Survey Financial Risk Management_Belgian Corporates

STAYINGTHECOURSE
A survey on risk management and the use of derivatives
in non-financial companies based in Belgium
in collaboration with

Contents
1. Introduction
2. Main highlights
3. Survey results
3.1 Facing & managing IR/FX risk
3.2 Risk management objectives
3.3 Risk tolerance & derivatives use since 2008
3.4 Hedging policies
3.5 Latitude in hedging decisions
3.6 Fixed/floating-rate liability mix since 2008
3.7 IR hedging instruments
3.8 Managed FX exposures
3.9 Disclosure of market value
3.10 Counterparty risk & service providers
3.11 EMIR implementation
3.12 Looking forward
4. Conclusion
5. Demographics of companies
6. Methodology
3
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STAYING THE COURSE | 3
1 | Introduction
We are living a major experiment in financial history. Periods of
historically low volatility interrupted by sudden peaks in interest
rate and FX markets are puzzling specialists. These movements
are largely driven by decisions made by central banks across the
world, which are steering us into uncharted territories.
In this context, risk managers are challenged more than ever to
analyse markets and protect earnings within their organisations.
This survey highlights how companies adapt to the shifting risk
environment and what major concerns treasury departments
are confronted with today.
• The survey was conducted by BNP Paribas Fortis in
collaboration with ATEB, the Association of Corporate
Treasurers in Belgium. It was carried out from 14 March 2014
to 4 April 2014 through an online questionnaire, targeting a
large population of Belgian-based non-financial companies.
The population was segmented into large companies, small
and medium-sized companies(1)
and public entities(2)
. The
questionnaire was fine-tuned with a focus group of selected
CFOs equally representing all three segments.
• To guarantee the anonymity and objectivity of the responses,
the data collection was managed by an independent market
research company.
• More than 400 companies participated to this survey, clearly
demonstrating the relevance of the topic for the industry,
and thus enabling us to draw several significant conclusions
presented in this report.
• The survey results presented in this report solely reflect the
views and practices of the respondents.
We warmly thank the companies that accepted to spend their
valuable time to contribute to this survey.
“Thisuniquesurveyunderscoresoneof themain
goalsofATEB:understandingtheactivityscopeof
treasuriesinBelgium,allowingATEBtodeliverevents,
knowledgesharingandtrainingofferingsthatmeet
ourmembers’needsandinterests.
”Jef van Osta, Chairman, ATEB
1: Split by turnover: Large companies: > € 250 millions; Small and medium-sized companies: < € 250 millions.
2: Regions and Communities, IVA/ EVA/ OIP and all entities gravitating around regions and intercommunal companies (gas, electricity, …).

4
• Generally, companies’ financial risk management is
centred around stabilising cash flows and earnings.
• Simple products (e.g. IRS, IR Caps, FX Forwards) constitute
the bulk of a hedge portfolio, with many companies also
using structured products.
• Counterparty risk has emerged as a key risk when
using derivatives. 83% of the respondents mitigate it by
transacting only with banks having a sufficiently high
credit rating. Also high credit rating is one of the top
criteria for selecting derivatives providers.
• Disclosure of the market value of derivatives depends
strongly on the accounting standards (Belgian GAAP or
IFRS) companies use.
• EMIR implementation is gathering speed after a fast start
(77% have obtained their LEI) but additional efforts are
needed to agree on the portfolio reconciliation process.
“Someriskscan’tbeavoided,buttheycanbemanaged.”
Large company treasurer
• The majority of companies (56%) have a high proportion
of floating-rate liabilities of between 76% and 100%
(prior to the use of derivatives). This offers them a lot of
flexibility when managing their interest rate expenses.
However, unhedged liabilities must be monitored
carefully at the first signs of increasing rates.
• Counterparty risk is managed by 71% of respondents.
This is reassuring, but this topic should keep receiving
adequate attention.
• In line with their swift and flexible decision making
process, small & medium-sized companies value the
ability of derivatives providers to execute trades quickly
(44% FX and 24% IR).
“Weneverhedgeallofourrisksin100%thesameway.
Thedifferentsolutionsemergefromdiscussionswithour
bankingpartner.”
Small & medium-sized company CFO
2 | MainHighlights
Overall Small & Medium-sized companies

• Hedging policies are widely utilised to frame the
decision process and procedures when managing IR risk
(86%) and FX risk (94%).
• 85% disclose the market value of derivatives, reflecting
the importance for large structures to be increasingly
transparent towards shareholders and debtors.
• 43% expect more IR derivatives with maturities longer
than 7 years in 2015. This may reflect the perception
that long-term rates are at their bottom levels and will
increase in the years to come.
• Two corporates out of three have between 25% and
100% of their FX volume in emerging market currencies,
demonstrating the high impact of globalisation on
Belgian companies.
“Banksshouldbemorepro-activeincontactinguswith
targetedinformation.Sometimesacertainneedisthere
butthereisnoinformationontheadequatesolution.Maybe
bankersthinkthateverybodyknowseverything.”
Large company treasurer
• Public organisations have almost no exposure to FX as
their activities are local and in Euro.
• Top objective is to improve the organisation’s credit
rating and borrowing rate.
• Counterparty credit risk is rightly a major priority and
is handled by nearly all public segment respondents
(93%). This is usually done by transacting only with
banks with a sufficiently high credit rating.
• The public sector is structurally financed via fixed-rate
debt with half of the entities having less than 25% of
floating rate liabilities (prior to the use of any derivative).
“Publicdebtisabigresponsibility:wehavetoreportto
ministers;andultimatelytothecitizens.”
Public organisation treasurer
Large companies Public entities

