Société Générale / Risk Report - Pillar III

6 CREDIT AND COUNTERPARTY CREDIT RISK RISK MEASUREMENT AND INTERNAL RATINGS

TABLE 21: BREAKDOWN OF EAD BY BASEL METHOD

31.12.2019

31.12.2018

IRB

81% 19%

79% 21%

Standard

TOTAL

100%

100%

TABLE 22: SCOPE OF APPLICATION OF THE IRB AND STANDARDISED APPROACHES BY CORE BUSINESS

IRB approach

Standardised approach

French Retail Banking

Majority of portfolios

Some retail customer portfolios, including those of the Sogelease subsidiary

The subsidiaries KB (Czech Republic), CGI, Fiditalia, GEFA and SG Finans, SG Leasing SPA and Fraer Leasing SPA, SGEF Italy Majority of Corporate and Investment Banking portfolios Private Banking, Securities Services and Brokerage, mainly the retail portfolios of the following subsidiaries: SG Hambros, SGBT Luxembourg, SGBT Monaco, SG Private Banking Suisse

The other subsidiaries

International Retail Banking and Financial Services

Global Banking and Investor Solutions

For Private Banking, Securities Services and Brokerage, exposures granted to banks and companies

Corporate Centre

Majority of portfolios

-

Credit risk measurement for wholesale clients For Corporate, Banking and Sovereign portfolios, the Group has implemented the following system: RATING SYSTEM AND ASSOCIATED PROBABILITY OF DEFAULT The rating system consists in assigning a rating to each counterparty according to an internal scale, for which each grade corresponds to a probability of default determined using historical series observed by Standard & Poor’s for over more than 20 years. The following table presents the indicative corresponding scales of the main external credit assessment institutions, as well as the

corresponding mean probability of default and the Group’s internal rating scale. The rating assigned to a counterparty is generally proposed by a model, and possibly adjusted by a credit analyst, who then submits it for validation by the Risk Management. The counterparty rating models are structured in particular according to the type of counterparty (companies, financial institutions, public entities, etc.), geographic region and size of the Company (usually assessed through its annual revenue). The company rating models are underpinned by statistical models (regression methods) of client default. They combine quantitative parameters derived from financial data that evaluate the sustainability and solvency of companies and qualitative parameters that evaluate economic and strategic dimensions.

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