MESSAGE FROM THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER

2022 marked a decisive stage in the transformation and development of Societe Generale. The Group succeeded in posting a record underlying performance while adapting quickly and effectively to a complex and uncertain environment. We have also achieved key strategic milestones, creating value for the future of our Group.

 

Excellent performance of our businesses

 

In 2022, the Group’s business lines demonstrated once again their ability to deliver very good commercial performance in a demanding environment. Our revenues are growing strongly, reaching a historical level of more than EUR 28 billion, with record performances from our Financing & Advisory and Market activities and from our subsidiary ALD; strong growth in Private Banking and International Retail Banking; and solid performance in our French Retail Banking activities.

 

The commercial momentum was accompanied by a sharp improvement in the cost/income ratio thanks to firm control over our costs and risks, resulting in a record underlying net income.

 

Faced with the outbreak of the war in Ukraine at the beginning of the year, we managed our exit from Russia by selling our Russian activities with no significant capital impact. Overall, we strengthened our CET1 capital ratio to 13.5%, well above the regulatory requirement.

 

Significant strategic progress

 

2022 also saw the roll-out of major strategic projects that underpin ambitious goals for the Group’s future.

 

We continued to flawlessly execute ongoing strategic initiatives, in line with our commitments. The legal merger of the Societe Generale and Crédit du Nord retail networks, effective 1 January 2023, marks both the culmination of a long process of collective effort and the fresh momentum that we are bringing to French Retail Banking under the new brand SG. Built on a new relationship model, SG will be more accessible and responsive to its 10 million customers, with a local presence in all the regions of France, as well as a bank that stands for expertise and responsibility. Boursorama significantly consolidated its leading position in online banking in France by welcoming a record number of new clients: 1.4 million over the year, for a total of 4.7 million at the end of 2022. We also successfully pursued our strategic roadmap in Global Banking and Investor Solutions, our developments in International Retail Banking in Europe and Africa, as well as in bancassurance, while drawing on the steady progress of our digital transformation to serve our clients and improve our operational efficiency.

 

This year, we also launched highly ambitious new development projects in mobility, with ALD’s planned acquisition of LeasePlan, as well as in the equity research and execution activities, with the project to create the Bernstein joint venture, which will enable us to position ourselves among the world leaders in these areas.

 

New CSR ambition

 

Our Group also puts Corporate Social Responsibility at the heart of its strategic roadmap. Leveraging from the concrete achievements made over the last years, we defined in 2022 our new CSR ambition with the aim of accelerating the decarbonisation of our business portfolios, as a priority in the energy sector, acting for biodiversity and having a positive local impact. Our objective is to integrate CSR at the centre of our businesses’ roadmaps and in the Bank’s management, roll out CSR training programmes for all Group staff and allow them to proactively support our clients in a fair environmental and social transition. We have set a target to dedicate EUR 300 billion in sustainable financing between 2022 and 2025; at the end of 2022, we had already exceeded EUR 100 billion. We also act in line with our commitment to being a responsible employer, in particular through the implementation of our diversity and inclusion initiatives. Numerous awards and extra-financial rankings attest to the Group’s proactive approach on the various dimensions of our CSR ambitions, placing us among the global banking leaders in the field.

 

2023, a year of transition

 

After simplifying our business model, embarking on profound transformations, and investing in profitable growth businesses over the last few years, we continue to execute our roadmap with discipline. Most of our major strategic projects will come to fruition in 2023, and the year will also see a transition at the top management of the Group. At the Annual General Meeting of 23 May 2023, we will invite our shareholders to elect Slawomir Krupa as Board member, and he will then be appointed Chief Executive Officer. This transition has been carefully prepared, under the aegis of the Board of Directors and its Nomination and Corporate Governance Committee. Slawomir Krupa, drawing on his remarkable international career within the Group, has all the skills to lead Societe Generale with determination and success towards the next stages of its development.