6
3 | SurveyResults
3.1 | Facing&ManagingIR/FXrisk
Risk management in companies facing IR/FX risk
Companies exposed to risk frequently manage this risk through derivatives (IR 63% - FX 74%). Companies
not using derivatives cite insufficient risk exposure and internal policy restrictions as the main reasons
behind this decision.
Belgian companies are naturally exposed to a variety of risks.
IR and FX risks are amongst the most significant, as they can
have a large impact on the short- and long-term performance
of companies. For controlling or preventing risks, companies can
consider different methods depending on their goals, constraints
and resources. For example, they may use insurance policies,
derivatives or diversification of their operations. We asked the
participants whether they are exposed to IR or FX risks and if
they manage these risks with derivatives(1)
.
• 82% of all respondents face FX or IR risk. Certain companies
may not be exposed to IR risk simply because they don’t
have any debt or other liabilities. When risks are not
managed with derivatives, the primary reason cited
by 29% of respondents is “insufficient risk exposure”.
• However, the vast majority of companies do have a non-
negligible exposure to IR and/or FX risk. Sometimes this
exposure relates to their competitive position. For example,
a company financing itself only via fixed-rate debt may
pay higher interest expenses than other companies relying
on variable-rate debt and managing the associated IR risk.
A competitor may have a lower cost structure because it
manages well the FX risk linked to imports.
• Of those companies facing FX risk, 74% actually manage it
with derivatives. For IR risk, this is 63%. These proportions
are fairly high and probably reflect the ease to enter into a
derivatives contract perfectly matching the underlying risks
and risk constraints of the company.
• Public entities have very limited exposure to FX risk as their
activities are local and in Euro (22% face FX risk and 4%
manage it).
n Not managing with derivatives n Managing with derivatives
26%
74%
FX (
*)
37%
IR
63%
* Public entities excluded due to a lack of FX exposure.
1: IR derivatives include futures, options (caps, floors, collars,…),
swaps and forward rate agreements; FX derivatives include futures, options, forwards and FX swaps.

Insufficient risk exposure
Internal policy restriction
Natural hedging
Difficulty pricing & valuing derivatives
Costs of establishing and maintaining
a derivatives program exceed the expected benefits
Lack of knowledge
Accounting treatment
Derivatives are considered too risky
Large losses on derivatives experienced in the past
29%
16%
11%
10%
8%
8%
7%
7%
6%
Reasons for not managing IR/FX risk (
*)
* Respondents could select multiple answers.

8
3.2 | RiskManagementObjectives
For risk managers, stabilising cash flows and earnings are the main strategic objectives.
Ideally, risk managers should ensure that companies correctly
identify, measure and manage their main risks. They play a
central role in optimising the volatility of cash flows in order
to avoid losses and improve investment decisions. The precise
objective of risk management will vary greatly from one company
to the next. We therefore asked the participants to rank their
most important objectives:
• Unsurprisingly, stabilising cash flows (54%) and stabilising
earnings (53%) stand out as the most important purposes of
the risk management activity.
• It is interesting to note that stabilising costs (31%) is a more
frequent strategic objective than stabilising revenues (17%).
This may be due to the fact that companies tend to have
more non-Euro exposure on their imports rather than on their
exports.
• For public entities, the main objectives are different and relate
to IR risk: improving the organisation’s credit ratings and
borrowing rate (34%), mitigating particularly large increases
in costs (27%) and stabilising cash flows (27%). Indeed, this
segment has substantial funding needs and tends to be risk
averse as it manages public money.
Additional comments made by participants:
• ‘‘Improve budget forecasts’’. This is very important as high
uncertainty may lead to under-investments. By removing
market volatility from a company’s P&L and balance sheet,
derivatives can facilitate investment decisions.
Strategic Risk Management objectives - Ranking (
*)
Stabilise cash flows
Stabilise earnings
Stabilise costs
Mitigate particularly large falls in revenue
Mitigate particularly large falls in earnings
Mitigate particularly large increase in costs
Stabilise revenues
Mitigate particularly large falls in total cash flow
Improve the firm’s credit ratings / borrowing rate
54%
53%
31%
30%
28%
22%
17%
14%
13%
Other 7%
6%
1%
3%
4%
5%
2%
1%
4%
4%
6%
n Low n High

