Société Générale / Risk Report - Pillar III

3 RISKMANAGEMENT ORGANISATION

SUITABILITY OF RISK MANAGEMENT SYSTEMS

SUITABILITY OF RISKMANAGEMENT SYSTEMS 3.1

The Pillar 3 report, published under the responsibility of Societe Generale Group's Senior Management, sets out, in accordance with the CRR regulation, the quantitative and qualitative information on Societe Generale’s capital, liquidity and risk management to ensure transparency in respect of the various market players. This information

has been prepared in compliance with the internal control procedures approved by the Board of Directors in the course of the validation of the Group Risk Appetite Framework and Group Risk Appetite

Statement.

SUMMARY OF THE GROUP'S RISK PROFILE IN 3.2 2019

In establishing its risk appetite, Societe Generale aims to achieve sustainable growth founded on a diversified and balanced bank model with a strong European foothold and a global presence via a few key

areas of business expertise. It also aims to maintain long-term relationships with its customers founded on trust, and to meet the

expectations of all stakeholders.

AND COUNTERPARTY RISK CREDIT Credit and counterparty risks are the main risks facing the Group, with related RWA of EUR 282.5 billion at 31 December 2019, representing 82% of total RWA. These risk-weighted assets decreased by 7% compared to 31 December 2018 and are mainly based on the internal model approach (81% of the RWA credit and counterparty risk). In the context of high liquidity and low interest rates, the Group's appetite for credit risk is based on maintaining prudent origination criteria and close supervision of sectors that are most exposed to macroeconomic cycles, notably by setting portfolio limits. The credit portfolio has a diversified profile. At 31 December 2019, exposure to credit risk and counterparty risk represented EAD of EUR 918 billion, a slight decrease (-0.2%) in relation to the end of 2018. The breakdown of the main client categories in the portfolio is balanced: corporate clients (33%), sovereigns (23%), retail clients (22%), RISK OPERATIONAL As at 31 December 2019, operational risk accounted for RWA of EUR 48 billion, representing 14% of the Group's total RWA, stable in relation to the end of 2018. These RWA are calculated mainly using the internal approach (95% of the total).

institutions (12%). In geographical terms, the portfolio's exposure to emerging countries is limited: the Group's exposure stands at 67% the western Europe (of which 45% France) and 14% the United States. By sector, three business sectors (financial activities, business services and real estate activities) represent more than 10% of the Group's corporate exposures. In 2019, favorable economic conditions and the appetite for controlled risk helped keep the net cost of risk for the year at a low level of EUR 1,278 million, or 25 bp. The sharp, steady decrease in the Group's rate of non-performing loans to 3.2% at 31 December 2019 from 3.6% at end 2018 reflects an improvement in the quality of its assets in 2019. As at 31 December 2019, the gross rate of coverage on doubtful debts by provisions was 55%.

The main disputes to which the group was exposed were resolved in 2018 as well as the continuous strengthening of the internal control system greatly reduce the level of financial uncertainty relating to potential losses on material disputes.

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PILLAR 3 - 2020 | SOCIETE GENERALE GROUP |