On 4 May 1864, Napoleon III signed Societe Generale’s founding decree. Founded by a group of industrialists and financiers driven by the ideals of progress, the Bank’s mission has always been “to promote the development of trade and industry in France”.

Since its beginnings, Societe Generale has worked to modernise the economy, following the model of a diversified bank at the cutting edge of financial innovation. Its retail banking branch network grew rapidly throughout the French territory, increasing from 46 to 1,500 branches between 1870 and 1940. During the interwar period, the Bank became the leading French credit institution in terms of deposits.

At the same time, Societe Generale began to build its international reach by financing infrastructure essential to the economic development of a number of countries in Latin America, Europe and North Africa. This expansion was accompanied by the establishment of an international retail banking network. In 1871, the Bank opened its London branch. On the eve of World War I, Societe Generale was present in 14 countries, either directly or through one of its subsidiaries. The network was subsequently expanded by the opening of branches in New York, Buenos Aires, Abidjan and Dakar, and by acquiring stakes in financial institutions in Central Europe.

Societe Generale was nationalised by the French law of 2 December, 1945 and played an active role in financing the reconstruction of France. The Bank thrived during the prosperous post-war decades and contributed to the increased use of banking techniques by launching innovative products for businesses, including medium-term discountable credit and lease financing agreements, for which it held the position of market leader.

Societe Generale demonstrated its ability to adapt to a new environment by taking advantage of the banking reforms that followed the French Debré laws of 1966-1967. While continuing to support the businesses it partnered, the Group lost no time in focusing its business on individual clients. In this way, it supported the emergence of a consumer society by diversifying the credit and savings products it offered private households.

In June 1987, Societe Generale was privatised with a successful stock market launch and shares offered to Group staff. The Group developed a universal banking strategy, notably through its Corporate and Investment Banking arm, to support the worldwide development of its customers. In France, it expanded its networks by founding Fimatex in 1995, which later became Boursorama, now France’s leading online bank, and by acquiring Crédit du Nord in 1997. Internationally, it established itself in Central and Eastern Europe through Komerční Banka in the Czech Republic and BRD in Romania, and in Russia with Rosbank, while consolidating its growth in Africa in Morocco, Côte d’Ivoire and Cameroon, among other countries. The Group has more than 131,000 members of staff⁽¹⁾ active in 66 countries. It continues its process of transformation by adopting a sustainable growth strategy driven by its core values of team spirit, innovation, responsibility and commitment. Firmly focused on the future by helping our clients bring their projects to life, Societe Generale has embraced with conviction the opportunities of the digital age to best anticipate the needs of clients and staff members, and embody the bank of the 21st century. Drawing on more than 150 years of expertise at the service of its clients and the development of the real economy, in January 2020 Societe Generale group defined its purpose as “Building together, with our clients, a better and sustainable future through responsible and innovative financial solutions”.

Societe Generale is one of the leading European financial services groups. Leveraging a diversified and integrated banking model, the Group combines financial strength and proven expertise in innovation with a strategy of sustainable growth, aiming to be the trusted partner for its clients, committed to the positive transformations of the world. Active in the real economy for over 150 years, with a solid position in Europe and connected to the rest of the world, Societe Generale employs over 131,000 members of staff⁽¹⁾ in 66 countries and supports on a daily basis 26 million individual clients, businesses and institutional investors⁽²⁾ around the world. The Group offers a wide range of advisory services and tailored financial solutions to secure transactions, protect and manage assets and savings, and help its clients finance their projects. Societe Generale seeks to protect them in both their day-to-day life and their professional activities, offering the innovative services and solutions they require. The Group’s mission is to empower each and everyone who wants to make a positive impact on the future and defines its purpose as “Building together, with our clients, a better and sustainable future through responsible and innovative financial solutions”.   ⁽³⁾

Societe Generale follows a strategy of responsible growth, fully integrating its CSR engagements and commitments to all its stakeholders: clients, staff, investors, suppliers, regulators, supervisors and representatives from civil society. The Group strives to respect the cultures and environment of all the countries where it operates.

The Group is built on three complementary core businesses:

Additional information on the Group’s organisation and key figures is provided from page 10.

The Group has an agile organisation based on 16 Business Units (business lines and regions) and 9 Service Units (support and control functions) to encourage innovation and synergies, and best meet the evolving requirements and behaviours of its clients. In a European banking sector undergoing radical industrial change, the Group is entering a new phase of its development and transformation.

Societe Generale is included in the principal socially responsible investment indices: DJSI Europe, FTSE4Good (Global and Europe), Bloomberg Gender Equality Index, Refinitiv Diversity and Inclusion Index, Euronext Vigeo (Europe and Eurozone), STOXX Global ESG Leaders indices and MSCI Low Carbon Leaders Index (World and Europe).

The Societe Generale Group has built a solid diversified banking model suited to the needs of its 26 million⁽¹⁾ corporate, institutional and individual clients. It is structured around three complementary and diversified businesses, all benefiting from strong market positions:

In the Retail Banking businesses, the Group focuses on development in European markets selected for their growth potential (France, Czech Republic and Romania) and Africa, where it has an historic presence, a refined understanding of the markets and top-tier positions. In International Financial Services, Societe Generale relies on franchises benefiting from leadership positions worldwide, notably in the operational vehicle leasing and fleet management businesses, and in equipment finance. In the Global Banking and Investor Solutions businesses, the Group provides high value-added solutions to its clients in the EMEA region, the US and Asia. Focused on Europe yet connected to the rest of the world, the Societe Generale Group capitalises on leadership positions driven by cross-business synergies to create value for stakeholders. The Group leverages its diversified model to meet the needs of its corporate and professional clients as well as its individual clients.

The rebound witnessed in the second half of 2020 continued throughout 2021, with all the Group’s businesses posting strong commercial and financial performances. As a result, the Group recorded its best results in history, enabling it to post strong profitability and offer shareholders an attractive dividend.

These financial performances reflect the Group’s efforts over recent years to strengthen the inherent quality of its businesses, improve operational efficiency, preserve the excellent robustness of the credit portfolio and manage its risks.

In 2021, the Group pushed ahead with its major strategic priorities, including in particular:

The Group continued to pursue its selective resource allocation strategy and its focus on achieving the optimal region/offer/client mix for both itself and its clients, and confirmed its strong resolve to keep costs firmly in check. The adjustments that have been made are designed to mark out growing, high-margin businesses that enjoy strong commercial franchises.

Looking forward, the Group is preparing its 2025 trajectory, which is built on three pillars:

One of the Group’s priorities is to press on with its commercial development, focusing on quality of service, added value and innovation to deliver client satisfaction. Its goal is to become a trusted partner for its clients, making sound use of its digital capabilities to provide them with responsible and innovative financial solutions.

Organic growth will continue to be driven by unlocking internal synergies not only within each business but also between businesses. This will entail greater cooperation between Private Banking and the Retail Banking networks, cooperation along the entire Investor Services chain, cooperation between the Insurance business and the French and International Retail Banking networks, and cooperation between regions and Global Transaction Banking’s activities, among others.

The Group has made certain changes to its Corporate Social Responsibility (CSR) governance. Since 1 January 2022, the Sustainable Development Department has reported directly to General Management, underscoring the Group’s decision to make CSR a core strategic concern. In keeping with its previous goals, Societe Generale has set its CSR targets for 2021 based on four development priorities, defined in light of the results from the materiality survey conducted at the end of 2020.

Two of these priorities involve being a responsible bank: fostering a culture of responsibility and being a responsible employer. The other two concern how the Group’s actions as a responsible bank can drive positive change: supporting the environmental transition and contributing to growth in local communities.

To guide its actions as a responsible bank, the Group has set itself the goal of embedding a culture of responsibility and applying the strictest control and compliance framework in the banking sector. It focuses on complying with all applicable ethics obligations and regulations, as well as with its own voluntary commitments, and on ensuring robust E&S risk management, channelling its efforts into specific actions to deliver a positive impact on the environment whilst remaining attentive to and working hand in hand with the various stakeholders in its global ecosystem.

For Societe Generale, being a responsible employer means providing a sound working environment and promoting diversity and professional development. This policy is key in boosting both employee engagement and overall performance. More specifically, the Group has identified five priority areas for action in human resources: Corporate Culture and Ethics Principles, Professions and Skills, Diversity and Inclusion, Performance and Compensation, and Occupational Health and Safety.

The Group draws on its own exemplary conduct and exceptional resources to help its clients with their environmental transition and support sustainable local communities.

Conscious of the challenges its clients face when addressing global warming, Societe Generale has made the environmental transition a priority issue. Its goal is to be at the forefront of the energy transition. The core priorities of its climate change strategy, which has been approved by the Board of Directors, are as follows:

In response, the Group’s expertise in these areas has earned recognition from Dealogic, which ranked it No. 1 for financing renewable energies in EMEA at the end of June 2021. Societe Generale was also the recipient of one of the sector’s most prestigious awards when it was singled out as Best Bank in Sustainability in 2021 by International Financing Review (IFR).

Last, alongside its climate and environmental actions, Societe Generale also promotes sustainable regional development and strong local economies. It supports entrepreneurs, participates in projects to build sustainable cities and infrastructures and promotes clean mobility solutions in the regions in which it operates. Its actions in this respect are particularly noticeable in France, where they constitute one of the strategic objectives for the Group’s new retail banking network, and in Africa, through the Grow with Africa initiative.

Societe Generale’s efforts to achieve sustainable development have not gone unnoticed by the ratings agencies. Following on from its excellent ESG ratings in 2020, the Group again rated highly in 2021 across the board with all rating agencies in the three Environmental, Social and Governance segments, reflecting the depth of its commitment and the quality of its actions to promote sustainability.

The Group’s extra-financial ratings for the year were among the best in the banking sector: in the top 1% of all companies worldwide (out of 4,881 companies) in Moody’s ESG Solutions’ universe; in the top 3% banks worldwide (out of 190 banks) in MSCI’s universe; in the top quartile in the Sustainalytics universe out of a panel of 408 banks worldwide; and in the top 7% worldwide in the S&P Global Corporate Sustainability Assessment, placing the Group 8th in Europe and 26th worldwide out of 242 banks.

Societe Generale continues to foster a group-wide culture of responsibility and to strengthen its internal control framework, especially its Compliance operations, to meet the banking industry’s highest standards. It has also completed the rollout of its Culture and Conduct programme, embedding rules of conduct and strong shared values throughout the entire company.

Societe Generale announced in 2021 the end of two separate legal proceedings brought by the US Departmentof Justice, one relating to Societe Generale’s IBOR submissions and certain transactions involving Libyan counterparties, and the other relating to US economic sanctions compliance. In requesting the courts to dismiss the legal proceedings, the DOJ confirmed that the Bank had fully complied with its obligations under the related deferred prosecution agreements (DPA).

Last, the Group is determined to press ahead with its stringent and disciplined approach to risk management - maintaining credit portfolio quality, continuing efforts regarding operational risk control and compliance - and to its capital allocation management.

In line with its strategy to fully address its clients’ needs and in consideration of the new, more demanding regulatory environment, the Group’s focus will remain on optimising its consumption of scarce capital and liquidity resources and maintaining a highly disciplined approach to costs and risk management.

Outlook

In 2022, the Group intends to build on the commercial momentum already embedded in its businesses and strengthen the resilience of its financial performance amid a more uncertain environment.

Excluding the Single Resolution Fund contribution, the underlying cost to income ratio is expected to range between 66% and 68% in 2022, and improve thereafter thanks to the cost reductions initiatives announced in 2021.

The cost of risk is expected to be below 30 basis points in 2022, i.e. slightly higher than the 2021 level. In the wake of recent developments in Ukraine and Russia, the Group announced on 3 March that it was not changing its cost of risk target and would update it, if necessary, at the time of its Q1 22 results publication.

The Group is aiming for a CET1 ratio at least between 200-250 basis points above the regulatory requirement, including after the entry into force of the regulation finalising the Basel III framework.

The Board of Directors approved an attractive shareholder distribution of the 2021 financial results equivalent to EUR 2.75 per share. A cash dividend of EUR 1.65 per share will be proposed to the General Meeting of Shareholders on 17 May 2022.

The Group is also envisaging a share buyback programme of approximately EUR 915 million, i.e. equivalent to EUR 1.10 per share. It has been decided to exceptionally split the pay-out as 60% in cash and 40% through a share buy-back. In future, the Group intends to maintain a dividend policy based on a 50% pay-out ratio of underlying Group net income with up to 20% of the pay-out in the form of a share buyback.

French Retail Banking

Societe Generale is the fourth-largest retail bank in France.

The French Retail Banking business has made sweeping changes to its model, in particular on the back of rapid changes in client behaviours and demand for ever-increasing convenience, expertise and customised products and services. The pace of transformation accelerated in 2020, with two major strategic initiatives: the planned merger of Crédit du Nord and Societe Generale, and moves to ramp up growth at Boursorama. These initiatives are designed to cement the Group’s winning combination of a fully online banking model coupled with a network banking model offering both digital and human expertise – a combination that stands out in the French market. Over the course of 2021, the Group successfully moved ahead with the first stages of its merger project, the key principles of which are as follows:

The ambition is to rank among the leaders for client satisfaction for our core client base and to create a banking model that increases profitability and conforms to the most stringent standards of responsibility. From a financial perspective, the merger will unlock considerable cost synergies, with a net cost-base reduction target of more than EUR 350 million by 2024 and around EUR 450 million by 2025, compared with 2019. The cost of the tie-up has been estimated at between EUR 700 million and EUR 800 million. The return on normative equity under Basel III is expected to range between 11% and 11.5% in 2025, equating to more than 10% under Basel IV.