3.3 | RiskTolerance&DerivativesUseSince2008
For the majority of companies, risk
tolerance and derivatives usage have
remained unchanged since 2008. However,
the perception in the financial industry
is that volumes of derivatives with non-
financial companies have decreased.
Risk-conscious companies may decide to either avoid
a risk (when possible) or manage it carefully. Steady
risk management requires companies to define their
risk tolerance and the situations in which they should
use derivatives. We asked the respondents to assess
how their current risk tolerance and derivative usage
have evolved compared to 2008.
• 51% of companies consider their risk tolerance to
be at the same level as in 2008. This is surprising
as we would expect risk managers to find today’s
environment more risky (more complex, more
difficult to anticipate) and with less investment
opportunities.
• As to the use of derivatives, 54% see no change
since 2008. However, this contradicts a survey
from the NBB(1)
showing a marked decrease in
average daily turnover between April 2007 and
April 2013 for the four major Belgian banks(2)
. A
reduction would be more consistent with what is
observed by the financial industry: a decrease in
import/export (impact on FX), lower investments
(impact on IR and FX) and lower rates (tendency
for some companies not to cover IR risk with
derivatives).
1: Nationale Bank van België, driejaarlijkse Enquête over de
Valutamarkt en de Markt van de Afgeleide Producten: Resultaten
voor België. Brussel, Communicatie Nationale Bank van België, 2013.
2: -64% for FX forwards, FX swaps, cross-currency swaps, options
and other OTC derivatives traded by non-financial companies in
Belgium with four major Belgian banks.
Risk tolerance/derivatives usage compared to 2008
Derivatives usage compared to 2008 - Segments
Decreasing
Unchanged
Increasing
27%
13%
54%
33%
51%
21%
n Risk tolerance n Derivatives usage
n Increasing n Unchanged n Decreasing
Risk tolerance compared to 2008 - Segments
n Increasing n Unchanged n Decreasing
SMEs
28%
52%
20%
Public entities
12%
41%
47%
Large companies
11%
54%
35%
SMEs
32%
57%
11%
Public entities
35%
59%
6%
Large companies
35%
46%
19%

10
3.4 | HedgingPolicies
Generally, companies have hedging policies in place, in particular for FX risk management, but in many
cases these policies are not written down.
Having a hedging policy in place for the use of derivatives is a
fundamental aspect of a solid risk management programme. We
asked our respondents if they have a hedging policy for their
IR and FX risk management and whether this hedging policy is
written down.
• Most companies using derivatives report having a hedging
policy in place: 75% for IR and 89% for FX risk management.
However, only 28% (IR) and 48% (FX) have formulated their
policy in writing. We can expect a policy to be clearer, more
detailed and auditable when it is written down. Besides,
a written policy often goes through an approval process
validated by a company’s most senior management.
• Almost all large companies surveyed have hedging policies
(95% for FX and 86% for IR).
• Small & medium-sized companies and public entities: a
large proportion (respectivelly 60% & 76%) has a hedging
policy, but further efforts could be made to formalise the risk
management approach.
Hedging policy - All segments
28%
n Written hedging policy n Hedging policy but not written down n No hedging policy
48%
47%
25%
41%
11%
FXIR

IR hedging policy - Segments
FX hedging policy (
*)
- Segments
n Written hedging policy n Hedging policy but not written down
n No hedging policy
n Written hedging policy n Hedging policy but not written down
n No hedging policy
SMEs
16%
44%
40%
Public entities
38% 38%
24%
Large companies
27%
59%
14%
SMEs Large companies
29%
74%
49%
21%22%
5%
“Oneoftheobjectivesofthissurvey
istoclarifyhowderivativesareusedand
showbestpratices,forexampleinterms
oftransparencyandgovernance.
”Eric Charléty, Head of Fixed Income Business
Development, BNP Paribas Fortis

12
3.5 | LatitudeInHedgingDecisions
Companies, in particular large ones, generally allow limited latitude in hedging decisions.
When designing a risk management programme, a company
needs to find the appropriate balance between flexibility,
enabling it to react quickly to risk changes, and control of the
risk management activity. In order to evaluate the discretion
given to risk managers, we asked our respondents to indicate
the allowed degree of latitude in a series of decisions related to
their role in risk management.
• Overall, there is slightly more latitude in FX risk management
decisions. For example, 49% have broad to moderate latitude
concerning the decisions on time horizon of hedges in IR,
compared to 58% in FX. One important factor is that the
underlying risk is not always present or certain at the time of
the decision (22% of companies manage expected but not yet
committed transactions and 22% economic exposure(1)
). The
risks are also shorter-term in FX and rarely extend beyond
3 years.
• On the other hand, risk managers have less latitude in IR risk
management. Indeed, decisions are often linked to a specific
committed liability and many companies choose to hedge
100% of the risk.
• Large companies: There is a propensity towards having
very little elbow room, probably driven by the fact that
most companies are subject to a hedging policy and stricter
accounting constraints(2)
.
• Small & medium-sized companies and public entities: There
is slightly more autonomy than for large companies. This
may reflect the proximity of risk managers and the ultimate
responsible persons (e.g. executive committee, board, owner,
minister, etc.).
1: See section 3.8, Managed FX exposure, p.17.
2: See section 3.9, Disclosure of market value, p.19.

