, at 30 June 2025, BCV Group, CRB

         Asset class	< 1 yr	1-5 yrs	> 5 yrs	No maturity	Subsidiaries	Total Group
         Central governments, central banks, and supranational institutions	229	167	281	9,819	234	10,731
         Banks	727	402	158	442	28	1,757
         Swiss mortgage bonds	245	1,192	2,621	-	-	4,058
         Non-central govt. public-sector entities and multilateral development banks	294	1,400	1,434	545	-	3,673
         Corporates	4,645	2,111	1,015	13,077	153	21,000
         Retail	1,143	291	364	21,432	894	24,125
         Other positions	-	-	-	594	0	594
         Total	7,283	5,562	5,874	45,910	1,310	65,937

         There is no contractual maturity date for repayment on 70% of the Bank's exposure. This is the case for cash held with the SNB, all mortgage loans, and some credit limits. Most mortgage loans are currently fixed-rate loans, which means there are maturity dates on which the loans can be renewed. At the maturity dates, most fixed-rate loans are renewed with new interest rates. For tax reasons, it is rare for clients residing in Switzerland to fully pay down their mortgage loan.

         Table 10. Credit quality of assets

         In CHF millions, BCV Group, at 30 June 2025, CR113

         a		b	c	g
         Gross carrying value of Non-
         	Defaulted	defaulted	Provisions and
         	exposure	exposure	impairments	Net value
         1 Loans (excl. debt	187	52,131	91	52,227
         securities)
         2 Debt securities	-	6,524	-	6,524
         3 Off-balance-sheet exposure	5	7,091	7	7,089
         4 Total	192	65,745	97	65,840

         Impaired or defaulted loans amounted to CHF 192m at 30 June 2025 and accounted for 0.3% of total exposure. A provision of CHF 70m was recognized for these loans; this represents an average provisioning rate of 36%, reflecting the high quality of the collateral provided on these loans. Provisions are determined individually for each defaulted loan, taking into account the liquidation value of collateral and the characteristics of the counterparty.

         Non-impaired loans amounted to CHF 65.745bn. Provisions for inherent credit risks on those loans stood at CHF 27m. The provisions were calculated based on the 12-month expected loss for loans relating to B1 to B5 counterparties (CHF 24m at 30 June 2025) and on the expected loss at maturity for high-risk loans to counterparties "reputed to be in financial difficulty" (CHF 3m at 30 June 2025). Provisions for country risk (zero at 30 June 2025) cover non-defaulted exposure in countries where the financial or settlement risk rating is below a given threshold.

         Table 11. Changes in the stock of defaulted loans and debt securities

         In CHF millions, BCV Group, CR2

         1. Defaulted loans and debt securities at end of previous reporting period

         2. Loans and debt securities that have defaulted since the last reporting period

            a

            Defaulted loans

            182

            37

         3. Amounts returned to non-defaulted status 16

         4. Amounts written down or written off 5

         5. Other changes -6

         6. Defaulted loans and debt securities at end of reporting period 192

         87% of defaulted loans relate to counterparties that went into default in or after 2014.

         13 Columns d, e, and f are not included because BCV does not apply the "expected credit loss" approach set out in IFRS and US GAAP standards and in FINMA-AO (Article 25.4).

      2. Risk mitigation

         The Bank seeks to appropriately secure its exposure through the use of collateral. Various types of collateral are recognized. They include:14

         • Pledges on real estate (primarily mortgage deeds on various types of real estate);

         • Pledges on financial assets (mainly cash and securities accounts);

         • Guarantees (mainly loan guarantees and bank guarantees).

         The valuation of collateral recognized by the Bank is based on the principle of market value, and is carried out as often as appropriate for the type of collateral. Pledges on real estate and financial assets are valued as follows:

         • The valuation of pledged real estate is carried out using methods appropriate to the type of real estate: models are used for standard real estate like houses and apartments, while other types of properties, like hotels, are appraised. The frequency at which real estate is valued depends on the type of property, as do the standard loan-to-value ratios for the loans secured by this collateral.

         • Securities portfolios and other financial assets pledged as collateral for Lombard loans are valued daily. Loan-to-value ratios are defined by type (shares, debt securities, fund units, fiduciary accounts, precious metals, or structured products), country of domicile, currency risk, the liquidity of the security, the counterparty's default risk, and the residual term for debt securities, together with portfolio diversification.