French Retail Banking also aims to build on its existing growth drivers. Specifically, this means:

In Asset & Wealth Management and Private Banking, the disposal of Lyxor to Amundi forms part of Societe Generale’s strategy of operating in open architecture, distributing savings solutions to clients across both of its networks. By offering its clients investment and asset management solutions through partnerships with external asset managers, Societe Generale gives its savers access to the best investment expertise in France and internationally, while at the same time responding to their growing demand for socially responsible investment. The new Wealth & Investment Solutions Division within Private Banking focuses on structuring savings, asset management and investment solutions for the Group’s private banking and retail banking networks, as well as structured asset management solutions for its Global Markets clients.

Last, the Group continues to support the development of its online bank Boursorama, which has consolidated its leadership position in France with a bumper year in terms of client acquisition: more than 800,000 new clients in 2021, bringing their total number to 3.3 million. Over the next few years, Boursorama intends to press ahead with investments to win over new clients and is targeting more than 4 million clients by the end of 2022, one year ahead of schedule. Societe Generale also announced that Boursorama had signed a Memorandum of Understanding with ING with a view to offering its online banking clients in France the best possible alternative banking solution that furnishes dedicated client experience and support features. The two banks intend to sign a definitive agreement by the end of April 2022. The Group has confirmed its aim of taking Boursorama to maturity, targeting 4.5 million clients and a return on normative equity of more than 25% by 2025.

International Retail Banking and Financial Services

International Retail Banking and Financial Services is a profitable growth driver for the Group thanks to its leading positions in high-potential markets, its operational efficiency and digital transformation initiatives, and its ability to unlock synergies with other Group activities. These businesses have undergone a major transformation over the last few years to fully refocus the portfolio, introduce a more optimised model and improve the underlying risk profile.

International Retail Banking activities are mainly located outside the Eurozone and benefit from positive long-term growth fundamentals, although the Covid-19 pandemic and associated economic crisis have somewhat slowed their historical trajectory of continuous growth. The Group nevertheless plans to press on with its strategy of consolidating leadership positions and pursuing responsible growth within its international banking activities in Europe and Africa. Its capacity to meet its clients’ needs, coupled with its innovative, unique and efficient platforms, will serve it well in this undertaking:

As part of the Grow with Africa programme developed in partnership with a panel of international and local partners, Societe Generale has announced several sustainable growth initiatives to foster positive transformation across the continent. Accordingly, the Group is concentrating on providing multidimensional support to African SMEs, funding infrastructure, supporting the energy transition and developing innovative financing solutions.

Financial Services and Insurance enjoy competitive positions and strong profitability, in particular with ALD and Insurance, both of which have robust growth potential. These are the businesses that best withstood the economic shock of 2020. Incidentally, they are continuing to roll out their programmes to innovate and transform their operational model.

Societe Generale also plans to continue moving forward with its strategy of unlocking synergies between the activities of the various businesses in this division and elsewhere within the Group, with Private Banking and the regional Corporate and Investment Banking platforms, by developing its commercial banking services such as trade finance, cash management, payment services and factoring, and by pursuing the development of its bancassurance model.

Global Banking and Investor Solutions

Global Banking and Investor Solutions stands on broad and diversified foundations: it has built up a solid and stable diversified client base and benefits from high value-added product franchises and recognised sector expertise backed by a global network. It serves the financing and investment needs of a broad and diversified client base spanning corporates, financial institutions and public-sector entities. Having undergone a considerable transformation in recent years - reducing its breakeven point and de-risking the Global Markets business, and adjusting the size of its businesses - GBIS is focused on delivering value to all its stakeholders through sustainable and profitable growth.

Its growth strategy is consistent with the position of current economic growth opportunities, i.e. in increased financing needs for infrastructure and the energy transition, greater investment in private debt and the growing demand for investment solutions. At the same time, it is gradually and coherently adjusting the size of its businesses, particularly between Global Markets and Investor Services and Financing and Advisory, making targeted capital allocations to identified growth initiatives for particular client segments, businesses and regions.

The Group has also made it a priority to develop “ESG by design” businesses, setting itself the target of doubling ESG-related revenues by 2025 in both Global Markets and Investor Services and Financing and Advisory.

Tied in with this objective is the Group’s unrelenting focus on:

The latest wave of the epidemic has incurred a proportionally lower death toll compared to the very high contamination levels. The economy’s greater adaptability has mitigated the impact on business, but the withdrawal of temporary support measures is only partly being offset by the economic reopening and recovery support measures.

Prevailing uncertainty over events in Ukraine and Russia is making it difficult to forecast the impact on the global economy and the Group, and has furthermore sparked a return of volatility in financial markets. We expect energy prices (notably oil and gas) to remain high in 2022 on back of supply chain disruptions and the consequences of the situation in Ukraine. These factors are likely to contribute to a slowdown in eurozone growth during 2022 and 2023.

Tensions in the job market are playing out in wage adjustments and specifically a rise in the minimum wage. We forecast that these gains, combined with rising energy prices, may trigger short-term inflation spikes in Europe and the US. Further out, new monetary policy strategies on both sides of the Atlantic should drive inflation closer to target, contrary to the past decade during which inflation undershot central bank targets.

The US Federal Reserve (Fed) could tighten its monetary policy in light of the increased risk of heightened inflation expectations and a wage-price spiral taking hold in the US. Emerging markets are expected to continue the monetary tightening started in early 2021, while China has already begun its measured easing cycle. Low to negative real interest rates should help trigger a global deleveraging process. That said, uncertainties persist over market expectations as consensus on the ability of central banks to keep inflation under control could shift suddenly and lead to sharper tightening of financial conditions. The 2021 regulatory landscape was marked by stimulus and easing measures in line with those of 2020 to enable banks to support the economy. Some of these measures will continue in 2022. Governments have lent massive support to the financing of companies. In France, support measures were implemented by way of government-backed loan schemes totalling EUR 14.3 billion at end-December 2021, and recovery loans.

These measures will most likely be maintained or even strengthened in 2022 in light of the continued health crisis and against the backdrop of the French elections.

The European Commission (EC), the European Central Bank (ECB) in its capacity as prudential supervisor, the European Banking Authority (EBA) and the High Council for Financial Stability (HCSF) have used the flexibility of prudential regulations to act on the liquidity and solvency of banks. These regulatory adjustments included:

The trend is now towards normalisation. The ECB decided not to extend its recommendation on dividend pay-outs and share buybacks beyond 30 September 2021. This recommendation involved limiting divident payment and share buyback amounts for all banks under its direct supervision. Last, the flexibility measure taken by the ECB to allow banks to have a Liquidity Coverage Ratio (LCR) below the regulatory threshold of 100% ended on 31 December 2021.

Beyond the prevailing economic conditions, several structural regulatory projects aim to strengthen the prudential framework, support environmental and digital transitions, protect consumers and develop European capital markets.

The year 2021 put the spotlight back on finalising the implementation of the Basel III prudential agreements in the European Union. In October 2021, the European Commission published its new banking rules - the proposed CRR3 regulation and the CRD6 directive - which will enter into force on 1 January 2025. The timetable for rolling out the reforms in the main non-EU jurisdictions remains uncertain and is not expected to coincide with the Basel timetable of 1 January 2023.

In accordance with the European Green Deal proposed by the European Commission in December 2019, environmental and sustainability issues took centre stage in 2021. The financial sector is facing highly ambitious expectations, the aim being to rapidly mobilise capital flows to achieve carbon neutrality and lay the groundwork for a sustainable economy. Work on the EU taxonomy for sustainable activities is ongoing; activities are classified as “sustainable”, “harmful” or “social”. Accordingly, banks and large companies are poised to publish their first climate reports in 2022.

Banks are expected to better integrate their climate risk exposure when managing risks and be more transparent about disclosing ESG risks in their prudential publications. The ECB will organise climate stress testing on top of climate pilot exercises run by the French Prudential Supervision and Resolution Authority (Autorité de contrôle prudentiel et de résolution - ACPR) and the European Banking Authority (EBA). Debate is intensifying over the prudential treatment of assets that are harmful to the climate and will be the topic of an EBA report in 2023. The European Union was a trailblazer for ESG-related topics, so the issue of harmonising European standards with those introduced in other jurisdictions will be a key consideration in 2022.

Concomitantly, digital transformation will continue to be a priority. The Commission proposed:

The year 2021 was also marked by in-depth work on significant topics related to payments, i.e. the EPI project and ECB’s study of a central bank digital currency (CBDC) and of an acceleration in the spread of instant payments. These projects will continue in 2022 and should be supplemented by Open Finance proposals for which the DSP2 Directive assessment will be an important step.

In order to finance these environmental and digital transitions, regulated savings may be reformed with the introduction of national and European financial regulations fostering the redirecting of these savings.

Consumer issues is also set to attract considerable attention in both France and Europe. In particular, plans to revise MiFID, PRIIPS and consumer credit directives are under way at European level. Many issues related to the pricing and transparency of banking products are also being debated at the national level: protection for the self-employed (pricing, assets, financing) will continue to take centre stage, and developments in insolvency procedures and the regulation of securities will affect the mechanisms at work in the financing of the economy for the smallest businesses.

Last, in a post-Brexit environment and as part of developing its strategic autonomy plan announced in January 2021, the European Commission gave new momentum to the development of the Capital Markets Union (CMU).

At the end of 2021, the Commission proposed practical steps towards a real CMU following the European action plan published in 2020 with (i) the publication of legislative proposals for the revision of MIFIR, (ii) the publication of the directive relating to alternative management and that of the regulation on long-term investment funds, and (iii) the establishment of a European single access point (ESAP) for financial and non-financial information publicly disclosed by companies.

At the same time, the Commission launched a targeted consultation to possibly amend the Listing Act, with the aim of ensuring the attractiveness of capital markets for EU companies and facilitating access to capital for small and medium-sized enterprises.

These initiatives play a part in the ongoing work related to Brexit and address the issues of equivalences, the gradual relocation of compensation for euro products within the Union, potential regulatory differences and competitive conditions.

French Retail Banking offers a wide range of products and services suited to the needs of a diversified base of individual and professional clients, businesses, non-profit associations and local authorities.

Leveraging the expertise of its teams and an efficient multi-channel distribution system, the pooling of best practices, and the optimised and digitalisation of processes, French Retail Banking combines the strengths of three complementary brands: Societe Generale, the renowned national bank, Crédit du Nord, a group of regional banks, and Boursorama Banque, a major online bank.

The Retail Banking networks are innovating to build the relationship-focused banking group of tomorrow. French Retail Banking is exemplified by its:

On 7 December 2020, the Societe Generale Group announced the launch of merger plans for the Societe Generale and Crédit du Nord banking networks and for Boursorama to enter a new phase of maturity, with a goal of 4.5 million clients by 2025.

French Retail Banking strives to improve client satisfaction across all segments and to further develop value-added services and assist businesses with their expansion in France and worldwide. It capitalises on synergies with the specialised business lines, notably with Insurance, Private Banking, and Corporate and Investment Banking. For example, French Retail Banking markets insurance products developed by Sogécap and Sogessur, subsidiaries operating in the International Retail Banking and Financial Services Division.

Life insurance outstandings amounted to EUR 98 billion at the end of 2021, compared with EUR 93.6 billion in 2020.

* Average quarterly outstandings.

The networks continue to support the economy and help clients finance their projects, with growth in average loan outstandings up from EUR 217 billion in 2020 to EUR 221 billion in 2021. At the same time, and amid rife competition, deposit inflows showed resilience and resulted in a loan-to-deposit ratio of 86.8% in 2021, down 7 points on 2020.

France network

SOCIETE GENERALE NETWORK

The Societe Generale network offers solutions tailored to the needs of its 6.7 million individual clients as well as almost 430,000 professional clients, non-profit associations and corporate clients, representing EUR 108 billion in outstanding deposits and EUR 84 billion in outstanding loans in 2021.

To achieve this, the network leverages three major strengths:

Societe Generale continued to expand its network and increase its service offering in 2021 in response to its clients’ requirements and with a view to enhancing customer satisfaction. It notably improved its digital offering, focusing especially on professional and corporate clients - introducing a revamped the app and websites, promoting electronic signature services and other advantages - added Corporate and Investment Banking’s SME/mid-cap services to the range of expertise available to corporate clients, and developed Shine, its 100% online banking subsidiary for professionals and VSBs. It also announced plans to look into the option of sharing ATMs with Crédit du Nord, BNP Paribas and Crédit Mutuel, with a view to improving accessibility for the clients of all four banks.

Societe Generale has made sustainable development the linchpin of its strategy. It took further steps last year to limit its direct environmental impact by reducing waste and shrinking its carbon footprint, and to address social issues. It also developed a new range of services designed to help clients achieve their own sustainable development and energy transition goals: 2021 saw the introduction of social and environmental loans for corporates, as well as a new range of 100% SRI savings vehicles for individual clients.

In 2021, Societe Generale and Crédit du Nord confirmed plans to merge, combining their two networks to form a new retail bank serving 10 million clients. Four key principles have been defined for this new entity: it will be a bank with local roots, a bank that is more responsive, accessible and efficient, a bank better adapted to the specific needs of each client category, and a bank that is responsible. The two networks will officially merge on 1 January 2023, with a progressive rollout of the new organisation culminating in 2025.

CRÉDIT DU NORD NETWORK

The Crédit du Nord group consists of nine regional banks – Courtois, Kolb, Laydernier, Nuger, Rhône-Alpes, Société Marseillaise de Crédit, Tarneaud, Société de Banque Monaco and Crédit du Nord – and an investment services provider, the brokerage firm Gilbert Dupont.