* Public entities excluded due to a lack of FX exposure
Latitude in FX hedging decisions (
*)
Type of product
Time horizon of hedges
Hedge ratio
Deviation from benchmark
52%
42%
47%
47%
23%
22%
22%
20%
25%
36%
31%
33%
Latitude in IR hedging decisions
Type of product
Time horizon of hedges
Hedge ratio
Deviation from benchmark
58%
51%
54%
58%
21%
25%
27%
20%
21%
24%
19%
22%
n Little to no latitude n Moderate latitude n Substantial to broad latitude
n Little to no latitude n Moderate latitude n Substantial to broad latitude

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3.6 | Fixed/Floating-RateLiabilityMixSince2008
Since 2008, many companies have shifted towards
more floating-rate liabilities in order to benefit
from current low interest rates.
Liabilities exposed to IR risk are typically composed of loans
and to a lesser extent leases, factoring and bonds. The choices
companies make in their fixed and variable-rate liabilities
mix can have a significant impact on their financing costs
depending on the IR context. We asked companies to which
degree their liabilities are based on a floating rate today and
how this compares to 2008, without taking into account the
use of IR derivatives.
• Generally, companies have more floating-rate liabilities
today compared to 2008, as shown by the evolution of the
median from 51-75% floating to 76-100% floating. Some
companies take the opportunity of historic low rates to
decrease costs in the short term by not hedging the entire
IR risk(1)
. However, unhedged liabilities create a risk that
materialises when rates move up.
• Small and medium-sized companies and Large companies:
these segments show a clearer trend towards more floating-
rate liabilities. However, unhedged liabilities should be
carefully monitored at the first signs of increasing rates.
• Public entities: the liability mix between floating and fixed
rate has remained mostly static. This is probably due to
the fact that these organisations are structurally financed
via fixed-rate loans and bonds. While this increases the
predictability of interest expenses, it does not necessarily
lead to the lowest cost of debt.
1: Some companies appreciate the flexibility offered by
derivatives, e.g. in terms of timing and notional.
“FinancialRiskManagementmust
correspondtofundamentalcompanyneeds.
Ensuringthattherightproductisusedbythe
rightcompanyfortherightsituationiskey.
”Alain Vande Reyde, Board member of ATEB

STAYING THE COURSE | 15* FY 2013
Proportions of floating-rate liabilities today(
*)
and in 2008 -
SMEs and Large companies
Proportions of floating-rate liabilities today (
*)
and in 2008 -
Public entities
76-100% floating
76-100% floating
MedianTODAY
Median2008
MedianTODAY&2008
51-75% floating
51-75% floating
26-50% floating
26-50% floating
1-25% floating
1-25% floating
0% floating
0% floating
51%
13%
42%
14%
13%
0%
23%
21%
11%
57%
11%
7%
11%
13%
13%
20%
15%
47%
10%
7%
n Today n 2008
n Today n 2008

16
3.7 | IRHedgingInstruments
The bulk of derivative instruments used for IR risk management are relatively plain vanilla, with IRS leading
the pack.
The interest rate derivatives market is the world’s largest
derivatives market(1)
. IR hedging decisions are intertwined with
financing decisions which can commit the company for many
years. Therefore, companies appreciate products which are
simple and easy to understand and track. At the same time, they
may decide to diversify their hedging portfolio by including more
structured products. We asked the respondents what type of
instruments they use.
• Plain vanilla OTC products, like IRS and IR caps, are widely used.
However, many companies include structured instruments in
their portfolio of hedges to reduce directional risk or benefit
from other features. Authorised hedging instruments are
typically defined in the hedging policy.
• Interest rate swaps enable companies to transform a variable-
rate liability into a fixed-rate one or vice versa. They are used
by almost all respondents (97%) managing their IR risk with
derivatives. The popularity of this product is probably due to
the fact that it can be tailored to the particular needs of each
company, yet still remains relatively simple in use. However,
as for any fixed-rate liability, it obliges the company to pay
the agreed rate even if interest rates decrease in the market.
• Interest rate caps enable companies to put a cap on the
interest rate they pay on a variable-rate liability. They are
less popular than IRS but still used by almost half of the
respondents. This lower use may be due to the need to pay
a premium upfront very much like for an insurance – this
cost might be felt more directly than the advantage to benefit
from a potential decrease in interest rates.
1: Average of USD 7.4 trillion per trading day in April 2013 against
USD 5.5 trillion traded in FX (source: Bank for International Settlements).
“Since2008,politicians,regulators
andbankshaveworkedhardto
regulateandstandardisetheOTC
market.However,theneedtotailor
ahedgetoaspecificandunique
underlyingriskandhedgeportfolio
remainsfundamentalforcompanies.
Derivativesproviderswillcontinueto
fulfilthatneed.
”Ivo Mertens, Head of Fixed Income Sales,
BNP Paribas Fortis
Interest rate swaps (IRS)
Interest rate caps
Forward rate agreements (FRA)
Collars
Cross-currency swaps
Interest rate floors
Structured derivatives
Constant maturity swaps (CMS)
97%
45%
35%
32%
29%
25%
16%
13%
Use of hedging instruments (
*)