         Table 12. Credit-risk mitigation techniques - overview

         In CHF millions, at 30 June 2025, BCV Group, CR3

         	a	b	c	d
         	Unsecured exposures:		Exposures	Exposures secured by
         	carrying amount	Secured exposures	secured by collateral	financial guarantees
         1 Loans (excl. debt securities)	19,376	32,851	31,933	918
         2 Debt securities	6,373	151	-	151
         3 Total	25,749	33,002	31,933	1,069
         4 Of which: defaulted	36	81	78	3

      3. IRB approach

         1. IRB approach (excluding specialized lending)

            BCV obtained approval from FINMA to use the F-IRB approach to determine regulatory capital requirements for credit risk beginning on 1 January 2009.

            Structure of IRB rating systems

            The rating system for default risk is composed of a series of rating models. In all cases, the aim is to assess the one-year probability of default, in the form of an internal counterparty default rating. The following models are used for the categories for which the Bank obtained F-IRB approval (they are named after the population to which they apply):

            • BCV staff (default probability pool);

            • Private banking (default probability pool);

            • Retail (default probability statistical scores);

              14BCV does not net out on- or off-balance-sheet items (except for securities financing transactions and derivatives, which are discussed in the "Counterparty credit risk" section).

            • SMEs (several default probability statistical scores, depending on the nature of the client and the data available);

            • Large corporates (expert default-probability scores);

            • Banks (expert default-probability scores);

            • Municipalities in Vaud Canton (expert default-probability scores).

              The Bank has also defined and implemented a system of rules governing the transmission of internal ratings for counterparties that are related in terms of credit risk. The scores are accompanied by the analyst assessment rules.

              All these models, with the exception of the rating model for bank counterparties, generate an estimate of the probability of default without using external ratings. When assessing default risk, the rating model used for bank counterparties takes into account, among other factors, the ratings issued by the main ratings agencies (Moody's, Fitch, and Standard & Poor's).

              The Bank determined the scope of application of its models by grouping together similar counterparties; i.e., counterparties that could all default for related reasons and for which the Bank has a set of common data that can be used for modeling. The scope of its models matches these groups where they present a material, coherent risk.

              Internal loss given default (LGD) and exposure at default (EAD) models are used to calculate regulatory capital requirements for retail portfolios.

              LGD is the economic loss to the Bank if a counterparty defaults. The economic loss is calculated as the difference between the Bank's exposure to the counterparty at the time of default and the present value of all cash flows that the Bank stands to receive from the counterparty after its default. The Bank's internal LGD model factors in both the loss on the exposure and the workout costs. LGD is calculated by loan tranche, as each tranche is secured by different collateral (e.g., real estate, other securities, and guarantees); there may also be a portion not secured by collateral. Each tranche is given a loss rate. The LGD for the total loan is generally the weighted average of the loss rates for each tranche, including any unsecured tranches. The loss rates for each type of collateral are determined using data from a recessionary period in Vaud Canton (the early 1990s) to include the downturn characteristics required by regulators. A counterparty's LGD is separate from its probability of default (PD).

              The credit conversion factors (CCFs) used for the Bank's internal EAD model are either calculated using a conservative approach (100% for undrawn credit limits) or based on prudential CCFs (contingent liabilities).

              Use of ratings

              In addition to being used to calculate regulatory capital requirements under the F-IRB approach, internal ratings are used for numerous purposes (in the front, middle, and back offices). Here are the main uses:

            • Decision-making support when credit facilities and other commitments are granted or renewed;

            • Defining lending authority and the intensity of monitoring;

            • Setting risk-adjusted prices;

            • Creating provisions;

            • Monitoring the performance of business units;

            • Analyzing risk on the lending book;

            • Strategic planning.

              The scope of application of certain models for internal needs goes significantly beyond the scope of the corresponding F-IRB approval. Internal LGD/EAD models are used to estimate the expected loss on most of the Bank's credit portfolios and not only on the retail portfolios. Furthermore, internal rating models for default risk are used for a number of portfolios for which the Bank does not intend to seek IRB approval.

              Managing and integrating the reduction in credit risk

              The principles used to recognize and value collateral are the same for the portfolios for which BCV has obtained F-IRB approval for calculating regulatory capital requirements as for the rest of its lending portfolio.

              Rating system's control mechanism

              The rating system's control mechanism obeys the principles of the Bank's internal control system. It is composed of three levels of internal oversight. The first two levels are under the responsibility of the Executive Board, while the third level falls under the Board of Directors:

            • Level 1: operational and managerial oversight of business activities, in accordance with the chain of command.

            • Level 2: monitoring the appropriateness and effectiveness of level 1 by independent entities.

            • Level 3: periodic independent review of levels 1 and 2 by the Internal Audit Department.

For the rating models (PD, LGD, and EAD), or other models affecting the assessment of credit risk, three steps are defined. The objectives and responsibilities for each step are as follows:

Step 1: initial validation

Key components of the initial validation include monitoring the following: the logic of the design; the quality of the data; the selection of variables; the modeling process; the development of results; documentation; programming; and implementation.