Crédit du Nord entities are characterised by a large degree of autonomy in managing their activities, which is chiefly expressed by rapid decision-making and responsiveness to client demands.

The quality and strength of the results of the Crédit du Nord group have been recognised by the market and are confirmed by the long-term A- rating attributed by Fitch.

Crédit du Nord serves 1.8 million individual clients⁽¹⁾, 213,000 professional clients and non-profit associations and 47,000 corporate and institutional clients. In 2021, its average outstanding deposits totalled EUR 57 billion, compared with EUR 52 billion in 2020, while average loan outstandings stood at EUR 52 billion, compared with EUR 50 billion in 2020.

Boursorama

Boursorama is a subsidiary of Societe Generale and a pioneer and leader in France for its three main businesses: online banking, online brokerage and online financial information at boursorama.com, ranked No. 1 for economic and stock market news. An online bank accessible to all, without any revenue or financial wealth prerequisites, Boursorama’s promise is the same as it was when it was first created, i.e. simplify clients’ lives at the most competitive price and furnish the best service possible in order to boost their purchasing power.

Boursorama currently serves over 3.3 million clients – a figure it has quadrupled in the last five years. This rapid growth has been matched by an increase in the bank’s outstandings (in excess of EUR 48 billion at end-December 2021), demonstrating the appeal of its fully online model based on client autonomy and a comprehensive range of banking products and services with automated processes.

In 2021, Boursorama extended its range, particularly as regards investment solutions (such as its MATLA retirement savings plan: a 100% SRI solution and the least expensive on the market) and life insurance and brokerage products (its new PrimeTime offer gives clients access to Accelerated Book Building (ABB) transactions through the PrimaryBid platform). It also launched a warranty extension insurance and made changes to its Freedom package for 12-17 year olds.

As in 2020, Boursorama was acclaimed the least expensive bank for the 14^th consecutive year at the Customer Relationship Podium Awards in 2021, taking 6^th position all sectors included. It continues to boast an excellent recommendation rate of 86%, coupled with a Net Promoter Score of +40. Buoyed by these results, it is confident of achieving its targets of more than 4 million clients by 2023 and profitability of over 25% by 2025.

Launched over 20 years ago, its online portal, www.boursorama.com, is consistently ranked the No. 1 website for financial and economic news and receives 47 million visits a month (Source ACPM – December 2021).

Definitions and details of methods used are provided on page 41 and following.

Information followed by an asterisk (*) is indicated as adjusted for changes in Group structure and at constant exchange rates.

The reconciliation of reported and underlying data is provided on page 42.

ANALYSIS OF THE CONSOLIDATED INCOME STATEMENT

Net banking income

Net banking income was substantially higher in 2021, up +16.7% (+17.7%*) vs. 2020, and +16.1% (+17.2%*) vs. 2020 on an underlying basis, with a very strong momentum in all businesses.

French Retail Banking posted a solid performance in 2021. As a result, net banking income (excluding PEL/CEL provision) increased by +4.8% vs. 2020, driven by the recovery in net interest income and by buoyant fee income, particularly in respect of financial fees.

International Retail Banking & Financial Services enjoyed strong revenue growth (+9.9%* vs. 2020), underpinned by the excellent momentum in Financial Services (+32.0%* vs. 2020) and Insurance (+8.6%* vs. 2020). International Retail Banking benefited from a rebound in its activities (+2.8%* vs. 2020).

Global Banking & Investor Solutions delivered a remarkable performance, with revenues up +25.2% (+26.1%*) vs. 2020. Financing & Advisory posted a record performance, with growth of +14.8% (+15.8%*) vs. 2020, while Global Markets & Investor Services posted substantially higher revenues than in 2020, up +35.6% (+36.9%*).

Operating expenses

In 2021, operating expenses totalled EUR 17,590 million on a reported basis and EUR 17,211 million on an underlying basis (adjusted for transformation costs), i.e. an increase of +4.3% vs. 2020.

The increase can be explained primarily by the rise in variable costs associated with revenue growth (EUR +701 million) and the increase in the contribution to the Single Resolution Fund (EUR +116 million). The other operating expenses declined by EUR 70 million, excluding structure effect.

Driven by a very positive jaws effect, underlying gross operating income grew substantially (+51.0%) to EUR 8,470 million and the underlying cost to income ratio improved by nearly 8 points (67.0% vs. 74.6% in 2020).

Excluding the contribution to the Single Resolution Fund (SFR), the underlying cost to income ratio is expected to be between 66% and 68% in 2022 and improve thereafter. This aggregate, excluding the contribution to the SRF, amounts to 64.7% in 2021, bearing in mind that SFR contribution totalled EUR 586 million in 2021.

The contribution to the Fund is expected to rise until the end of 2023.

The radical transformations that were announced for the Group in 2021 have led to changes in the 2023 cost outlook. The various initiatives in progress will help push down the Group’s underlying cost-to-income ratio beyond 2022, excluding the Single Resolution Fund contribution year after year. 

Cost of risk

In 2021, the cost of risk declined to a low 13 basis points, which was lower than the 2020 level of 64 basis points, i.e. EUR 700 million (vs. EUR 3,306 million in 2020). The amount breaks down to a provision on non-performing loans of EUR 949 million and a provision write-back on performing loans of EUR 249 million.

The Group’s provisions on performing loans amounted to EUR 3,355 million at end-2021.

The Group granted government-guaranteed loans (“PGE”) to support its clients during the crisis. At 31 December 2021, the residual amount of government-guaranteed loans represented around EUR 17 billion. In France, this loan category totalled approximately EUR 14 billion, while net exposure stood at around EUR 1.5 billion.

The doubtful loan ratio stood at 2.9% at 31 December 2021, a decline on the end-September 2021 level of 3.1%. The gross coverage ratio on doubtful loans for the Group was 51% at 31 December 2021.

The cost of risk is expected to be below 30 basis points in 2022.

Operating income

Book operating income totalled EUR 7,508 million in 2021 compared with EUR 2,093 million in 2020. Underlying operating income came to EUR 7,770 million compared with EUR 2,323 million in 2019.

Net profits or losses from other assets

Net profits or losses from other assets totalled EUR 635 million in 2021, of which EUR 439 million from the disposal of Lyxor’s asset management activities and EUR 185 million in capital gains from the disposal of real estate.

Impairment losses on goodwill

On back of the review of International Retail Banking’s financial trajectory, the Group recorded an impairment loss on goodwill of EUR 114 million in 2021 relating to the acquisition of the CGU Africa, Mediterreanean Basis and Overseas.

Income tax

The Group recognised EUR 130 million in deferred tax assets in 2021.

Net income

On 15 April 2021, Societe Generale issued the first structured product⁽¹⁾ as a Security Token directly registered on the Tezos public blockchain. The securities were fully subscribed by Societe Generale Assurances. The operation follows in the footsteps of a first covered bond Security Token issuance worth EUR 100 million on the Ethereum blockchain, settled in euros in April 2019, and of a second covered bond Security Token issuance worth EUR 40 million, this time settled in Central Bank Digital Currency (CBDC) and issued by Banque de France in May 2020. This latest transaction completes a new step in the development of Societe Generale – Forge, a regulated subsidiary of Societe Generale Group, which aims to offer crypto assets structuring, issuing, exchange and custody services to the Group’s professional clients by 2022.

This new experimentation, performed in accordance with best market practices, demonstrates the legal, regulatory and operational feasibility of issuing more complex financial instruments (structured products) on public blockchain. It leverages this disruptive technology which enables increased efficiency and fluidity of financial transactions: unprecedented product structuration capacity, shortened time-to-market, automated corporate actions, increased transparency and transaction and settlement speeds, as well as reduced cost and fewer intermediaries.

Thanks to Societe Generale – Forge’s innovative operating model, Security Tokens can be directly integrated into conventional banking systems interfaced with the SWIFT format. Innovation is key to Societe Generale Group’s digital transformation. The Group has been involved for several years in numerous initiatives based on blockchain and distributed ledger technologies, using the most innovative technologies and creating disruptive business models, with the aim of better serving its clients.

The main changes to the consolidation scope at 31 December 2021 compared with the scope applicable at the closing date of 31 December 2020 are as follows:

On 31 December 2021, the Group finalised with Amundi the transfer of the asset management activities performed by Lyxor. This transfer concerns the passive (ETF) as well as active (including alternative) asset management activities performed by Lyxor on behalf of institutional customers in France and abroad; it includes the commercial and support functions dedicated to these activities.

This transfer resulted in a EUR 0.4 billion decrease in the Group’s total balance sheet including the EUR 223 million decrease in goodwill allocated to the Asset and Wealth Management CGU.

A pre-tax capital gain of EUR 439 million is recognised under Net Income on other assets in the 2021 Income statement.

The objective of the Group’s financial policy is to optimise the use of shareholders’ equity in order to maximise short- and long-term return for shareholders, while maintaining a level of capital ratios (Common Equity Tier 1, Tier 1 and Total Capital ratios) consistent with the market status of Societe Generale and the Group’s target rating.

Since 2010, the Group has launched a major realignment programme, strengthening capital and focusing on the rigorous management of scarce resources (capital and liquidity) and proactive risk management to apply the regulatory changes related to the implementation of new Basel III regulations.

Group shareholders’ equity totalled EUR 65.1 billion at 31 December 2021. Net asset value per share was EUR 68.72 and net tangible asset value per share was EUR 61.08 using the new methodology disclosed in Chapter 2 of this Universal Registration Document, on page 46. Book capital includes EUR 8.0 billion in deeply subordinated notes.

At 31 December 2021, Societe Generale held, directly or indirectly, 22.2 million Societe Generale shares, representing 2.61% of the capital (excluding shares held for trading purposes). In 2021, no transaction was executed on purchases and sales under the liquidity contract concluded on 22 August 2011 with an external investment services provider.

The information concerning the Group’s capital and shareholding structure is available in Chapter 7, on page 617 and following.

The group maintained a targeted acquisition and disposal policy, in line with its strategy focused on its core businesses and the management of scarce resources.

Ongoing investments will be financed using the Group’s usual sources of funding.

The gross book value of Societe Generale Group’s tangible operating fixed assets amounted to EUR 45.7 billion at 31 December 2021. The figure comprises land and buildings (EUR 5.4 billion), the right of use (EUR 3.2 billion), assets leased by specialised financing companies (EUR 31.1 billion) and other tangible assets (EUR 6 billion).

The net book value of tangible operating assets and investment property amounted to EUR 29.2 billion, representing only 2% of the consolidated balance sheet at 31 December 2021.

Accordingly, due to the nature of Societe Generale’s activities, property and equipment are not material at Group level.

On 6 January 2022, the Group announced the signing by Societe Generale and ALD of two Memorandums of Understanding under which ALD would acquire 100% of LeasePlan from a consortium led by TDR Capital. The proposed transaction is expected to close by the end of 2022.

On 1 February 2022, Societe Generale announced that Boursorama had signed a Memorandum of Understanding (MOU) with ING to offer ING’s online banking customers in France the best alternative banking solution, with adedicated customer journey and support conditions. The two parties intend to reach a final agreement by April 2022.

On 3 March 2022, Societe Generale issued an update on the Group’s situation in Ukraine and Russia. Societe Generale continues a detailed monitoring of the situation in Russia and Ukraine and is supporting its clients and all its employees to the highest degree possible.

Societe Generale is also rigorously complying with all applicable laws and regulations and is diligently implementing the measures necessary to strictly enforce international sanctions as soon as they are made public.

At the time of writing, the Group states that:

The Group is following with the utmost attention the development of the situation in Ukraine and Russia, and it is committed to supporting its clients and all its employees. Societe Generale complies rigorously with legislation in force and diligently applies all necessary measures to strictly observe international sanctions as soon as they become public.

At Group level, the exposure to Russia⁽¹⁾ represents 1.7% of total exposure, i.e. EUR 18.6 billion at 31 December 2021 based on exchange rates at that date. The amount breaks down as: EUR 15.4 billion of exposure recognised in SG Russia⁽²⁾ (“onshore exposures”) and EUR 3.2 billion recognised outside Russia (“offshore exposures”), of which EUR 2.6 billion on the balance sheet.

Group activities situated in Russia (SG Russia⁽²⁾) represent 2.8% of Group net banking income in 2021 and 2.7% of Group net income⁽³⁾. They chiefly involve our banking subsidiary Rosbank, which is 99.97%-owned by the Group. Rosbank has a solid capital position, with a CET1 ratio of 10.74%, i.e. 274 basis points above the local regulatory requirement, and functions independently in terms of liquidity, with a loan-deposit ratio around 80% at 31 December 2021. These exposures are largely denominated in local currency, i.e. up to 99.7% on retail and 68% on corporate.

The exposures break down as follows:

Exposure to local counterparties subject to embargo is very low (EUR 0.2 billion⁽⁵⁾).

The Group is conducting its business in Russia with the utmost caution and selectivity, while supporting its historical clients. Its priorities are to reduce its risks and preserve the liquidity of its subsidiary by maintaining a diversified collection of deposits. The rouble clearing business is conducted entirely from Rosbank on behalf of the Group’s major clients.

With a CET1 ratio of 13.7% at 31 December 2021, i.e. a buffer of around 470 basis points above the regulatory requirement, the Group has more than enough buffer to absorb the consequences of a potential extreme scenario, in which the Group would be stripped of property rights to its banking assets in Russia. The capital impact has been estimated at around -50 basis points⁽⁴⁾ of the CET1 ratio, based on a Rosbank net book value equivalent to EUR 2.1 billion at 31 December 2021, EUR 0.5 billion in subordinated loans and including the cancellation of associated RWA. This would not affect the payment of the dividend for the year 2021.