Most companies have an exposure to FX risk as a result of their
normal business with non-Euro countries via import, export,
production, distribution, partnerships and participations. The
volatilities on foreign currency markets affect those companies’
P&L (revenues, costs) and balance sheet (assets, liabilities and
equity). The decision to manage FX risks or not depends on
several factors including the materiality of the risk and its degree
of certainty. We asked the respondents which FX risks they
manage and whether the exposures relate to G10 or emerging
markets currencies.
• Most respondents (79%) manage the committed transactions
resulting from their daily business. This is logical, as many
companies use FX swaps to manage treasury shortages/
excesses across different currencies (e.g. a company with a
deficit of euros, but a surplus of dollars, can sell the dollars
against euros to compensate). Another widely used product is
the forward, enabling to fix the FX rate at a future rate.
• As to the uncommitted transactions, 22% state they manage
the related FX risk. In such cases, companies typically hedge a
lower proportion of the risk.
• Interestingly, a relatively high proportion of respondents (22%)
state that they hedge their economic exposures. An FX-linked
economic exposure means that FX rates have an impact on the
long-term cash flows of a company. Even smaller companies
focused on the Belgian market can have a significant FX-linked
economic exposure, for example if they compete locally with
non-Euro based competitors.
• Half of the respondents have between 25% and 100% of their
annual FX volume in emerging markets currencies. This
reflects the high impact of globalisation, international trade
and cross-border currency flows on the Belgian economy.
3.8 | ManagedFXExposures
A large proportion of companies manage FX risk linked to committed transactions. Many also manage risk
from uncommitted transactions and economic exposures.

18
* The list of G10 currencies consists of Euro - US Dollar - British Pound - Japanese Yen – Canadian Dollar - Swiss Franc - Australian Dollar - New Zealand Dollar -
Norwegian Krone - Swedish Krona.
Daily business committed transactions
Foreign repatriations (dividends, royalties or
interest payments)
Daily business anticipated transactions
(not yet committed)
Economic exposures
Income statement (net income hedging)
Balance sheet (net investment hedging)
M&A
Other
79%
28%
22%
22%
15%
14%
6%
9%
FX risk - Managed exposures (
*)
100% G10
75% G10 - 25% Emerging markets
100% Emerging markets
51%
35%
8%
3%
3%
Annual FX volume - Split G10/Emerging markets (
*)
49%

3.9 | DisclosureofMarketValue
A large proportion of companies operating under Belgian GAAP do not disclose the market value of their
derivatives.
Transparency on the use and value of
derivatives helps stakeholders assess
the risk of companies. Opaque disclosure
regarding derivatives may limit the
willingness of shareholders or banks to
support a company. IFRS and US GAAP
impose the disclosure of the market value
of derivatives. Belgian GAAP, however, is
less clear on the subject so that companies
can decide whether they disclose this
information or not. We asked respondents
what accounting standard they use and
if they disclose the market value of their
derivative contracts.
• 56% of the respondents reported that
they disclose the market value of their
derivatives contracts, whereas 44%
do not. Companies not disclosing this
information use Belgian GAAP. It is
worthwhile to note that the Belgian
Accounting Norms Commission has
recently recommended disclosure of
information about the market value
of derivatives when those are not
accounted for at market value(1)
. This
percentage is therefore expected to
increase in the future.
• IFRS is used by listed companies and
larger companies in general in Europe
and in many countries in the world
(except USA(2)
).
• Public entities: Belgian GAAP is
mandatory for a company’s fiscal
reporting and no other standard is
used by 67% of the public entities.
17% use IFRS (and therefore disclose
the market value of derivatives) and
16% use other standards such as
IPSAS. Of those not using IFRS (i.e.
Belgian GAAP or other standards), 50%
do not disclose the market value of
derivatives.
• 85% of large companies disclose the
market value of their derivatives. This
is the highest observed percentage of
disclosure and is driven by their use of
IFRS (55% of corporate companies use
IFRS).
• 56% of small and medium-sized
companies choose not to disclose
market values (61% report in Belgian
GAAP and are thus not obliged to do it).
Companies disclosing market value of derivatives Accounting standards
n Belgian GAAP n IFRS n US GAAP
n Other
56%
29%
4%
11%
1: Commission des Normes comptables/Commissie voor Boekhoudkundige normen - Advice CNC 2013/16.
2: Only 5% of respondents use US GAAP. This standard is used by companies belonging to groups based (or at least with a strong presence) in the US.
It also requires them to disclose the market value of derivatives.
All
SMEs
56%
45%
44%
Public entities 59% 41%
Large
companies
81% 19%
n Yes n No
55%