Preparatory work for the initial validation is conducted by the units responsible for developing the models as part of their development and improvement work. Operational and managerial oversight of this work (level 1) is also done by these units.

The Validation of Rating Models unit, under the CFO's responsibility, challenges and monitors in both qualitative and quantitative terms the development and improvement work and the initial validation (level 2 oversight) and issues an opinion for the purposes of the initial validation by the Executive Board's Risk Management Committee (EBRMC).

The unit does this using documents drawn up by the unit responsible for developing the models, explaining the main choices made in the design process and describing the quantitative methods used and the results obtained. The documents also indicate the results expected from the models using a set of standardized indicators for explanatory power (for PD models) and indicators of the degree of prudence. The design document for each model is tailored to the type and complexity of the model in question (i.e., whether it is based on a statistical calculation or an expert assessment).

As part of its monitoring work, the Validation of Rating Models unit issues a report of this assessment and its conclusions.

The EBRMC is responsible for the initial validation of a new or improved model, and, by extension, for authorizing its implementation. It bases its validation decisions on reports from the unit responsible for developing the models that summarize the design documents, and on reports from the Validation of Rating Models unit that summarize the findings of the unit's independent assessment and include a recommendation for the initial validation.

Step 2: monitoring the use of models

This refers to the application of models in the Bank's credit and piloting processes.

For the credit process, analysts from the Credit Management Division and the front office are responsible for using the models and thus for calculating the estimators produced by the models. Analysts and the front office are also responsible for ensuring that the estimators are appropriately used in the context of credit decisions (decisions to grant credit as well as pricing decisions). These activities are subject to operational and managerial oversight which is defined by the analysts and the front office (level 1).

For piloting needs, various departments use the estimators produced by these models in the lending process. The Risk Management Department in particular uses rating models to analyze and monitor risk on the loan book and to calculate capital requirements.

Step 3: ongoing validation

Key components of ongoing validation include ensuring appropriate use of the models and compliance with structural and design-related hypotheses, and backtesting performance (precision and discriminating capacity).

Preparatory work for ongoing validation is conducted by the units responsible for developing the models. These units also propose any necessary measures to be taken in response to the results obtained. Operational and managerial oversight of this work (level 1) is carried out by these units.

As during the initial validation, the Validation of Rating Models unit, under the supervision and responsibility of the CFO, challenges and monitors in both qualitative and quantitative terms the ongoing validation (level 2) and issues an opinion on the results of the ongoing validation and the measures proposed, for ongoing validation by the EBRMC.

The unit does this using documents drawn up by the unit responsible for developing the models that describe all the models and characterize their results using a set of standardized indicators for explanatory power (for PD models) and indicators of the degree of prudence.

As part of its monitoring work, the Validation of Rating Models unit issues a report of this assessment and its conclusions.

The EBRMC is responsible for the ongoing validation of a model and for possible measures to be taken in this regard. It is therefore responsible for authorizing a model's continued use, including constraints and measures to be taken. It bases its validation decisions on reports from the unit responsible for developing the models that summarize the ongoing-validation documents, and on reports from the Validation of Rating Models unit that summarize the findings of the unit's independent assessment and include a recommendation for the ongoing validation.

Operational principle behind model validation

The core principle underlying the activities of the Validation of Rating Models unit is "close, but independent." Proximity is achieved by involving the unit in the entire process, starting with the initial steps taken by the design teams, both through regular support and regular discussions. Independence is achieved through the use of operational principles overseen by the EBRMC itself.

Table 13. IRB approach - Credit-risk exposure by portfolio and PD range

In CHF millions, at 30 June 2025, BCV Group, CR6

a	b	c	d	e	f	g	h	i	j	k	l
On-	Off-
balance- sheet	balance- sheet	Average	EAD post-CRM and		Number of	Average	Average		RWA
PD range exposure	exposure	CCF	post-CCF	Average PD	obligors	LGD	maturity	RWA	density	EL	Provisions

1. Banks and securities firms (F-IRB)

   0.00 to <0.15	519	119	31%	555	0.05%	89	45%	2.32	147	27%	0
   0.15 to <0.25	30	8	51%	34	0.21%	8	45%	2.21	19	57%	0
   0.25 to <0.50	115	55	26%	129	0.37%	43	45%	1.06	76	59%	0
   0.50 to <0.75	9	1	26%	9	0.57%	2	45%	2.46	9	96%	0
   0.75 to <2.50	2	-	-	2	1.22%	2	45%	1.03	2	101%	0
   2.50 to <10.00	88	36	23%	97	5.74%	25	45%	0.94	159	164%	2
   10.00 to <100.00	-	-	-	-	-	-	-	-	-	-	-
   100.00 (default)	-	-	-	-	-	-	-	-	-	-	-

