Société Générale / Risk Report - Pillar III

6 CREDIT AND COUNTERPARTY CREDIT RISK IMPAIRMENT

In 2019, the Credit Default Swap (CDS) spreads from European investment-grade issuances (iTraxx index) followed a downward trend (45 bp at end of December 2019 versus 88 bp at end of December 2018). The overall sensitivity of the portfolio to spread widening increased, since the outstanding purchases of protection increased and the average maturity of protection is now longer. Protection purchases were mostly made from European clearing houses (96% of the outstanding amounts as at 31 December 2019). All operations have been performed with Investment Grade counterparties (rating at least equal to BBB-). Moreover, the amounts recognised as assets (EUR 2.4 billion as at 31 December 2019 versus EUR 2.2 billion as at 31 December 2018) and liabilities (EUR 2.0 billion as at 31 December 2019 versus EUR 2.7 billion as at 31 December 2018) correspond to the fair value of credit derivatives held under transaction activities. As part of LCR stress tests, Article 30(2) of Delegated Act 2015/61 provides for a specific additional flow associated with a three-notch downgrade of the bank's rating. In this regard, the impact in terms of Exposures classified in stages Impairment includes impairments of performing loans (stages 1 and 2) and impairments of non-performing loans. The applicable accounting principles are specified in Note 3.8 of the consolidated financial statements included in Chapter 6 of the 2020 Universal Registration Document (p. 378). CLASSIFIED AS PERFORMING LOANS (STAGE 1 AND 2) At the initial recognition date, the exposures are systematically classified in Stage 1, unless they are purchased or originated credit-impaired instruments. To identify the exposures classified in Stage 2, the significant increase in credit risk compared to the date of initial recognition is assessed within the Group taking into account all the historical and prospective information available (behavioral scores, rating, indicators "loan to value" type, macroeconomic forecasting scenarios, etc.). CLASSIFIED AS NON-PERFORMING LOANS (STAGE 3) To identify Stage 3 exposures (doubtful exposures), the Group determines whether there is objective evidence of impairment (default events): payments more than 90 days past due (with the exception of p restructured loans during the two-year probation period which are retransferred into Stage 3 as of payments more than 30 days past due), whether or not a collection procedure is instigated. To assess this criterion, the Group does not apply any threshold, except if such threshold is requested by a local authority. In addition, only missed payments related to business litigations, specific contractual features or IT failures cannot lead to a transfer into Stage 3; identification of other criteria indicating that the counterparty is p unlikely to meet its financial obligations, even in the absence of missed payments: a significant deterioration in the counterparty’s financial - situation creates a strong probability that it will be unable to meet all of its commitments and thus represents a risk of loss, IMPAIRMENT 6.3

additional cash collateral in case of a three-notch downgrade of the Group's rating is estimated at EUR 4 billion as at 31 December 2019.

Credit insurance The Group has been developing relationships with private insurers over the last several years in order to hedge some of its loans against commercial and political non-payment risks. This activity is performed within a risk framework and monitoring system approved by the Group’s General Management. The system is based on an overall limit for the activity, along with sub-limits by maturity, and individual limits for each insurance counterparty, the latter being furthermore required to meet strict eligibility criteria. There is also a limit for insured transactions in Non-Investment Grade countries. The implementation of such a policy contributes overall to the management of the Group’s risk and RWA.

concessions are granted to the clauses of the loan agreement in - light of the borrower’s financial difficulties that would not have been granted in other circumstances (restructured loans), the existence of probable credit risk or litigious proceedings (ad - hoc mandate, bankruptcy, court-ordered settlement or compulsory liquidation or other similar proceedings in local jurisdictions). The Group applies the impairment contagion principle to all of the defaulting counterparty’s exposures. When a debtor belongs to a group, the impairment contagion principle may also be applied to all of the group’s exposures. NEW DEFINITION OF DEFAULT The European Banking Authority (EBA) published Guidelines on the application of the default definition under Article 178 of Regulation (EU) N° 575/2013, applicable from 1 January 2021, and the European Central Bank (ECB) published Regulation (EU) 2018/1845 in relation to the threshold for assessing the materiality of credit obligations past due, applicable as of 31 December 2020 at the latest. Both the Guidelines and the ECB Regulation will harmonise the definition of default across the European Union, thus contributing to improve consistency and comparability of capital requirements. In particular, they clarify all aspects related to the application of the definition of default including the conditions for the return to non-defaulted status (introduction of a probation period), specific conditions for default identification of restructured loans, and setting materiality thresholds (including an absolute and a relative component) for credit obligations that are past due. Starting 6 April 2020, the Group will apply these provisions for default credit identification from the second quarter of 2020, whereas internal parameters for expected credit losses computation will be adjusted on 1 January 2021. Following the Group’s preliminary analysis, these clarifications are still consistent with criteria applied to identify Stage 3 exposures (doubtful exposures) according to IFRS 9 provisions regarding expected credit risks. The Group does not deem the future changes to default definition induced by these new regulatory provisions to have any material impact on the Group’s consolidated financial statements.

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| SOCIETE GENERALE GROUP | PILLAR 3 - 2020