20
In the wake of the bankruptcy of Lehman Brothers, the liquidity
crisis amongst banks and the European banking crisis, banking
counterparty risk has emerged as a considerable risk for tax
payers. As a result governments and regulators are putting
in place measures to allow banks to default without state
intervention. This in turn creates risk for companies transacting
with banks. We asked respondents about their ways of mitigating
counterparty risk and their criteria for choosing a derivatives
provider.
• Most companies (83%) transact only with banks having a
sufficiently high credit rating to mitigate counterparty risk. For
example a company may choose not to transact with banks
having a rating worse than A.
• Public entities: All responding organisations but one manage
counterparty risk, illustrating their high awareness of this
market risk.
• Large companies and small & medium-sized companies: 14%
of corporate companies and 29% of commercial companies do
not manage counterparty risk in spite of the importance of the
subject.
• However, when choosing derivatives providers, pricing is by far
the main motivator for 87% of the respondents, followed by
the availability of lending facilities (54%) and the quality of a
bank’s rating (45%).
• In line with their swift and flexible decision making process,
small & medium-sized companies put more emphasis on the
ability to execute trades quickly (44% FX and 24% IR).
3.10 | CounterpartyRisk&ServiceProviders
Companies carefully select their counterparty by transacting only with banks having a sufficiently high
credit rating.
Mitigating counterparty risk (
*)
By transacting only with banks having a sufficiently
high credit rating
My company does not manage counterparty risk
linked to derivatives
By using collateral
By using early termination option (ETO)
By using credit default swaps (CDS)
83%
21%
6%
3%
2%

Main reasons for choice of derivatives
IR/FX service provider
Pricing
Hedging ideas
Availability of lending facilities
Quality of bank’s rating
Strategic advice
Quality of bank’s expertise in derivatives
Corporate Banking capabilities
(e.g. Cash Management, Trade Finance)
Provision of interest rate & foreign exchange
derivative credit lines
Ability to execute trade quickly (bank’s decision
time & requirements towards clients)
89%
87%
54%
45%
36%
34%
26%
30%
16%
16%
26%
85%
25%
49%
37%
36%
12%
32%
19%
31%
58%
22%
53%
19%
40%
13%
36%
n IR n FX
Average

22
3.11 | EMIRImplementation
Although EMIR came into force in August 2012, it has not been fully implemented yet.
EMIR is part of the European set of regulations to improve
transparency, enhance market safety and provide a regulatory
oversight of market practices. We asked about companies’ current
progress in implementing EMIR and the difficulties encountered
during the implementation process.
• While almost all companies in the EU are subject to EMIR(1)
,
only 74% of the companies state they fall under the regulation,
even though they use derivatives subject to reporting
obligations. This probably reflects a misunderstanding
regarding the scope of the new regulation’s application and
the lack of clarity regarding the exemptions for the public
sector.
• 77% of companies have acquired a Legal Entity Identifier (LEI)
and 73% have acknowledged their classification (usually as
Non Financial Counterparties/NFC).
• Under EMIR, companies need to agree with their banks on
a portfolio reconciliation process. This takes the form of an
adjustment of the existing master agreement (EMA or ISDA).
Only 36% state this step has been completed.
• Overall, the high number of non-compliant companies is partly
due to the fast implementation of EMIR and the perceived
complexity of the subject. This explains why only 31% report
having no difficulties complying with EMIR. The risk being
that penalties are imposed in case of non-compliance. So far
regulators have been lenient, but eventually they will have to
complete the implementation of EMIR. Therefore companies
need to dedicate more resources and regulators, industry
associations and banks will need to upscale training efforts.
1: Some public entities fall entirely outside the scope of EMIR: the European Central Bank, the national central banks of the member states, other governments or EU
bodies charged with intervening in the management of the public debt and the Bank for International Settlements. Also since 2013: the U.S. Federal Reserve, the Bank of
Japan and the debt management offices of these countries.
Subject to EMIR-Segments
All segments 14% 12% 74%
Large companies 6% 94%
Public entities 55% 9% 36%
SMEs 18% 16% 66%
n Don’t know n No n Yes
ToreadmoreaboutEMIR:
http://cpb.bnpparibasfortis.be/EMIR

Progress in implementing EMIR
Legal entity identifier obtained (LEI)
Classification known (NFC- or NFC+)
77%
73%
36%
13%
17%
7%
10%
10%
19%
18% 2%
1%
1%
1%
5%
Reporting of trades to trade repository
(reporting can be made by your bank) 56% 28% 5
Reconciliation of trade portfolio with
your banking counterparties 49% 22% 9%
32%
n Completed n In progress n Not started n Don’t know n Not applicable
Portfolio reconciliation process agreed in
master agreement (EMA/ISDA)
5
2%
2%
Main difficulties with EMIR
Insufficient information on new obligations
No difficulties
Deadline too tight
Insufficient internal resources available
Insufficient management attention
Limitations of internal systems
42%
31%
24%
17%
9%
5%

