Société Générale / Risk Report - Pillar III

6 CREDIT AND COUNTERPARTY CREDIT RISK CREDIT AND COUNTERPARTY CREDIT RISK MONITORING AND SURVEILLANCE SYSTEM

All Group exposures (securities, derivatives, loans and guarantees) are taken into account by this monitoring. The Country Risk methodology determines an initial risk country and a final risk country (after any guarantee-related effects), which is supervised using country limits. The procedure for placing a country on a watch list is triggered when there is a deterioration in country risk, or such a deterioration can be anticipated. During 2019, only one country has been placed on a watch list due to difficulties encountered, some other countries have been removed from the list. Sector monitoring The Group regularly reviews its entire credit portfolio through analyses by business sector. To do this, it relies on industrial studies (including a one-year anticipation of sectoral risk) and on sectoral concentration analyses. In addition, the Group regularly reviews its entire credit portfolio through analyses by business sector. To do this, it relies on industrial studies (including a one-year anticipation of sectoral risk) and on sectoral concentration analyses. These identified sectors or sub-portfolios are subject to a specific guidance through a portfolio limit and specific granting criteria validated by the Group CORISQ. As a complement, more targeted sector-based research and business portfolio analyses, may be conducted by General Management, the Risk Division or bank divisions, depending on current issues. Portfolios specifically monitored by the Group CORISQ are: individual and professional credit portfolio (retail) in metropolitan p France on the one hand and in international retail banking in Europe on the other hand. Other retail perimeters are covered by the Business Unit CORISQ. The Group defines in particular a risk appetite target concerning the minimum share covered by Credit Logement guarantee for real estate loans granted to individuals; Oil and gas scope, on which the Group has defined a credit policy p adapted to the different types of activity of sector players. This policy distinguishes financing guaranteed by oil reserves, project financing, short-term trade finance transactions, and takes into regional characteristics; commercial real estate scope, on which the Group has defined a p framework for origination and monitoring of exposures and limits according to the different types of financing, geographical areas and/or activities;

leveraged finance, on which the Group applies the ECB definition of p perimeter and management approach (“Guidance on Leveraged Transactions”). The Group continues to pay a particular attention to the Leverage Buy-Out (LBO) sub-portfolio; exposures on hedge funds is subject to a specific attention. The p Group incurs risk on hedge funds through derivative transactions and its financing activity guaranteed by shares in funds. Risks related to hedge funds are governed by individual limits and global limits on market risks and wrong way risks; exposures on shadow banking are managed and monitored in p accordance with the EBA guidelines published in 2015 which specifies expectations regarding the internal framework for identifying, controlling and managing identified risks. CORISQ has set a global exposure threshold for shadow banking. Credit stress tests With the aim of identifying, monitoring and managing credit risk, the Risk Division works with the businesses to conduct a set of specific stress tests relating to a country, subsidiary or activity. These specific stress tests combine both recurring stress tests, conducted on those portfolios identified as structurally carrying risk, and ad hoc stress tests, designed to recognise emerging risks. Some of these stress tests are presented to the Risk Committee and used to determine how to frame the corresponding the activities concerned. Like global stress tests, specific stress tests are based on a stressed scenario, which is defined by the Group’s sector experts and economists. The stressed scenario describes triggering events and assumptions regarding the development of a crisis, in both quantitative terms (changes in a country’s GDP, the unemployment rate, deterioration in a sector) and qualitative terms. The credit stress system also includes sensitivity analyses relating to the deterioration in credit quality of certain portfolios (expert rating transition matrix) or to exposure volatility at the time of default. Structured around the portfolio analysis function, the Risk Division teams translate these economic scenarios or analyses into impacts on risk parameters (default exposure, default rate, provisioning rate at entry into default, etc.). Where relevant, models are applied based on historical link between the economic context and risk parameters. Stress tests take into account the possible effect of the default of counterparties in which the Group is mostly concentrated in a stressed environment.

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| SOCIETE GENERALE GROUP | PILLAR 3 - 2020