Furthermore, the Group has minor exposure to Ukraine, representing less than EUR 80 million at 31 December 2021, mainly through its subsidiary ALD whose activity is concentrated on international corporate clients.

Offshore exposures to Russia⁽¹⁾, which mainly involve operations conducted by our financing activities in Global Banking and Investor Solutions, represent EUR 3.2 billion with top-tier counterparties in their sector of activity. They specifically concern the following sectors: EUR 2.2 billion for the metals and minerals sector, EUR 0.7 billion for the energy sector, EUR 0.2 billion for the transport and telecoms sector and EUR 0.1 billion for financial institutions.

Counterparties under embargo represent around EUR 0.7 billion in offshore net outstandings⁽⁵⁾. For the record, sanctions forbid new activities but do not prevent the settlement of operations or necessarily the repayment of facilities.

The Group also has around EUR 0.3 billion in net outstandings on private banking clients, the majority of which are mortgage and Lombard loans.

At this stage, the Group is not changing its cost of risk target and will update it, if necessary, at the time of its Q1 22 results publication.

Since the end of the last financial period, no significant change in the financial performance of the Group occurred other than those described in the present Universal Registration Document filed with the AMF on 9 March 2022.

The article L. 511-45 of the Monetary and Financial Code modified by Order No. 2014-158 of 20 February 2014, require credit institutions to communicate information about the locations and activities of their entitites included in their consolidation scope, in each State or territory.

Societe Generale publishes below the information relative to staff and the financial information by countries or territories.

The list of locations is published in the Note 8.6 of the Notes to the consolidated financial statements.

Purpose

Following the introduction of French Act No. 2019-486 on 22 May 2019, known as the Pacte Law, an action plan for business growth and transformation, the Board of Directors reviewed the Bank’s purpose in 2019, defining it as Building together, with our clients, a better and sustainable future through responsible and innovative financial solutions. From a formal standpoint, the Board decided not to include the purpose in the By-laws. However, at its Extraordinary General Meeting of 2020, Societe Generale modified its By-laws to specify that the Board determines the approaches of the Company’s activity and ensures they are implemented according to its corporate interests by taking into account environmental and social responsibility considerations (see Chapter 5). In May 2021, the first sentence of the preamble of the Board of Directors’ Internal Rules was also modified to mirror this position.

Presentation of the organisation

(At 17 January 2022)

The composition of the Board of Directors is presented on pages 65 and following of this report on corporate governance. The internal rules of the Board of Directors, which define the Board’s powers, are provided in Chapter 7 of this Universal Registration Document, on pages 633 and following. The Board’s work is presented on pages 81 and 82.

The composition of the General Management and Management Committee is presented in the respective sections of this report (see pages 90 to 92 and page 94).

The tasks of the Supervisory Committees are described on page 93.

The powers of the Board of Directors and of the different committees of the Board of Directors, along with their activity reports, are presented on pages 80 and following, and describe in particular:

Organisation of the governance

On 15 January 2015, the Board of Directors decided that in accordance with Article L. 511-58 of the French Monetary and Financial Code (Code monétaire et financier), the offices of Chairman and Chief Executive Officer would be separated following the General Meeting of 19 May 2015. At that date, Lorenzo Bini Smaghi became Chairman of the Board of Directors, and Frédéric Oudéa remained Chief Executive Officer. On 21 May 2019, the Board of Directors decided to renew the term of office of Frédéric Oudéa as Chief Executive Officer for a further four-year term after his term of office as Director was renewed at the General Meeting of 21 May 2019.

Lorenzo Bini Smaghi was reappointed Chairman of the Board of Directors on 23 May 2018.

The Board of Directors appointed Jean-Bernard Lévy as non-voting Director for a two-year term from 18 May 2021. One of his tasks is to assist the Board of Directors in relation to its energy transition remit.

Since 17 January 2022, Frédéric Oudéa has been assisted by two Deputy Chief Executive Officers whose terms of office were renewed on 21 May 2019, until the expiration of Frédéric Oudéa’s term. The Chief Executive Officer and the two Deputy Chief Executive Officers are assisted by three Deputy General Managers who are not corporate officers.

On 17 January 2022, Frédéric Oudéa, Chief Executive Officer, took direct control of supervising the Risk and Compliance functions, in addition to the Inspection and Audit, Finance, Corporate Secretary Departments, and the Human Resources and Communication Departments.

From 17 January 2022, Diony Lebot, Deputy Chief Executive Officer, will be responsible for overseeing all ESG policies and their effective incorporation into the strategic trajectories adopted by the Group’s business units and functions. She will continue to supervise the specialised financial services (ALD and SGEF) and insurance activities.

Philippe Aymerich remains Deputy Chief Executive Officer in charge of all retail banking activities.

Statement of the corporate governance regime

Societe Generale refers to the AFEP-MEDEF Corporate Governance Code for listed companies (amended in June 2018 and updated in January 2020, hereinafter the “AFEP-MEDEF Code”. The document is available on the www.hcge.fr website). In accordance with the comply or explain principle, Societe Generale confirms that it applies all recommendations from the AFEP-MEDEF Code.

A set of internal rules (hereinafter referred to as the “Internal Rules”) governs the functioning of the Board of Directors and its committees. The Internal Rules were updated on 18 May 2021. The Company’s Internal Rules and By-laws appear in the Universal Registration Document (see Chapter 7).

Annual General Meeting held to approve the financial statements for the year ended December 31, 2021.

This is a translation into English of the statutory auditors’ report on related-party agreements that is issued in French and it is provided solely for the convenience of English-speaking users.

This report on related-party agreements should be read in conjunction, and construed in accordance with, French law and professional auditing standards applicable in France. It should be understood that the agreements reported on are only those provided by the French Commercial Code (Code de commerce) and that the report does not apply to those related-party transactions described in IAS 24 or other equivalent accounting standards.

To the Annual General Meeting of Société Générale,

In our capacity as statutory auditors of your Company, we hereby report to you on related-party agreements.

The terms of our engagement require us to communicate to you, based on information provided to us, the principal terms and conditions of those agreements brought to our attention or which we may have discovered during the course of our audit, as well as the reasons justifying why they benefit the Company, without expressing an opinion on their usefulness and appropriateness or identifying other such agreements, if any. It is your responsibility, pursuant to Article R. 225-31 of the French Commercial Code (Code de commerce), to assess the relevance of these agreements for the purpose of approving them.

Our role is also to provide you with the information stipulated in Article R. 225-31 of the French Commercial Code (Code de commerce) relating to the implementation during the year ended December 31, 2021 of agreements previously approved by the Annual General Meeting.

We conducted the procedures we deemed necessary in accordance with the professional guidelines of the French Institute of Statutory Auditors (Compagnie nationale des commissaires aux comptes) relating to this engagement.

Agreements submitted to the approval of the annual general meeting

We hereby inform you that we have not been notified of any agreements that were authorized and entered into during the year ended December 31, 2021 to be submitted to the approval of the Annual General Meeting in accordance with Article L. 225-38 of the French Commercial Code (Code de commerce).

Agreements previously approved by the annual general meeting

We hereby inform you that we have not been notified of any agreement previously approved by the Annual General Meeting whose implementation continued during the year ended December 31, 2021.

The solvency and leverage prudential ratios, as well as the amounts of regulatory capital and RWA featured here take into account the IFRS 9 phasing (fully-loaded CET1 ratio of 13.55% at end 2021, the phasing effect being +16 bps).

This section identifies the main risk factors that the Group estimates could have a significant effect on its business, profitability, solvency or access to financing.

The risks inherent to the Group’s business are presented below under six main categories, in accordance with Article 16 of the Regulation (EU) 2017/1129, also known as “Prospectus 3” regulation of 14 June 2017:

Risk factors are presented based on an evaluation of their materiality, with the most material risks indicated first within each category. The risk exposure or measurement figures included in the risk factors provide information on the Group’s exposure level but are not necessarily representative of any future evolution of these risks.

4.1.1.1 The global economic and financial context, geopolitical tensions, as well as the market environment in which the Group operates, may adversely affect its activities, financial position and results of operations.

As a global financial institution, the Group’s activities are sensitive to changes in financial markets and economic conditions generally in Europe, the United States and elsewhere around the world. The Group generates 49% of its business in France (in terms of net banking income for the financial year ended 31 December 2021), 32% in Europe, 7% in the Americas and 12% in the rest of the world. The Group could face significant deteriorations in market and economic conditions resulting from, in particular, crises affecting capital or credit markets, liquidity constraints, regional or global recessions, sharp fluctuations in commodity prices (notably oil), currency exchange rates or interest rates, inflation or deflation, rating downgrades, restructuring or defaults of sovereign or private debt, or adverse geopolitical events (including acts of terrorism and military conflicts). Such events, which can develop quickly and thus may not have been anticipated and hedged, could affect the Group’s operating environment for short or extended periods and have a material adverse effect on its financial position, cost of risk and results of operations.

The economic environment remains very uncertain despite the good performance of industry and world trade. Although initially rapid, the economic recovery was severely disrupted in 2021 by the effect of, firstly, production delays due to occasional factory closures, absenteeism due to illness, and shortages of labor, components (especially electronic components) and electricity in certain regions, and secondly, delays in transport deliveries due to, among other things, congestion in ports. In addition, the Russian-Ukrainian conflict starting in the beginning of 2022 has generated historically high tensions with Western countries, with significant potential impacts on global growth and energy prices and a humanitarian impact. These disruptions could persist in 2022 and have a significant impact on the activity and profitability of certain Group counterparties in 2022.

Disruptions in global supply chains, accompanied by tensions in the labour market, and rising energy prices are also leading to higher inflation, particularly in the United States, where a massive fiscal stimulus package has provided a strong boost to demand. Europe and emerging countries are also facing inflationary pressures. The longer the pandemic lasts, the more persistent these disruptions will be, with a potentially lasting impact on inflation, consumer purchasing power and ultimately on economic activity. The Russian-Ukrainian conflict is likely to accentuate some of these disruptions, particularly in Europe where, for example, natural gas prices have risen sharply and remain highly volatile.

The economic and financial environment remains exposed to intensifying geopolitical risks. Tensions between Russia and Western countries over the situation in Ukraine have increased significantly since mid-February 2022. The exceptional economic and financial sanctions put in place by a large number of countries, particularly in Europe and the United States, against Russia and Belarus could significantly affect operators with links to Russia, with a material impact on the Group’s risks (credit and counterparty, market, reputation, compliance, legal, operational, etc. ). Based on the sanctions published on 27 February 2022, the Group’s local exposure to corporate and financial institution counterparties subject to sanctions is low at EUR 0.2 billion and counterparties under sanctions account for approximately EUR 0.7 billion of the Group’s net off-shore exposure. Any new international sanction or Russian countermeasure could have an impact on the global economy and consequently on the Group’s risks. The Group will continue to analyse in real time the developments in the global impact of this crisis and, together, will enforce the necessary measures to comply with legislation in force and protect the Group’s franchise.

Uncertainty about the consequences of the situation in Ukraine makes it difficult to predict the impact on the global economy and the Group. Several scenarios remain conceivable for the Group. The estimated impact on the property rights on its banking assets in Russia would be of approximately -50 basis points of CET1 capital ratio based on Rosbank’s net book assets equivalent to EUR 2.1 billion at 31 December 2021, with EUR 0.5 billion of subordinated debt and taking into account the cancellation of the associated weighted assets.

This crisis could also exacerbate the already visible increase in prices and availability of hydrocarbons, as well as the price of certain foodstuffs and metals. It could also generate strong volatility on the financial markets and a significant drop in the price of certain financial assets. In addition, the Russian government and certain Russian financial institutions could experience payment defaults, with consequences that are difficult to anticipate for the Group.

As of 31 December 2021, EAD exposures on Russia represented 1.7% of the Group’s exposure to credit and counterparty risks, i.e. EUR 18.6 billion (of which EUR 15.4 billion on its subsidiary Rosbank) and EUR 3.2 billion of off-shore exposures, mainly consisting of transactions set up as part of the financing activities of the Corporate and Investment Banking division). In 2021, activities located in Russia represented 2.8% of the Group’s net banking income and 2.7% of its net income. In addition, Société Générale has a minor exposure in Ukraine (less than EUR 80 million at 31 December 2021), mainly through its subsidiary ALD. See also section 2.10 “Post-closing events” of the 2022 Universal Registration Document.

Furthermore, the U.S.-China confrontation brings with it trade tensions and the risk of a technological fragmentation. In Africa, a series of political coups in the Sahel region has heightened awareness of the fragility of the institutional frameworks of countries exposed to terrorism.

Continued high geopolitical risks are an additional source of instability that could also weigh on economic activity and credit demand, while increasing volatility in financial markets. In the context of Brexit, the topic of non-equivalence of clearing houses (central counterparties, or CCPs) remains a point of vigilance, with possible impacts on financial stability, notably in Europe, and therefore on the Group’s business.

Over the last decade, the financial markets have thus experienced significant disruptions resulting notably from concerns over the evolution of central bank interest rate policies, the trajectory of the sovereign debt of several Eurozone countries, Brexit, the persistence of commercial and political tensions (namely between the United States and China) or fears of a major slowdown of growth in China, fostered again recently by the financial difficulties of Chinese real estate development companies, the disruption of value and supply chains caused by the Covid-19 crisis or more recently by the tensions linked to the crisis in Ukraine. Given the magnitude of external financing needs, several emerging countries would face increasing difficulties if U.S. interest rates were to rise, and their financial conditions were to tighten.