24
3.12 | LookingForward
Still catching up with EMIR, a relatively high
number of companies expect more regulatory
burden, disclosure and internal controls. This
may overstate the upcoming regulatory change
impacting non-financial companies.
2008 was the greatest shock to the worldwide financial
system since the Great Depression. Since then, companies are
struggling to generate growth while the financial markets are
being transformed by an ambitious regulatory reform agenda.
Against this background, we asked respondents what they
expect in 2014/2015 with regard to a series of items influencing
their derivatives use.
• Several participants expect an increase of the “regulatory
burden” (46% for IR and 38% for FX), increasing internal
controls (33% IR and 27% FX) and reporting/public disclosure
(26% IR and 27% FX).
• As mentioned above, this perception is likely to be
influenced by EMIR. However, new upcoming regulations
(e.g. MiFID2) should not create new obligations for non-
financial companies. Once EMIR has been implemented, the
regulatory burden linked to derivatives for non-financial
companies should normalise.
• Large companies and small & medium-sized companies
expect more IR derivatives with maturities longer than
7 years in the coming year (43% and 30% resp.). This may
reflect the anticipation that long-term rates are at their
bottom levels and will increase in the years to come.
• Overall, companies do not expect major changes for
2014/2015 in the following areas(1)
:
»» degree of latitude of the person(s) managing risks
»» internal restrictions in terms of products
»» time horizon
»» hedge ratios
»» product scope
»» number of providers
1: Not shown in the graphs but part of the questionnaire.
“Thederivativesindustryisundergoing
amajortransformationfollowingthe2008
events.Eventuallytheseeffortswillleadto
anewparadigmwithamoresolidmarket
structureandstrongerprotectionforinvestors
andtaxpayers.Inthemeantime,banksand
non-financialcompaniesshouldworkhandin
handtoadapttothisshiftingreality.
”Frédéric Van Gheluwe, Head of Capital Markets,
BNP Paribas Fortis

2014/2015 expectations for FX (
*)
2014/2015 expectations for IR
Regulatory burden
Internal controls
Reporting/public disclosure
Degree of latitude of the person(s)
managing risks
Internal restrictions in terms of products
38%
27%
27%
6%
5%
61%
71%
72%
88%
84%
1%
2%
1%
6%
11%
n Increase n No change n Decrease
Regulatory burden
Internal controls
Reporting/public disclosure
Degree of latitude of the person(s)
managing risks
Internal restrictions in terms of products
46%
33%
26%
6%
5%
49%
62%
67%
88%
92%
5%
5%
7%
6%
3%
n Increase n No change n Decrease

26
4 | Conclusion
Today’s companies are operating in a challenging environment, faced with a long-lasting economic
stagnation and unpredictable financial markets. In this context, risk professionals bear the heavy
responsibility to protect their company’s earnings. This requires them to rethink conventional ways of
managing financial risk.
1. Increasing globalisation and risk of low-
probability, high-impact events
Increasing financial and economic integration across the world
compounds the likelihood and potential magnitude of shocks as
well as the speed at which cascading effects may occur across
geographies and financial markets, eventually affecting the
real economy. Current low volatilities may give a false sense
of security, but systemic risks remain present. We are in a long
lasting period of low rates and abundant liquidity, which is
likely leading to mispricing of certain risks. Recent history has
shown that market corrections lead to volatility peaks, affecting
companies’ cash flows – sometimes leading to major financial
impacts.
In order to deal with low-probability, high-impact events, certain
companies have incorporated scenario analysis in their financial
risk management, next to traditional forecasting and planning.
Scenario analysis enables to simulate the impact of uncertain
but significant events without being constrained by approaches
based on recent history and normal probability distribution.
Companies using scenario analysis tend to mitigate more
systematically particularly large falls in revenues or increase in
costs. This mitigation can take many forms, including monitoring
the credit quality of derivatives providers and entering into
derivatives (e.g. out-of-the-money caps and floors).
2. IR/FX risk management is part of a company’s
competitive toolbox
IR and FX risks linked to committed import/export and financing
transactions are usually well known and managed. However, the
IR/FX-linked economic risks are more complex to evaluate and
only managed by a few companies, even though they can have
a more significant impact on a company’s competitive position
and earning power.
In the case of FX, a company may be threatened in Belgium
by a US competitor when the dollar is weak. However, it may
be advantaged by a weak Indian rupee if it has delocalised or
outsourced part of its value chain to India. IR risk management
also impacts the competitive position of a company. In the case
of IR, a variable-rate financing decision (without hedge) may
impair the competitiveness of a newly launched business line if
interest rates increase.
The relationship between IR/FX decisions and competitiveness is
complex and specific to each company’s product line. However,
going beyond the purely transactional hedging decisions and
making the link with the competitiveness of a company, enriches
the strategic thinking around markets, value chain, physical
model and financing structure.