   Subtotal 764 218 29% 826 0.78% 169 45% 1.96 412 50% 3 2

2. Non-central govt. public-sector entities and multilateral development banks (F-IRB)

0.00 to <0.15	941	522	16%	1,009	0.06%	236	44%	3.66	272	27%	0
0.15 to <0.25	55	11	10%	56	0.21%	7	44%	3.45	30	54%	0
0.25 to <0.50	-	-	-	-	-	-	-	-	-	-	-
0.50 to <0.75	-	-	-	-	-	-	-	-	-	-	-
0.75 to <2.50	-	0	10%	0	1.22%	1	45%	1.10	0	81%	0
2.50 to <10.00	-	-	-	-	-	-	-	-	-	-	-
10.00 to <100.00	-	-	-	-	-	-	-	-	-	-	-
100.00 (default)	-	-	-	-	-	-	-	-	-	-	-

Subtotal 996 534 16% 1,065 0.06% 244 44% 3.65 302 28% 0 0

7 Corporates - other lending (F-IRB)

0.00 to <0.15	2,022	1,310	23%	2,317	0.09%	407	40%	2.40	504	22%	1
0.15 to <0.25	755	285	26%	827	0.21%	146	40%	2.43	300	36%	1
0.25 to <0.50	665	234	22%	712	0.37%	130	39%	2.12	323	45%	1
0.50 to <0.75	336	152	28%	377	0.57%	86	40%	2.12	210	56%	1
0.75 to <2.50	777	235	24%	824	1.25%	212	39%	2.02	601	73%	4
2.50 to <10.00	80	20	15%	83	4.62%	27	39%	1.99	86	103%	1
10.00 to <100.00	18	1	17%	18	21.00%	6	27%	2.23	22	125%	1
100.00 (default)	31	1	25%	31	100.00%	13	47%	2.41	17	53%	15

Subtotal 4,684 2,238 23% 5,190 0.51% 1,026 39% 2.28 2,062 40% 25 22

a	b	c	d	e	f	g	h	i	j	k	l
On-	Off-
balance-	balance-		EAD post-		Number
sheet	sheet	Average	CRM and		of	Average	Average		RWA
PD range exposure	exposure	CCF	post-CCF	Average PD	obligors	LGD	maturity	RWA	density	EL	Provisions

9 Mortgage-backed retail exposure

0.00 to <0.15	9,925	60	100%	9,985	0.10%	18,997	13%	2.50	293	3%	1
0.15 to <0.25	4,911	37	100%	4,948	0.21%	6,779	16%	2.50	322	7%	2
0.25 to <0.50	3,105	48	100%	3,153	0.37%	3,803	19%	2.52	381	12%	2
0.50 to <0.75	922	19	100%	941	0.57%	1,187	19%	2.54	156	17%	1
0.75 to <2.50	1,536	27	99%	1,563	1.30%	1,992	18%	2.51	418	27%	4
2.50 to <10.00	269	3	97%	272	4.96%	278	19%	2.50	165	61%	3
10.00 to <100.00	18	0	100%	18	21.00%	26	22%	2.50	22	124%	1
100.00 (default)	73	0	100%	73	100.00%	81	-	2.50	71	98%	2

Subtotal 20,757 195 100% 20,952 0.36% 33,142 15% 2.51 1,829 9% 15 5

11 Other retail exposure

0.00 to <0.15	574	452	99%	1,023	0.11%	2,272	25%	1.54	66	6%	0
0.15 to <0.25	102	62	95%	161	0.21%	784	54%	2.11	36	23%	0
0.25 to <0.50	74	33	90%	104	0.37%	407	60%	2.03	37	36%	0
0.50 to <0.75	38	20	91%	56	0.57%	185	70%	1.92	30	54%	0
0.75 to <2.50	109	95	97%	201	1.28%	561	53%	1.66	117	58%	1
2.50 to <10.00	23	5	90%	27	4.72%	110	62%	2.16	24	91%	1
10.00 to <100.00	2	0	99%	2	21.00%	21	62%	2.15	3	142%	0
100.00 (default)	14	2	97%	16	100.00%	82	-	2.15	7	40%	10
Subtotal	936	670	98%	1,590	0.41%	4,422	36%	1.67	321	20%	13	12
Total	28,137	3,854	39%	29,623	0.39%	39,004	22%	2.45	4,926	17%	56	41

In Tables 13 and 15, the average PD and average LGD subtotals do not include defaulted exposure.

Attachments

• Original document
• Permalink

Disclaimer

BCV - Banque Cantonale Vaudoise published this content on August 21, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on August 21, 2025 at 03:38 UTC.