The long period of low interest rates in the Eurozone and the United States, driven by accommodating monetary policies, has affected the Group’s net interest margin for several years. Growth in the volume of loans made to non-financial companies, already high before the pandemic, significantly increased in 2020 with the implementation of government-guaranteed loan programmes (such as the Prêts Garantis par l’Etat programme in France). In 2021, this growth slowed with the repayment of a part of the credit lines drawn in 2020. Should an overly fragile economic recovery materialise, it may provoke a rise in the volume of non-performing loans and create a weak investment dynamic in a context where companies’ balance sheets are already fragile. The environment of low interest rates tends to lead to an increased risk appetite of some participants in the banking and financial system, lower risk premiums compared to their historical average and high valuation levels of certain assets. These market conditions could change rapidly in the event of a more rapid increase in key interest rates by the major central banks, which could cause a marked correction in asset prices.

Furthermore, the environment of abundant liquidity that has been at the origin of the upturn in credit growth in the Eurozone and particularly in France, amplified by the implementation of the French government-guaranteed loan programme, could lead in the future to additional regulatory measures by supervisory authorities in order to limit the extension of credit or to further protect banks against a financial cycle downturn.

The Group’s results are thus significantly exposed to economic, financial, political and geopolitical conditions in the principal markets in which it operates.

Furthermore, the situation related to the Covid-19 crisis is a further aggravating factor in the various risks faced by the Group. See also section 4.1.1.2 “The coronavirus (Covid-19) pandemic and its economic consequences could adversely affect the Group’s business and financial performance”.

At 31 December 2021, the Group’s EAD to credit and counterparty risks were concentrated in Europe and the United States (together accounting for 90%), with a predominant exposure to France (46% of EAD). The other exposures concern Western Europe excluding France (accounting for 21%), North America (accounting for 14%), Eastern European members of the European Union (accounting for 7%) and Eastern Europe excluding the European Union (accounting for 2%).

In France, the Group’s principal market, the good growth performance during the 2016-2019 period and low interest rates have fostered an upturn in the housing market. A reversal of activity in this area could have a material adverse effect on the Group’s asset value and business, by decreasing demand for loans and resulting in higher rates of non-performing loans.

The Group also operates in emerging markets, such as Russia, or Africa and the Middle East (5% of the Group’s credit exposure). A significant adverse change in the macroeconomic, health, political or financial environment in these markets could have a material adverse effect on the Group’s business, results and financial position. These markets may be adversely affected by uncertainty factors and specific risks, such as a new increase in oil and natural gas prices, which would weigh on the financial position of importing countries as well as their growth and exchange rates. The correction of macroeconomic or budgetary imbalances that would result could be imposed by the markets with an impact on growth and on exchange rates. A major source of uncertainty currently comes from the ongoing conflict in Ukraine and its humanitarian, economic and financial consequences. In the longer term, the energy transition to a “low-carbon economy” could adversely affect fossil energy producers, energy-intensive sectors of activity and the countries that depend on them. In addition, capital markets (including foreign exchange activity) and securities trading activities in emerging markets may be more volatile than those in developed markets and may also be vulnerable to certain specific risks, such as political instability and currency volatility. These elements could negatively impact the Group’s activity and results of operations.

4.1.1.2 The coronavirus pandemic (Covid-19) and its economic consequences could adversely affect the Group’s business and financial performance.

In December 2019, a new strain of coronavirus (Covid-19) emerged in China. The virus has since spread to numerous countries around the world, with a high concentration of cases in certain countries where the Group operates. The World Health Organization declared the outbreak of a pandemic in March 2020. The Covid-19 pandemic and the health measures taken in response to it (border closures, lockdown measures, restrictions on certain economic activities, etc.) have had and may continue to have a significant impact, both direct and indirect, on the global economic situation and financial markets.

The deployment of vaccination programmes has reduced the risk of severe illness from Covid-19 infections among the vaccinated population and the need for strict lockdowns in the event of high virus circulation in countries where vaccines have been deployed on a large scale. The persistence of the pandemic and the emergence of new variants (such as the highly transmissible Omicron variant) have led, and may again lead, to new targeted restrictive measures or an increase in absenteeism and work stoppages, exacerbating the disruptions already present in global supply chains, and thus adversely affecting the Group’s business, financial performance and results.

The impact of the crisis related to the Covid-19 will also have lasting consequences that remain difficult to be assessed, notably through the loss of human capital (loss of skills due to long periods of inactivity, lower quality of training, etc.) and increasing public and corporate debts.

The different restrictive measures had also led, especially in the beginning of the sanitary crisis, to a decline in the Group’s commercial activity and results due to the reduced opening of its retail network and lower demand from its customers, despite a rapid adaptation. New phases of lockdown measures or curfews in the countries where the Group operates could again impact the Group’s financial results.

In many jurisdictions in which the Group operates, national governments and central banks have taken or announced exceptional measures to support the economy and its actors (government-guaranteed loan facilities programmes, tax deferrals, facilitated recourses to part-time working, compensation, etc.) or to improve liquidity in financial markets (asset purchases, etc.). While these support measures have been effective in addressing the immediate effects of the crisis, the mechanisms put in place may not be sufficient to sustain the recovery over the long term.

The various restrictive measures implemented since the beginning of the pandemic in several of the main countries where the Group operates (with Western Europe representing 67% of the Group’s EAD (Exposure at Default) at 31 December 2021, of which 46% was in France) have had a significant impact on economic activity. The risk of new restrictive measures (especially in the event of new pandemic waves) as well as a slower-than-expected recovery of demand (particularly in certain economic sectors) could increase the economic difficulties resulting from the health crisis. This, combined with a high level of public and corporate indebtedness, may constitute a brake on economic growth and lead to significant adverse repercussions on the credit quality of the Group’s counterparties (affected in particular by the gradual cessation of government support measures or by difficulties in extending these measures) and the level of non-performing loans for both businesses and individuals.

2020 was characterised by a significant increase in the cost of risk, mainly due to the provisioning for Stages 1 and 2 in anticipation of future defaults. In 2021, the net cost of risk was low in the absence of default, while the Group continued to maintain a provisioning policy for Stages 1 and 2 in the event that defaults begin to materialise. The Group’s cost of risk could be affected in future years by its participation in the French government-guaranteed loan programmes (in respect of the unguaranteed residual exposure) on which the observed defaults remain to be quantified.

Within the Corporate portfolio, at 31 December 2021, the most impacted sectors were the automotive sector (0.9% of the Group’s total exposure), hotels, catering and leisure (0.6% of the Group’s total exposure), non-food retail distribution (the entirety of the retail distribution sector represents 1.6% of the Group’s total exposure) and air transport (less than 0.5% of the Group’s total exposure).

The Group’s results and financial position were affected by unfavourable developments in global financial markets due to the Covid-19 crisis, especially in March and April 2020 (extreme volatility and dislocation of term structure, alternate sharp declines and rapid rebounds in the equity markets, widening of credit spreads, unprecedented declines in, or cancellation of, dividend distributions, etc.). These exceptional conditions particularly affected the management of structured equity-linked products. Since then, these activities have been thoroughly reconsidered to improve and reduce the risk profile. Although monetary and fiscal stimuli — as well as medical advances — have supported economies and financial markets, the Group remains attentive to the risk of correction that could occur in particular in the event of new epidemic waves.

For information purposes, risk-weighted assets (RWA) related to market risks were thus down 24% at the end of December 2021 compared to the situation at the end of December 2020, to EUR 11.6 billion. The Global Markets and Investor Services sector, which mainly concentrates the Group’s market risks, represented a net banking income of EUR 5.6 billion, or 22% of the Group’s total revenues in 2021.

Restrictive measures have led the Group to massively implement remote working arrangements, particularly for a significant part of its market activities. This organisation, which was deployed in immediate response to the crisis, increases the risk of operational incidents and the risk of cyber-attacks. Even though the Group has put in place adaptation and support measures, these risks remain higher in periods of widespread recourse to remote working. All employees remain subject to health risks at the individual level. Prolonged remote working also increases psychosocial risk, with potential impacts in terms of organisation and business continuity in the event of prolonged absences.

The unprecedented environment resulting from the Covid-19 crisis could alter the performance of the models used within the Group (particularly in terms of asset valuation and assessment of own funds requirements for credit risk), due in particular to calibration carried out over periods that are not comparable to the current crisis or to assumptions that are no longer valid, taking the models beyond their area of validity. The temporary decline in performance and the recalibration of these models could have an adverse impact on the Group’s results.

The ECB recommendation to restrict dividend distribution and share buybacks for all banks placed under its direct supervision expired on 30 September 2021. As from this date, dividend distribution and share buybacks policies will be determined in accordance with the provisions of the applicable prudential regulation.

Uncertainty as to the duration and impact of the Covid-19 pandemic makes it difficult to predict its impact on the global economy. Consequences for the Group will depend on the duration of the pandemic, the measures taken by national governments and central banks and developments in the health, economic, financial and social context.

4.1.1.3 The Group’s failure to achieve its strategic and financial objectives disclosed to the market could have an adverse effect on its business, results of operations and the value of its financial instruments.

At the time of the publication of its annual results on 10 February 2022, the Group communicated new guidance on its operating expenses, cost of risk and solvency. The Group targets an underlying cost/income ratio (excluding the Single Resolution Fund - SRF) between 66% and 68% in 2022 and with further improvement thereafter. Over 2022, the Group’s cost of risk should not exceed 30 basis points. In consideration of the situation in Ukraine, the Group communicated on 3 March 2022 that it was not changing its cost of risk target and that it would update it, if necessary, at the time of its Q1 2022 results publication. The Group manages its CET1 ratio with a margin of flexibility of between 200 and 250 basis points higher than regulatory requirements, defined as the Maximum Distributable Amount (MDA), including under Basel IV.

These expectations are based on a number of assumptions related to the macroeconomic, geopolitical and health context. The non-occurrence of these assumptions (including in the event of the occurrence of one or more of the risks described in this section) or the occurrence of unanticipated events could compromise the achievement of Group’s strategic and financial objectives and negatively affect its activity, results and financial situation.

More precisely, the Group’s “Vision 2025” project anticipates the merger between the Retail Banking network of Société Générale in France and Crédit du Nord. Although this project has been designed to enable a controlled deployment, the merger could have a short-term material adverse effect on the Group’s business, financial position and costs. System reconciliations could face delays, delaying part of the expected merger benefits. The project could lead to the departure of a number of employees, requiring replacements and efforts related to new employee training, thus potentially generating additional costs. The merger could also lead to the departure of a portion of the Group’s customers, resulting in loss of revenue. The legal and regulatory aspects of the transaction could result in delays or additional costs. In October 2021, the Group presented the detailed Vision 2025 project, specifying that the timetable and ambitions remained aligned with the initial presentation of the project. In addition, the effective sale of Lyxor was finalised on 31 December 2021. The Group also announced the signature by Société Générale and ALD of two memoranda of understanding providing for the acquisition by ALD of 100% of LeasePlan, with a view to creating a global leader in sustainable mobility solutions. The Group also announced on 1 February 2022 that Boursorama had signed a memorandum of understanding with ING. Under this agreement, exclusive new customer offers and a simplified subscription process (depending on the product) are expected to be proposed to ING customers who wish to become Boursorama customers.

The Group may however face an execution risk on these strategic projects, which are to be carried out simultaneously. Any difficulty encountered during the process of integrating activities (particularly from a human resource standpoint) is likely to result in higher integration costs and lower-than-anticipated savings, synergies or benefits. Moreover, the process of integrating the acquired operational businesses into the Group could disrupt the operations of one or more of its subsidiaries and divert management’s attention, which could have a negative impact on its business and results. These acquisitions may not materialise, in whole or in part, resulting in a reduced level of expected earnings.

Furthermore, the Group is committed to becoming a leading bank in the field of responsible finance through, among others:

These measures (and additional measures that may be taken in the future) could in some cases affect decrease the Group’s results in the sectors concerned.

4.1.1.4 The Group is subject to an extended regulatory framework in each of the countries in which it operates and changes to this regulatory framework could have a negative effect on the Group’s businesses, financial position and costs, as well as on the financial and economic environment in which it operates.

The Group is subject to the regulations of the jurisdictions in which it operates. French, European and U.S. regulations as well as other local regulations are concerned, given the cross-border activities of the Group, among other factors. The application of existing regulations and the implementation of future regulations requires significant resources that could affect the Group’s performance. In addition, possible non-compliance with regulations could lead to fines, damage to the Group’s reputation, forced suspension of its operations or the withdrawal of operating licences. By way of illustration, exposures to credit and counterparty risks (EAD) in France, the 27-member European Union (including France) and the United States represented 46%, 67% and 14%, respectively as of 31 December 2021.

Among the regulations that could have a significant influence on the Group:

New legal and regulatory obligations could also be imposed on the Group in the future, such as:

The Group is also subject to complex tax rules in the countries where it operates. Changes in applicable tax rules, uncertainty regarding the interpretation of certain evolutions or their effects may have a negative impact on the Group’s business, financial position and costs.

Moreover, as an international bank that handles transactions with US persons, denominated in US dollars, or involving US financial institutions, the Group is subject to US regulations relating in particular to compliance with economic sanctions, the fight against corruption and market abuse. More generally, in the context of agreements with US and French authorities, the Group has undertaken to implement, through a dedicated programme and a specific organisation, corrective actions to address identified deficiencies and strengthen its compliance programme. In the event of a failure to comply with relevant US regulations, or a breach of the Group’s commitments under these agreements, the Group could be exposed to the risk of (i) administrative sanctions, including fines, suspension of access to US markets, and even withdrawals of banking licences, (ii) criminal proceedings, and (iii) damage to its reputation.

4.1.1.5 Increased competition from banking and non-banking operators could have an adverse effect on the Group’s business and results, both in its French domestic market and internationally.

