Société Générale / Risk Report - Pillar III

6 CREDIT AND COUNTERPARTY CREDIT RISK RISK MEASUREMENT AND INTERNAL RATINGS

MONITORING THE PERFORMANCE OF INTERNAL MODELS The performance level of the entire retail client credit system is measured by regular backtests, which check the performance of PD, LGD and CCF models and compare estimated figures with actual figures. Each year, the average long-term default rate observed for each homogeneous risk pool is compared with the PD. If necessary, the calibrations of PD are adjusted to preserve a satisfactory safety margin. The discrimination level of the models and changes in the portfolio’s composition are also measured. Regarding LGD, the backtest consists of comparing the last estimation of the LGD obtained by computing the average level of payments observed. The difference should in this case reflect a sufficient safety margin to take into account a potential economic slowdown, uncertainties as to the estimation, and changes in the performance of recovery

processes.The adequacy of this safety margin is assessed at an Expert Committee Meeting. The results presented above cover the entire Group portfolios including Private Banking since this year. Backtests compare the estimated probability of default (arithmetic mean weighted by debtors) with the observed results (the historical annual default rate). The historical default rate has been calculated on the basis of performing exposure over the period from 2010 to 2018. Credit customers are included in accordance with the revised instructions of the EBA publication of 14 December, 2016 (EBA/GL/2016/11). The level of prudence is generally considered to be fairly satisfactory and remained broadly stable compared with the previous year. The historical default rate continued to fall even further from previous year in 2019. Probability of default estimates are higher than the historical default rates for all Basel portfolios and for most ratings (which is considered to be conservative). It should also be noted that new internal models are being developed for some sizeable portfolios in order to comply with new regulatory requirements and to address the weaknesses identified in existing models.

TABLE 28: COMPARISON OF RISK PARAMETERS: ESTIMATED AND ACTUAL PD VALUES – RETAIL CLIENTS* (CR9)

31.12.2019

Number of obligors

o.w. new defaulted obligors over the year

Basel Portfolio

Weighted average PD

Arithmetic average PD

Defaulted obligors over the year

End of previous year

End of the year

TOTAL

2.4% 0.1% 0.2% 0.4% 0.6% 1.3% 4.3% 25.4% 1.2% 0.1% 0.2% 0.4% 0.6% 1.4% 4.7% 0.1% 0.2% 0.4% 0.6% 1.5% 4.8% 0.0% 0.2% 0.4% 0.6% 1.5% 5.0% 17.6% 5.0% 22.2% 3.9% 19.3%

3.6% 2,244,707 2,251,637

47,721

3.4% 0.1% 0.2% 0.3% 0.5% 1.4% 3.5% 20.1% 1.1% 0.1% 0.1% 0.2% 0.4% 0.7% 2.7% 0.1% 0.1% 0.4% 0.4% 1.0% 3.5% 0.1% 0.2% 0.2% 0.6% 1.2% 4.6% 15.3% 2.1% 15.3% 3.8% 16.1%

0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 TOTAL TOTAL TOTAL

0.1% 0.2%

41,955 51,238

35,560 51,916 315,192 292,979 778,052 564,325 213,613 177,758 156,527 126,577 91,921 216,647 94,859 15,133

80

187 575 549

0.3% 312,158 0.6% 248,455 1.3% 733,060 4.5% 640,966 21.6% 216,874

Other loans to individual customers

4,949

13,356 28,025 7,461

1.1% 850,310 879,422

0.1% 208,977 0.2% 136,741

1,390

196 194 365

0.4%

87,362

Real estate loans

0.7% 118,878 1.1% 201,299

1,319 2,018 1,979

3.6%

81,024 16,029

17.7%

2.3% 7,552,793 7,886,771 0.1% 1,974,448 2,180,209

154,816

2,796

0.2%

90,086

85,387

33

0.4% 1,431,264 1,570,530

9,921

Revolving credits

0.6% 165,886

158,786

214

1.4% 1,873,003 1,940,736 4.3% 1,475,286 1,446,249

25,734 50,569 65,549 37,021

16.8% 542,820

504,875

4.0% 828,042 823,464

0.0% 0.2%

134

140

11

29,914

36,093 146,407 47,573 285,886 229,835 77,531

187 870 426

0.3% 146,461

VSB and professionals

0.6%

44,084

1.4% 282,728 5.5% 239,705

5,389 9,474

19.7%

85,015

20,664

a presented on the basis of the latest figures available as at 30 September 2019 *Dat

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