3. Emerging regulatory paradigm
An unprecedented wave of new financial regulations impacting
derivatives has been triggered by the 2008 events. Regulation is
not new in this industry sector which has changed a lot since
the late 1980s. Prior large failures triggered waves of new
regulations (e.g. Basel I in 1988, Sarbanes-Oxley in the US in
2002), but the current wave imposes a new regulatory vision of
risk. The changes, being more prescriptive and broader in reach,
have a profound impact on the market structure, practices and
products. Basel III, EMIR and MiFID2 are prompting market actors
to adapt their business models. Eventually these regulatory
efforts will lead to a new paradigm with more transparency and
more effective protection for companies and tax payers. Banks
and companies need to work hand in hand to adapt to this
shifting reality.
4. Hedging policy
Companies increasingly use hedging policies to formalise their
IR/FX risk management and clarify its contribution to the firm’s
value creation. This enables them to increase the effectiveness
of their derivatives use by outlining their business approach,
appetite for risk and approach to financial risk management. This
exercise typically encompasses many aspects including the type
of risks covered, the objectives, authorised products, delegation,
constraints, performance measurement and reporting process.
One of the challenges is to find the right balance between the
latitude and the constraints so as to be able to react quickly
upon sudden changes in a controlled and transparent manner.
Today’s risk managers need to monitor risks in a more complex
and fast-changing world. Their companies are exposed to
many countries, including emerging markets, requiring a
deep expertise of the foreign countries (e.g. political context,
economy, regulation). Additional challenges to the financial risk
management function are the monitoring of low-probability,
high-impact events, participating to the strategic planning
by identifying links between risks and competitiveness, and
adjusting to the new regulatory paradigm also represent major
challenges for risk managers.
Companies might benefit from allocating more resources to
the management of these changes and may consider involving
their banks and other partners in the process. A first concrete
undertaking could be to revisit or draft a written hedging policay
in light of today’s challenges.
Consequence for IR/FX risk management

28
5 | DemographicsofCompanies
> €25bn
€5bn-25bn
€1bn-5bn
€500M-1BN
€250-500M
€100-250M
€50-100M
€10-50M
< €10M
3%
3%
8%
8%
8%
11%
12%
19%
27%
Companies by operating revenue
Location of Headquarters Companies by segments (
*)
86%
10%
n Belgium n Europe n Rest of the world n SMEs n Large companies n Public entities
4%
77%
15%
8%
* Split by turnover: Small and medium-sized companies: <€250M;
Large companies: >€250M

* Statistical Classification of Economic Activities in the European Community, Rev. 2 (2008).
Companies by NACE Classification (
*)
Manufacturing
Information & communication
Human health & social work activities
Other service activities
Agriculture, forestry & fishing
Public administration & defense;
compulsory social security
Wholesale & retail trade;
repair of motor vehicles & motorcycles
Water supply; sewerage, waste
management & remediation activities
Electricity, gas, steam & air
conditioning supply
Construction
Professional, scientific & technical activities
Accommodation & food service activities
Transportation & storage
Administrative & support service activities
Arts, entertainment & recreation
Activities of extraterritorial organizations & bodies
Financial & insurance activities
Real estate activities
Mining & quarrying
Education
30%
3%
2%
16%
3%
2%
10%
3%
1%
8%
3%
1%
6%
3%
1%
0%
4%
3%
1%
0%

30
The data were collected through an online survey questionnaire
between 14 March and 4 April 2014. An invitation to participate
to the survey was sent by e-mail to clients of BNP Paribas
Fortis and through newsletters to members of ATEB. In-
house relationship managers were invited to encourage client
companies to complete the survey. Follow-up e-mails were
sent to non-clients of BNP Paribas Fortis to encourage their
participation.
The scope of the survey was very large with a sample size of
12,206 Belgian non-financial companies. The target population
was further divided into three segments: small and medium-
sized companies (turnover < €250 millions), large companies
(turnover > €250 millions), and public entities.
To guarantee the respondents’ anonymity and the objectivity
of their responses, data collection was outsourced to an
independent market research company.
BNP Paribas Fortis only received the names of respondents who
agreed to have their names and/or companies linked to their
answers, so as to be able to provide those clients, if requested,
with additional information on topics such as markets and
economy, regulation, trade ideas, products and services and
emerging markets.
In order to refine the questionnaire, a focus group was organised
with six CFOs, equally representing all three segments. Their
comments and suggestions provided valuable insights, which
contributed to enriching the proposed topics and answer
possibilities. It also offered CFOs the opportunity to interact with
peers, evaluating and discussing their respective practices.
The survey covered six areas: General Company Information,
Risk Management Strategy, Regulation (EMIR), Risk Management
Structure, Interest Rate Management and Foreign Exchange
Management.
A total of 402 companies participated successfully to the survey.
This gives an overall response rate of 3.3%, which is one of the
highest observed for similar studies.
Respondents within surveyed companies were active in the
Finance department (44%), Treasury department (27%), CFO
office (14%) and CEO office (12%), which corresponds to the
profile we aimed to reach.
The median operating income of participating companies was
€60 million. This is significantly lower compared to similar
studies, as there are large discrepancies in operating revenue
due to the incorporation of SMEs.
6 | Methodology

Authors
EricCharléty,CFA
Head of Fixed Income Business Development
NajoisSabra
Researcher Fixed Income Business Development
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