Due to its international activity, the Group faces intense competition in the international and local markets in which it operates, whether from banking or non-banking actors. As such, the Group is exposed to the risk of not being able to maintain or develop its market share in its various activities. This competition may also lead to pressure on margins, which would be detrimental to the profitability of the Group’s activities.

Consolidation in the financial services industry could result in the competitors benefiting from greater capital, resources and an ability to offer a broader range of financial services. In France and in the other main markets where the Group operates, the presence of major domestic banking and financial actors, as well as new market participants (notably neo-banks and online financial services providers), has increased competition for virtually all products and services offered by the Group. New market participants such as “fintechs” and new services that are automated, scalable and based on new technologies (such as blockchain) are developing rapidly and are fundamentally changing the relationship between consumers and financial services providers, as well as the function of traditional retail bank networks. Competition with these new actors could be exacerbated by the emergence of substitutes for central bank currency (crypto-currencies, digital central bank currency, etc.).

Moreover, competition is also enhanced by the emergence of non-banking actors that, in some cases, may benefit from a regulatory framework that is more flexible and in particular less demanding in terms of equity capital requirements.

To address these challenges, the Group has implemented a strategy, in particular with regard to the development of digital technologies and the establishment of commercial or equity partnerships with these new actors (such as Lumo, the platform offering green investments, or Shine, the neobank for professionals). In this context, additional investments may be necessary for the Group to be able to offer new innovative services and to be competitive with these new actors. This intensification of competition could, however, adversely affect the Group’s business and results, both on the French market and internationally.

4.1.1.6 Environmental, social and governance (ESG) risks, in particular related to climate change, could have an impact on the Group’s activities, results and financial situation in the short-, medium-and long-term.

Environmental, social and governance (ESG) risks are defined as risks stemming from the current or prospective impacts of ESG factors on counterparties or invested assets of financial institutions. ESG risks are seen as aggravating factors to the traditional categories of risks (credit and counterparty risk, market and structural risk, operational risk, reputational risk, compliance risk, liquidity and funding risk, risks related to insurance activities) and are likely to impact the Group’s activities, results and financial position in the short-, medium- and long-term.

The Group is thus exposed to environmental risks, and in particular climate change risks through its financing, investment and service activities. Concerning climate risks, a distinction is made between (i) physical risk, with a direct impact on entities, people and property stemming from climate change and the multiplication of extreme weather events; and (ii) transition risk, which results from the process of transitioning to a low-carbon economy, such as regulatory or technological disruptions or changes in consumer preferences.

The Group could be exposed to physical risk resulting from a deterioration in the credit quality of its counterparties whose activity could be negatively impacted by extreme climatic events or long-term gradual changes in climate, and through a decrease in the value of collateral received (particularly in the context of real estate financing). The Group’s insurance activities could also be impacted with exposure in regions and countries that are particularly vulnerable to climate change.

The Group may also be exposed to transition risk through its credit portfolio in a limited number of sensitive sectors that are subject to more stringent regulations or due to technological disruptions, and may be exposed to reputation risk in the event it does not comply with its commitments in favor of environmental transition or if these commitments are considered insufficient by its stakeholders.

Beyond the risks related to climate change, risks more generally related to environmental degradation (such as the risk of loss of biodiversity) are also aggravating factors to the Group’s risks. The Group could notably be exposed to credit risk on a portion of its portfolio, linked to lower profitability of some of its counterparties due, for example, to a significant decline in revenues following changes in customer behavior or to increasing legal and operating costs (for instance due to the implementation of new environmental standards).

In addition, the Group is exposed to social risks, related for example to non-compliance by some of its counterparties with labor rights or workplace health and safety issues, which may trigger or aggravate non-compliance, reputational and credit risks for the Group.

Similarly, risks relating to governance of the Group’s counterparties and stakeholders (suppliers, service providers, etc.), such as an inadequate management of environmental and social issues or non-compliance with corporate governance codes related to, among others, anti-money laundering issues, could generate credit and reputational risks for the Group.

Beyond the risks related to its counterparties or invested assets, the Group could also be exposed to risks related to its own activities. Therefore, the Group is exposed to physical climate risk with respect to its ability to maintain its services in geographical areas impacted by extreme events (floods, etc.).

The Group also remains exposed to specific social and governance risks, relating for example to compliance with labor laws, the management of its human resources and ethical issues, transparency or the composition (such as in terms of diversity) of its Board of Directors or staff.

All these risks could have an impact on the Group’s business, results and reputation in the short, medium and long term.

4.1.1.7 The Group is subject to regulations relating to resolution procedures, which could have an adverse effect on its business and the value of its financial instruments.

The BRRD and Regulation (EU) No. 806/2014 of the European Parliament and of the Council of the European Union of 15 July 2014 (the Single Resolution Mechanism, or “SRM”) define an European Union-wide framework for the recovery and resolution of credit institutions and investment firms. The BRRD provides the authorities with a set of tools to intervene early and quickly enough in an institution considered to be failing so as to ensure the continuity of the institution’s essential financial and economic functions while reducing the impact of the failure of an institution on the economy and the financial system (including the exposure of taxpayers to the consequences of the failure). Under the SRM Regulation, a centralised resolution authority is established and entrusted to the SRB and national resolution authorities.

The powers granted to the resolution authority under the BRRD and the SRM Regulations include write-down/conversion powers to ensure that capital instruments and eligible liabilities absorb the Group’s losses and recapitalise it in accordance with an established order of priority (the “bail-in tool”). Subject to certain exceptions, losses are borne first by the shareholders and then by the holders of additional Tier 1 and Tier 2 capital instruments, then by the non-preferred senior debt holders and finally by the senior preferred debt holders, all in the order of their claims in a normal insolvency proceeding. The conditions for resolution provided by the French Monetary and Financial Code implementing the BRRD are deemed to be met if: (i) the resolution authority or the competent supervisory authority determines that the institution is failing or likely to fail; (ii) there is no reasonable perspective that any measure other than a resolution measure could prevent the failure within a reasonable timeframe; and (iii) a resolution measure is necessary to achieve the resolutions’ objectives (in particular, ensuring the continuity of critical functions, avoiding a significant negative effect on the financial system, protecting public funds by minimizing the recourse to extraordinary public financial support, and protecting customers’ funds and assets) and the winding up of the institution under normal insolvency proceedings would not meet these objectives to the same extent.

The resolution authority could also, independently of a resolution measure or in combination with a resolution measure, proceed with the write-down or conversion of all or part of the Group’s capital instruments (including subordinated debt instruments) into equity if it determines that the Group will no longer be viable unless it exercises this write-down or conversion power or if the Group requires extraordinary public financial support (except where the extraordinary public financial support is provided in the form defined in Article L. 613-48 III, 3° of the French Monetary and Financial Code).

The bail-in tool could result in the write-down or conversion of capital instruments in whole or in part into ordinary shares or other ownership instruments.

In addition to the bail-in tool, the BRRD provides the resolution authority with broader powers to implement other resolution measures with respect to institutions that meet the resolution requirements, which may include (without limitation) the sale of the institution’s business segments, the establishment of a bridge institution, the split of assets, the replacement or substitution of the institution as debtor of debt securities, changing the terms of the debt securities (including changing the maturity and/or amount of interest payable and/or the imposition of a temporary suspension of payments), the dismissal of management, the appointment of a provisional administrator and the suspension of the listing and admission to trading of financial instruments.

Before taking any resolution action, including the implementation of the bail-in tool, or exercising the power to write down or convert relevant capital instruments, the resolution authority must ensure that a fair, prudent and realistic valuation of the institution’s assets and liabilities is made by a third party independent of any public authority.

The application of any measure under the French implementing provisions of the BRRD or any suggestion of such application to the Group could have a material adverse effect on the Group’s ability to meet its obligations under its financial instrument and, as a result, holders of these securities could lose their entire investment.

In addition, if the Group’s financial condition deteriorates, the existence of the bail-in tool or the exercise of write-down or conversion powers or any other resolution tool by the resolution authority (independently of or in combination with a resolution) if it determines that Société Générale or the Group will no longer be viable could result in a more rapid decline in the value of the Group’s financial instruments than in the absence of such powers.

Risk appetite is defined as the level of risk that the Group is prepared to accept to achieve its strategic and financial goals.

Principles governing risk appetite

The Group’s ambition is to push ahead with sustainable development based on a diversified and balanced banking model with a strong European anchor and a targeted global presence in selected areas of strong business expertise. The Group also wishes to maintain long-term relationships with its clients built on the mutual confidence deserved and to meet the expectations of all of its stakeholders by providing them with responsible and innovative financial solutions.

This is reflected in:

A robust financial strength profile

The Group seeks to achieve sustainable profitability, relying on a robust financial profile consistent with its diversified banking model, by:

Credit risk (including concentration effects)

Credit risk appetite is managed through a system of credit policies, risk limits and pricing policies.

When it takes on credit risk, the Group focuses on medium- and long-term client relationships, targeting both clients with which the Bank has an established relationship of trust and prospects representing profitable business development potential over the mid-term.

Acceptance of any credit commitment is based on in-depth client knowledge and a thorough understanding of the purpose of the transaction.

In a credit transaction, risk acceptability is based first on the borrower’s ability to meet its commitments, in particular through the cash flows which will allow the repayment of the debt. For medium and long-term operations, the funding duration must remain compatible with the economic life of the financed asset and the visibility horizon of the borrower’s cash flow.

Security interests are sought to reduce the risk of loss in the event of a counterparty defaulting on its obligations, but may not, except in exceptional cases, constitute the sole justification for taking the risk. Security interests are assessed with prudent value haircuts and paying special attention to their actual enforceability.

Complex transactions or those with a specific risk profile are handled by specialised teams within the Group with the required skills and expertise.

The Group seeks risk diversification by controlling concentration risk and maintaining a risk allocation policy through risk sharing with other financial partners (banks or guarantors).

Counterparty ratings are a key criterion of the credit policy and serve as the basis for the credit approval authority grid used in both the commercial and risk functions. The rating framework relies on internal models. Special attention is paid to timely updating of ratings (which, in any event, are subject to annual review)⁽¹⁾.

The risk measure of the credit portfolio is based primarily on the Basel parameters that are used to calibrate the capital need. As such, the Group favors the so-called advanced Basel models (IRBA), which are more risk-sensitive and more adapted to the specific characteristics of the bank’s portfolio. These measures are complemented by an internal stress-sized risk assessment, either at the global portfolio level or at the sub-portfolio level, linking risk measures and rating migration to macro-economic variables. In addition, the calculation of expected losses under the provisions of IFRS 9, used to determine the level of impairment on healthy outstandings, provides additional insight into assessing portfolio risk.

In consultation with the Risk Department, the businesses implement, most of the time, pricing policies that are differentiated according to the level of risk of counterparties and transactions. The purpose of pricing a transaction is to ensure acceptable profitability, in line with the objectives of ROE (Return on Equity) of the business or entity, after taking into account the cost of the risk of the transaction in question. The pricing of an operation can nevertheless be adapted in certain cases to take into account the overall profitability and the potential customer relationship development. The intrinsic profitability of products and customer segments is subject to periodic analysis in order to adapt to changes in the economic and competitive environment.

Proactive management of counterparties whose situation has deteriorated is key to containing the risk of final loss in the event of counterparty failure. As such, the Group has put in place rigorous procedures for monitoring non retail counterparties and/or for closer monitoring of retail counterparties whose risk profiles are deteriorating. In addition, the businesses and entities, in conjunction with the Risk and Finance Departments, and through collaborators specialising in recovery and litigation, work together to effectively protect the Bank’s interests in the event of default.

Counterparty credit risk

The future value of exposure to a counterparty as well as its credit quality are uncertain and variable over time, both of which are affected by changes in market parameters. Thus, counterparty credit risk management is based on a combination of several types of indicators:

Market risk

The Group’s market activities are carried out as part of a business development strategy primarily focused on meeting client requirements through a full range of products and solutions.

Market risk is managed through a set of limits for several indicators (such as stress tests, Value at Risk (VaR) and stressed Value at Risk (SVaR), “Sensitivity” and “Nominal” indicators). These indicators are governed by a series of limits proposed by the business lines and approved by the Risk Division during the course of a discussion-based process.

The choice of limits and their calibration reflect qualitatively and quantitatively the fixing of the Group’s appetite for market risks. A regular review of these frameworks also enables risks to be tightly controlled according to changing market conditions with, for example, a temporary reduction of limits in case of a deterioration. Warning thresholds are also in place to prevent the possible occurrence of overstays.

Limits are set at different sub-levels of the Group, thereby cascading down the Group’s risk appetite from an operational standpoint within its organisation.

Within these limits, the Global Stress Test limits on market activities and the Market Stress Test limits play a pivotal role in determining the Group’s market risk appetite; in fact, these indicators cover all operations and the main market risk factors as well as risks associated with a severe market crisis which helps limit the total amount of risk and takes account of any diversification effects.

Operational risk (including reputation and compliance risk)

The Group is exposed to a diversity of operational risks inherent in its business: execution errors, internal and external fraud, IT system failures, malicious acts against IT systems, loss of operational resources, commercial disputes, failure to comply with tax obligations, but also risk of non-compliance, unappropriated behavior or even reputation.

As a general rule, the Group has no appetite for operational risk or for non-compliance risk. Furthermore, the Group maintains a zero-tolerance policy on incidents severe enough to potentially inflict serious harm to its image, jeopardise its results or the trust displayed by customers and employees, disrupt the continuity of critical operations or call into question its strategic focus.

