Société Générale / Risk Report - Pillar III

7 SECURITISATION

STRUCTURED ENTITIES' SPECIFIC CASE

STRUCTURED ENTITIES' SPECIFIC CASE 7.3

A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. When assessing the existence of a control over a structured entity, all facts and circumstances shall be considered among which: the purpose and design of the entity; p the structuring of the entity (especially, the power to direct the p relevant activities of the entity); risks to which the entity is exposed by way of its design and the p Group’s exposure to some or all of these risks;

potential returns and benefits for the Group. p Unconsolidated structured entities are those that are not exclusively controlled by the Group. In consolidating structured entities that are controlled by the Group, the shares of said entities not held by the Group are recognised under “Debt” in the balance sheet. When customer loans are securitised and partially sold to external investors, the entities carrying the loans are consolidated if the Group retains control and remains exposed to the majority of the risks and benefits associated with these loans.

MANAGEMENT OF SECURITISATION RISKS 7.4

CREDIT RISK Securitisation exposures subject to credit risk are approved through the standard credit approval processes established at Societe Generale. New transactions are presented by the business line to the risk officers in RISQ. Risk officers provide their own opinion on the transactions. The credit files are then approved by both business line management and RISQ management. All credit files are subject to annual reviews by both the business line and the risk function. Ongoing monitoring is performed independently from the business line and quarterly portfolio reviews are produced specifically on securitisation exposures belonging to the banking book. This monitoring process identifies changes in the performance of securitisation transactions. Limits at the portfolio level for securitisation exposures are set by the Comité des Risques. Stress tests are also performed on the securitisation portfolio. The credit risk analysis of securitisation transactions covers the key drivers of risk: performance of the underlying assets and seller/servicer risk. The risk drivers are mitigated through structural features for each exposure which include but are not limited to default triggers, excess spread, delinquencies, segregated accounts, back-up servicers. Other risks are also considered such as legal risk, operational risk, reputational risk. Resecuritisation exposures would follow the same process and analysis.

Securitisation risks are monitored according to the rules established by the Group, depending on whether the assets are recorded in the regulatory banking book (via credit risk and counterparty risk) or in the trading book (via market risk and counterparty risk).

STRUCTURAL RISKS AND LIQUIDITY RISK

Structural interest rate and foreign exchange risks associated with securitisation activities are monitored in the same way as for other Group assets. Oversight of structural interest rate risk is described in Chapter 10 of this document. Liquidity risk linked to securitisation activities is subject to more specific monitoring, both at the level of the responsible business lines and centrally in the Finance Division, by measuring the impact of these activities on the Group’s liquidity ratios, stress tests and liquidity gaps. The organisation and oversight of liquidity risk is described in Chapter 11 of this document. OPERATIONAL RISK Monitoring of securitisation operational risks is incorporated as part of operational risk management at Group level. Reports targeting zero tolerance for operational risk in the Group’s originator and sponsor activities are established and checked on a monthly basis. Oversight of operational risk is described in Chapter 9 of this document.

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PILLAR 3 - 2020 | SOCIETE GENERALE GROUP |