The Group underscores that it has is no or very low tolerance for operational risk involving the following:

Structural interest rate and exchange rate risks, risk to employee commitments

The Group measures and strictly controls structural risks. The mechanism whereby rate risk, foreign exchange risk and the risk on pension/long-service obligations is controlled is based on sensitivity or stress limits which are broken down within the various businesses (entities and business lines).

There are four main types of risk: rate level risk, curve risk book, optional risk (arising from automatic options and behavioral options) and basis risk, related to the impact of relative changes in interest rates indices. The Group’s structural interest rate risk management primarily relies on the sensitivity of Net Present Value (“NPV”) of fixed-rate residual positions (excesses or shortfalls) to interest rate changes according to several interest rate scenarios. The limits are established either by the Board of Directors or by the Finance Committee, at the Business Unit/Service Unit and Group levels. Furthermore, the Group measures and controls the sensitivity of its net interest margin (“NIM”) on different horizons.

The Group’s policy in terms of structural exchange rate risks consists of limiting as much as possible the sensitivity of its CET1 capital ratio to changes in exchange rates, so that the impact on the CET1 ratio of an appreciation or a depreciation of all currencies against the euro does not exceed a certain threshold in terms of bp by summing the absolute values of the impact of each currency.

Regarding risks to pension and long-service obligations, which are the Bank’s long-term obligations towards its employees, the amount of the provision is monitored for risk on the basis of a specific stress test and an attributed limit. The risk management policy has two main objectives: reduce risk by moving from defined-benefit plans to defined-contribution plans and optimise asset risk allocation (between hedge assets and performance assets) where allowed by regulatory and tax constraints.

Liquidity and financing risks

Controlling liquidity risk is based primarily on:

Controlling financing risk is based on:

Model risk

The Group is committed to defining and deploying internal standards to reduce model risk on the basis of key principles, including the creation of three independent lines of defence, the proportionality of due diligence according to each model’s level of risk inherent, the consideration of the models’ entire lifecycle and the appropriateness of the approaches within the Group.

Risk related to insurance activities

The Group conducts Insurance activities (Life Insurance and Savings, Retirement savings, Property & Casualty Insurance, etc.) which exposes the Group to two major types of risks:

Private equity risk

The Group has limited appetite for financial holdings, such as proprietary private equity transactions. The investments allowed are mainly related to:

Investments made in private equity are managed directly by the networks concerned (Societe Generale, Crédit du Nord and subsidiaries abroad) and are capped at EUR 25 million. Beyond this limit, the investment envelope must be validated by the Group Strategy Department on the basis of a file produced by the Business Unit with the assistance of its Finance Department. This file aims to justify this amount, the expected benefits, the profitability considering the consumption of associated equity, the characteristics of the investments (criteria, types, duration, etc.), a risk analysis and a governance proposal. If the amount exceeds EUR 50 million, it must be validated by the Group’s General Management, with the support of the opinion of the Strategy Department, the Finance Department, the Corporate Secretary and the Compliance Department. The Business Unit concerned must submit a report on operations and the investment envelope to the Strategy Department every six months.

The other minority holdings are subject to a dedicated validation process in both the investment and divestment phases: validation by the Managers of the Business Units and entities concerned and their Finance Department, the Strategy Department, or even the Group’s General Management (over EUR 50 million) or the Board of Directors (over EUR 250 million). These files are examined by the Strategy Department based on the opinions of the expert Services and Business Units concerned by the operation (at least the Finance Department, the Legal and Tax Departments within the Corporate Secretary and the Compliance Department). The instruction is based on an analysis of the participation concerned, the motivations and the investment context, the structuring of the operation, its financial and prudential impacts, as well as an assessment of the risks identified and the means implemented to track and manage them.

Settlement/Delivery risk

The settlement-delivery risk on financial instruments arises when transactions (over-the-counter in cash or forward) give rise to a time lag (usually of a few hours) between the payment and the delivery of the underlying (securities, raw materials, foreign exchange, etc.) during their settlement.

The Group defines a risk appetite for delivery risk in relation to the quality of the counterparty (via its rating) with larger limits granted to counterparties in the investment grade category (IG).

Internal control is part of a strict regulatory framework applicable to all banking institutions.

In France, the conditions for conducting internal controls in banking institutions are defined in the Order of 3 November 2014 modified by the Order of 25 February 2021. This Order, which applies to all credit institutions and investment companies, defines the concept of internal control, together with a number of specific requirements relating to the assessment and management of the various risks inherent in the activities of the companies in question, and the procedures under which the supervisory body must assess and evaluate how the internal control is carried out.

The Basel Committee has defined four principles – independence, universality, impartiality, and sufficient resources – which underpin the internal control carried out by credit institutions.

The Board of Directors ensures that Societe Generale has a solid governance system and a clear organisation ensuring:

The Board tasks the Group’s General Management with rolling out the Group’s strategic guidelines to implement this set-up.

The Audit and Internal Control Committee is a Board of Directors’ Committee that is specifically responsible for preparing the decisions of the Board in respect of internal control supervision.

As such, General Management submits reports to the Audit and Internal Control Committee on the internal control of the Group. The Committee monitors the implementation of remediation plans when it considers the risk level to be justified.

Internal control is based on a body of standards and procedures.

All Societe Generale Group activities are governed by rules and procedures contained in a set of documents referred to collectively as the “Standard Guidelines”, compiled in the Societe Generale Code, which:

The Societe Generale Code groups together the standard guidelines which, in particular:

The Societe Generale Code has force of law within the Group and falls under the responsibility of the Group Corporate Secretary.

In addition to the Societe Generale Code, operating procedures specific to each Group activity are applied. The rules and procedures in force are designed to follow basic rules of internal control, such as:

Multiple and evolving by nature, risks are present in all business processes. Risk management and control systems are therefore key to the Bank’s ability to meet its targets.

The internal control system is represented by all methods which ensure that the operations carried out and the organisation and procedures implemented comply with:

Internal control in particular aims to:

The internal control system is based on five basic principles:

The internal control framework is based on the “three lines of defence” model, in accordance with the Basel Committee and European Banking Authority guidelines:

Operational management is responsible for risks, their prevention and their management (by putting in place first-level permanent control measures, amongst other things) and for implementing corrective or remedial actions in response to any deficiencies identified by controls and/or process steering;

Within the internal control framework, operational management is responsible for verifying the proper and continuous running of the risk security and management operation functions through the effective application of established standards, defined procedures, methods and requested controls.

Accordingly, these functions must provide the necessary expertise to define in their respective fields the controls and other means of risk management to be implemented by the first line of defence, and to ensure that they are effectively implemented; they conduct second-level permanent control over all of the Group’s risks, based in particular on the controls they have defined, as well as those defined, if necessary, by other expert functions (e.g. sourcing, legal, tax, human resources, information system security, etc.) and by the businesses;

A Deputy Chief Executive Officer for 2021 and the Chief Executive Officer from 2022 is responsible for ensuring the overall consistency and effectiveness of the internal control system.

The Group Internal Control Coordination Committee is responsible for providing a consolidated overview of the Group’s internal control framework, assessing its effectiveness, completeness and consistency, taking corrective measures, and monitoring their implementation.

It is chaired by the Deputy Chief Executive Officer for 2021 and the Chief Executive Officer from 2022 and comprises the Chief Risk Officer, the Chief Financial Officer, the Group Chief Compliance Officer, the Group Chief Information Officer, the Head of Group Internal Audit, and the Head of Internal Control Coordination.

The Group Internal Control Coordination Committee met nine times in 2021. It addressed the following issues:

The Supervisory Internal Control Coordination Committee (SICCC) performs the regular review of the internal control framework and of risks of every second BU/SU, assessing it in terms of efficiency, consistency and completeness, taking corrective actions and monitoring their implementation.

It is chaired by the representative of General Management (Chief Executive Officer Deputy Chief Executive Officer or Deputy General Manager) in charge of the area under review and brings together the Heads of the second line of defence (CPLE, DFIN, RISQ), the Head of the Group’s Information Systems (RESG), the Head of the third line of defence (IGAD), the Head of the Permanent Control Framework and the Coordination of Internal Control (DGLE/PIC), as well as the Heads Business Units and Service Units concerned with the agenda and transversal functions according to the agenda.

The organisation implemented at Group level to coordinate the actions of the various participants in internal control is coordinated in each Business Unit (BU) and Service Unit (SU). All of the Group’s BUs and SUs have an Internal Control Coordination Committee. Chaired by the Head of the Business Unit or the Service Unit, these Committees bring together the competent Heads of Internal Audit and Permanent Control for the Business Unit and Service Unit in question, as well as the Head of Group Internal Control Coordination and the Heads of the Group-level control functions.

Permanent control system

The Group’s permanent control system comprises:

In 2018, General Management initiated a transformation programme of the Group’s permanent control system, which is under its direct supervision. Through a set of actions focusing on areas such as standards, methods, tools, procedures and training, the programme served to consolidate the control culture and optimise risk control, and thus helps to improve the quality and the reliability of services provided to our customers and partners. In 2021, this programme has been finalised and closed, and the transfer of the long-term activities to operating teams has been completed.

FIRST-LEVEL PERMANENT CONTROL

Permanent Level 1 controls, carried out on operations performed by BUs and the SUs, ensure the security and quality of transactions and the operations. These controls are defined as a set of provisions constantly implemented to ensure the regularity, validity, and security of the operations carried out at operational level.

The permanent Level 1 controls consist of:

Defined by a Group entity within its scope, Level 1 controls include controls (automated or manual) that are integrated into the processing of operations, proximity controls included in operating procedures, safety rules, etc. They are carried out in the course of their daily activities by agents directly in charge of an activity or by their managers. These controls aim to:

Permanent Level 1 controls are set by management and avoid, as far as possible, situations of self-assessment. They are defined in the procedures and must be traced without necessarily being formalised, e.g. preventive automated controls that reject transations that do not comply with system-programmed rules.

In order to coordinate the operational risk management system and the permanent Level 1 control system, the BUs/SUs deploy a specific department called CORO (Controls & Operational Risks Office Department).

SECOND-LEVEL PERMANENT CONTROL

The permanent Level 2 control ensures that the Level 1 control works properly:

The permanent level 2 control, control of the controls, is carried out by teams independent of the operational.

These controls are performed centrally by dedicated teams within Risk Service Unit (RISQ/CTL), Compliance Service Unit (CPLE/CTL) and Finance Service Unit (DFIN/CTL) and locally by the second-level control teams within the BU/SUs or entities.

Internal audit

Reporting to the Group Head of Inspection and Audit, the Inspection and Audit Service Unit (IGAD) is the Group’s third line of defence.

The IGAD Service Unit comprises General Inspection (IGAD/INS), Internal Audit Departments (IGAD/AUD) and a support function (IGAD/COO). To fulfill its mandate, the Group’s IGAD Service Unit has adequate resources from a qualitative and quantitative point of view. The Group’s Inspection and Audit Service Unit has about 1,100 employees.

The Group Head of Inspection and Audit reports directly to the Group Chief Executive Officer, with whom it holds regular meetings. The Group Head of Inspection and Audit meets regularly with the Chairman of the Board of Directors. The Audit and Internal Control Committee and the Risk Committee refer to the Group Head of Inspection and Audit on their initiative or at his request on any subject. The Group Head of Inspection and Audit participates in the Internal Control Committee and the Risk Committee meetings. Moreover, bilateral meetings are held as needed between the Group Head of Inspection and Audit and the chairpersons of these Committees.

The Inspection and Audit Service Unit (IGAD) is part of the Group’s internal control framework. IGAD carries out an internal audit mandate through its missions. In its role as the third line of defence, it is strictly independent from the Group’s business units and permanent control functions.

In line with standards set by the IIA (Institute of Internal Auditors), IGAD’s internal audit mandate is defined as an independent and objective activity that provides the Group with assurance as to how effectively it is controlling its operations, advises on improvements and contributes to the creation of added value. By carrying out this mandate, Inspection and Internal Audit help the Group to achieve its targets by evaluating systematically and methodically its processes for risk management, control and corporate governance and making recommendations to increase their efficiency.

The Inspection and Audit Service Unit exercises a key role in the Group’s risk management set-up and can assess any of its components.

Under this mandate, the General Inspection and Internal Audit assess (i) the quality of risk management within an audited scope, (ii) the permanent control framework is adequately structured and effective, (iii) management’s risk awareness and compliance with conduct rules and expected professional practices.

Whilst Audit Departments perform solely an internal audit role, General Inspection has, in addition to its internal audit role, a mandate to undertake other assignments such as any type of analysis or research, be involved in the assessment of strategic projects or intervene on specific subjects as requested by General Management. Such assignments, limited with regards to resources dedicated to them, are carried out within a framework ensuring that ethical principles defined in Institute of Internal Auditors’ Standards are being met.

The General Inspection also supervises the rollout of data-analysis initiatives within the scope of Inspection and Audit activities. This mission is ensured via a dedicated data-lab (INS/DAT), under the responsibility of an Inspection Managing Director (Inspecteur principal). The General Inspection also supervises and coordinates the Service Unit’s relationship with regulators.

IGAD centrally has six distinct Audit Departments. Each of these Audit Departments is placed under the supervision of a Head of internal Audit responsible for the auditing on a specific scope of activities. A matrix organisation allows coverage of the main cross-business issues at Group level. In France, the Internal Audit teams are hierarchically linked to the Inspection unit. Audit Department heads based in branches or affiliates overseas report to the local entity’s head. However, in their internal audit role they report directly to the Internal Audit Head in charge of their region or entity.

Inspection and Audit teams work together on an annual risk assessment to define the Inspection and Audit plans for the upcoming year. IGAD teams regularly work together on joint assignments. They issue recommendations to correct issues identified in risk management and generally improve operations and risk management. IGAD teams are subsequently in charge of monitoring the effective implementation of these recommendations.

Audited I Since January 2014, Societe Generale has applied the Basel III regulations implemented in the European Union through a regulation and a directive (CRR and CRD4 respectively).

The general framework defined by Basel III is structured around three pillars:

Several amendments to European regulatory standards were adopted in May 2019 (CRR2/CRD5). The majority of these provisions entered into force in June 2021.

The amendments include:

With regard to the implementation of the market risk reform (FRTB), after the publication of the first revised standard in January 2016 and of the consultation in March 2018 on this subject, the Basel Committee published in January 2019 its final text: BCBS457. In March 2020, the Basel Committee announced a one-year delay in the implementation of FRTB (1 January 2023 instead of 1 January 2022 as originally planned in the January 2019 text).

The European FRTB calendar would be as follows:

In December 2017, the Group of Central Bank Governors and Heads of Supervision (GHOS), the Basel Committee’s oversight body, endorsed the regulatory reforms aiming to complete Basel 3.

A first version of the transposition text was published by the European Commission on 27 October 2021 (“CRR3 - CRD6”) and will serve as support for the European Trialogue. The text will then have to be voted on by Parliament to become applicable.

These new rules, which were to take effect from 2022, have been postponed to January 2025 with an overall output floor: the risk-weighted assets (RWA) will be floored to a percentage of the standard method (credit, market and operational). The output floor level will increase gradually, from 50% in 2025 to 72.5% in 2030.▲

In the face of the health crisis and of its economic and financial consequences, a number of measures have been taken by the supervisory and regulatory authorities in 2020. Some of them are still in force. For example, the ECB announced the possibility of operating below the conservation cushion (CCB), as well as the countercyclical (CCyB) and the Systemic Risk Buffer (0% in France) cushions.

Moreover, the European Parliament and the Council reached an agreement through the CRR “quick fix” regulation, implemented as of 30 June 2020 part of whose provisions consisted in anticipating the implementation of CRR2/CRD5 measures that improve banks’ CET1 capital. The “quick fix” has postponed the implementation of the leverage buffer (0.5% for the Group) from 1 January 2022 to 1 January 2023 to be in line with the recommendation of the Basel Committee.

In 2021, the level of additional capital requirements in respect of Pillar 2 (P2R or “Pillar 2 Requirement”), effective since 1 March 2019, remained at 1.75%. In 2022, the European Central Bank notified the level of requirement in respect of P2R (Pillar 2 Requirement) for Societe Generale, which will apply from 1 March 2022. This level stands at 2.12%, including the additional requirement regarding Pillar 2 prudential expectations on the provisioning of non-performing loans granted before 26 April 2019.

Detailed information on the G-SIB requirements and other prudential information are available on the Group website, www.societe generale.com.

Throughout 2021, Societe Generale complied with the minimum ratio requirements applicable to its activities.

General principles

Audited I The risk approval process is based on the following main principles:

The business line assumes the burden of provisions and losses related to its credit decisions as the first line of defence. The Risk Department submits recommendations to CORISQ on the evolution of the granting policy, with limits on credit portfolios, for the countries, geographic areas, sectors, products or types of customers presenting high concentration risks. ▲

Governance

The Risk Department, working with the Finance Department, determines the risk appetite of the Group. This seeks to define the acceptable level of risk given the Group’s strategic aims.

The Risk Department is responsible for implementing the system to manage and monitor risks, including cross-Group risks. The Risk Department exercises hierarchical and functional oversight of the Risk management function in charge of Group credit risk giving it a comprehensive view of all the Group’s credit risks.

The Risk Department helps define risk policies in light of each core business targets and the associated risk issues. It defines or approves the methods and procedures used to analyse, measure, approve and monitor risks and the risk IT system and makes sure these are appropriate to the core businesses’ needs. As second line of defence, various Risk Departments (for Retail Banking, Corporate and Investment Banking and Market activities) are also in charge of credit risk and as such responsible for the independent control as second line of defence. These consist in independently reviewing and comparing any credit application that exceeds the authority delegated to core businesses or local Risk Department teams. The Risk Department also assesses the quality of first-level credit reviews and takes any corrective action necessary.

The Risk Department also approves transactions and limits proposed by core business lines in respect of credit risk.

Finally, as part of its responsibilities for second line of defence, the Risk Department carries out permanent controls of credit risks. As such, the Risk Department provides independent control as a second line of defence on the detection and monitoring of the resolution of limit auioverruns.

The monthly Risk Monitoring Report presented to CORISQ by the Risk Department comments among others on the evolution of the Group’s credit portfolio and ensures compliance with the guidelines. Changes in the credit portfolio, changes in credit policy validated by CORISQ and respect for the Group’s risk appetite are presented at least quarterly to the Risk Committee of the Board of Directors.

As part of the quarterly reporting to the Board of Directors and to the Risk Committee of the Board of Directors, an overview of the main credit risk metrics supplemented by details of the thresholds and limits where applicable is presented. The following metrics are in particular the subject of a presentation with a quarterly history: net cost of risk, NPL rate (non-performing loans), coverage rate, average credit quality of portfolios, outstanding corporates placed under surveillance (watchlist), supervision of corporate exposures by sector of activity, Grands Risques Réglementaires (major regulatory risk exposures), etc.

A monthly version of the reporting intended for the Risk Committee of the Board of Directors also provides additional information at a Business Unit level or on certain financing activities. A summary of the thematic CORISQs is also presented.

As part of the monthly CORISQ reporting to General Management, a summary of the main credit files is presented. Thematic presentations also provide recurring clarifications on certain perimeters and activities: personal real estate loans, consumer credit, non-retail credit risk, sector limits, country risks, major regulatory risks (Grands Risques Réglementaires), etc.

Specificities of retail portfolios

Audited I Individual and professional portfolio (retail portfolio) have specific features in terms of risk management. This management is based on a statistical approach and on the use of tools and methods in the industrialisation of processes.

STATISTICAL APPROACH

The retail portfolio is made up of a sum of exposures of low unit amounts, validated in a partially automated manner, which together constitute significant outstandings at Group level and therefore a high level of risk.

Given the high number and standardisation of retail clients commitments, aggregate monitoring is necessary at all levels of the Risk function in charge of credit risk. This mass monitoring of retail customer exposure is based on the use of a statistical risk approach and monitoring by homogeneous risk class.

In these circumstances, the risk monitoring system for the Retail portfolio cannot rely on the same procedures or the same tools as for corporates.

For instance, any change in marketing policy (cut to probationary period for loyalty, delegation of lending decisions to brokers, increase in margins, etc.) can have a rapid and massive impact and must therefore be tracked by a system that allows all actors (i) to identify as quickly as possible where any deterioration in exposures is coming from and (ii) to take remedial action.

Even if the IFRS 9 standard authorises a collective approach and if the Group has a statistical approach on retail customers for the evaluation of the expected loss, the increase in risk for the purposes of the classification into stages is identified on an individual basis for this clientele. The available parameters (operating accounts and late payments) allow the assessment of the significant increase in credit risk at the level of individual exposures. The collective approach is currently only used in a very small number of instances within the Group.

IMPORTANCE OF TOOLS AND METHODS IN THE INDUSTRIALISATION OF PROCESSES

The Risk management function must support Business Units and subsidiary managers in managing their risks with an eye to:

Risk Department structures its supervision around the following four processes:

Monitoring individual concentration

Societe Generale complies with regulations governing large exposures (major regulatory risks exposure cap of 25% of equity). A more restrictive internal limit of 10% delegated by General Management (which can occasionally or permanently amend it) has been put in place. Since 1 July 2018, the High Council for Financial Stability has imposed to financial institutions an exposure limit on most indebted companies established in France at a maximum level of 5% of eligible equity.

Internal systems are implemented to identify and manage the risks of individual concentrations, particularly at granting of credit. For example, concentration thresholds, based on the internal rating of counterparties, are set by CORISQ and define the governance for validating the limits on individual concentrations. Exposures to groups of clients deemed significant by the Group are reviewed by the Large Exposure Committee chaired by the General Management. As part of the identification of its risks, the Group also carries out loss simulations by type of customer (on significant individual exposures that the Group could have).

The Group uses credit derivatives to reduce some exposures considered to be overly significant. Furthermore, the Group systematically seeks to mutualise risks with other banking partners by avoiding keeping an excessive share in the banking pool of large-scale companies.

Monitoring country risk

Country risk arises when an exposure (loan, security, guarantee or derivative) becomes susceptible to negative impact from changing regulatory, political, economic, social and financial conditions.

Country risk breaks down into two major categories:

Overall limits and/or monitoring of exposures have been established for countries based on their internal ratings and governance indicators. The supervision is strengthened depending on the level of the country’s risk.

Country limits are approved annually by Risk Department (or General Management in specific situations). They can be revised downward at any time if the country’s situation deteriorates or is expected to deteriorate.

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 putting a country on watch list is triggered in the event of deterioration in the country risk or anticipation of such a deterioration by the Risk Department.

Sector monitoring

The Group regularly reviews its entire credit portfolio through analyses by business sector. To do this, it relies on industry sector studies (including a one-year anticipation of sectoral risk) and on sectoral concentration analyses.

In addition, the Group periodically reviews its exposures to the portfolio segments presenting a specific risk profile, within the framework of CORISQs at Group level or at Business Unit level. These identified sectors or sub-portfolios are, where appropriate, subject to specific supervision through portfolio exposure limits and specific granting criteria. The limits are monitored either at General Management level or at Business Unit management level depending on the materiality and the level of risk of the portfolios.

As a complement, more targeted sector-based research and business portfolio analysis, may be conducted by General Management, the Risk Department or Bank Departments, depending on current issues. In that respect, Covid-19 vulnerable sectors have been subject to specific monitorings.

Portfolios specifically monitored by the Group CORISQ include:

Credit stress tests

With the aim of identifying, monitoring and managing credit risk, the Risk Department 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 CORISQ and used to determine how to frame the corresponding the activities concerned.

Credit risk stress tests complement the global analysis with a more granular approach and allow fine-tuning of the identification, assessment and operational management of risk, including concentration. They allow to calculate the expected credit losses on exposures which have undergone an event of default and on exposures which have not undergone an event of default, in accordance with the method prescribed in the standard IFRS 9. The perimeter covered may include counterparty credit risk on market activities when relevant.

Main principles

Audited I Counterparty credit risk is framed through a set of limits that reflect the Group’s appetite for risk.

The risk approval process follows the following fundamental principles:

These limits are subject to annual or ad hoc reviews depending on he needs and changing market conditions.

A dedicated team within the Risk Department is in charge of production, reporting and controls on risk metrics, namely:

In addition, a specific monitoring and approval process is implemented for the most sensitive counterparties or the most complex categories of financial instruments.

Governance

While not a substitute for CORISQ or for the Risk Committee of the Board of Directors (see the section on Risk management governance), the Counterparty Credit Risk Committee (CCRC) closely monitors counterparty credit risk through:

This Committee, chaired by the Risk Department on a monthly basis, brings together representatives from the Market Activities and the Global Banking and Advisory Business Units, but also departments that, within the risk management function, are in charge of monitoring counterparty credit risks on market transactions and credit risk. The CCRC also provides an opinion on the changes to the risk frameworks within its authority.

Replacement risk

The Group frames the replacement risks by limits:

The Group also considers other measures to monitor replacement risk:

CVA (Credit Valuation Adjustment)

In addition to the replacement risk, the CVA (Credit Valuation Adjustment) measures the adjustment of the value of the Group’s derivatives and repos portfolio in order to take into account the credit quality of the counterparties facing the Group (see section 4.6.3.2 “Credit Valuation Adjustment”).

Positions taken to hedge the volatility of the CVA (credit, interest rate or equity instruments) are monitored through:

The different indicators and the stress tests are monitored on the net amount (the sum of the CVA exposure and of their hedges).

Risk on central counterparties

Clearing of transactions is a common market practice for SG, notably in compliance with the EMIR (European Market Infrastructure Regulation) regulations in Europe and the DFA (Dodd-Frank Act) in the United States, which require that the most standardised over-the-counter transactions be compensated via clearing houses approved by the authorities and subject to prudential regulation.

As a member of the clearing houses with which it operates, the Group contributes to their risk management framework through deposits into the defaults funds, in addition to margin calls.

The counterparty credit risk stemming from the clearing of derivatives and repos with central counterparties (CCP) is subject to a specific framework on:

See table “EAD and RWA on central counterparties” of section 4.6.3.4 “Quantitative Information” for more information.

Main functions

Audited I Although primary responsibility for managing risk exposure relies on the front office managers, the supervision system comes under the Market Risk Department of the Risk Department, which is independent from the businesses.

The main missions of this department are:

In order to perform its tasks, the department also defines the architecture and the functionalities of the information system used to produce the risk and P&L indicators for market transactions, and ensures it meets the needs of the different businesses and of the Market Risk Department. ▲

This department contributes to the detection of possible rogue trading operations through a monitoring mechanism based on alert levels (on gross nominal value of positions for example) applied to all instruments and desks.

Governance

Market risks oversight is provided by various Committees at different levels of the Group:

During these Committees, the market activities P&L and several metrics for monitoring market risks are systematically reported:

In addition to these Committees, detailed and summary market risk reports, produced on a daily, weekly, monthly or quarterly basis, either related to various Group levels or geographic areas, are sent to the relevant business line and risk function managers.

In terms of governance, within the Market Risk Department, the main functional and transversal subjects are dealt with during Committees organised by value chains (market risk, P&L, etc.). These Committees are decision-making bodies, composed of senior representatives from each relevant Department teams and regions. ▲