 

The year 2023 will additionally be a year of transition from a financial perspective, with revenues expected to decline in French Retail Banking, given the specificities of the French market facing a sharp increase in interest rates. It is also the final year of contributing to the establishment of the European Single Resolution Fund, which had an important negative impact on our books. Building on the commercial momentum of our business lines and the soundness of our balance sheet, we are confident in the 2024-2025 outlook and in the Group’s ability to reap the benefits of ongoing initiatives, and confirm the financial targets set for 2025. In an environment that is still highly uncertain, with many structural challenges facing our societies, the Group is attentive to the expectations of its various stakeholders and remains resolutely committed to putting its corporate purpose into action to build together, with our clients, a better and sustainable future.

     
  The Group is attentive to the expectations of its various stakeholders and remains resolutely committed to putting its corporate purpose into action to build together, with our clients, a better and sustainable future.  
 
 

1.1 HISTORY

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 had a presence in 14 countries, either directly or through one of its subsidiaries. This network was then expanded by opening branches in New York, Buenos Aires, Abidjan and Dakar, and by acquiring stakes in financial institutions in Central Europe.

Societe Generale was nationalised by law on 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, in particular through its Corporate and Investment Banking activities, 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 while consolidating its growth in Africa in Morocco, Côte d’Ivoire Senegal and Cameroon, among other countries. Building on the professionalism of its teams and the relationship of confidence developed with its clients, the Bank continues its process of transformation by adopting a sustainable growth strategy driven by its core values of team spirit, innovation, responsibility and commitment.

In January 2023, the Group announced the creation of its new retail bank in France, SG, following the merger of its two retail banking networks in France, Societe Generale and Crédit du Nord, in order to offer its customers greater proximity, responsiveness, expertise and responsibility.

Today, the Group has more than 117,000 members of staff(1) active in 66 countries. Firmly focused on the future by helping clients bring their projects to life, Societe Generale is committed to the two major revolutions of digital technology and environmental transition and social change to support its clients, have a positive impact on the world and embody the bank of the 21st century. Drawing on nearly 160 years of expertise at the service of its clients and the sustainable development of economies, the Societe Generale Group defined its purpose as “Building together, with our clients, a better and sustainable future through responsible and innovative financial solutions”.

(1)

Headcount at end-2022 excluding temporary staff.

1.2 PROFILE OF SOCIETE GENERALE

Societe Generale is one of the leading European financial services groups. Based on a diversified and integrated banking model, the Group combines financial strength and proven expertise in innovation with a strategy of sustainable growth. Committed to the positive transformations of the world’s societies and economies, Societe Generale and its teams seek to build, day after day, together with its clients, a better and sustainable future through responsible and innovative financial solutions.

Active in the real economy for over 150 years, anchored solidly in Europe and connected to the rest of the world, Societe Generale employs over 117,000 members of staff(1) in 66 countries and supports on a daily basis 25 million individual clients, businesses and institutional investors(2) around the world by offering a wide range of advisory services and tailored financial solutions. The Group is built on three complementary core businesses:

French Retail Banking, with the SG bank, resulting from the merger of the two Societe Generale and Crédit du Nord networks, and Boursorama. Each offers a full range of financial services with omnichannel products at the cutting edge of digital innovation;

International Retail Banking, Insurance and Financial Services, with networks in Africa, Central and Eastern Europe and specialised businesses that are leaders in their markets;

Global Banking and Investor Solutions, which offers recognised expertise, key international locations and integrated solutions.

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 seeks to respect the cultures and environment of all the countries where it operates.

The Group has an agile organisation based on 14 Business Units (business lines and regions) and 10 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 enters a new phase of its development and transformation.

Additional information on the Group’s organisation and key figures is provided below and on pages 10 and following.

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).

(1)

Headcount at end-2022 excluding temporary staff.

(2)

Excluding policyholders of Group insurance companies.

KEY FIGURES

Results (In EURm)

2022

2021

2020

2019

2018

Net banking income

28,059

25,798

22,113

24,671

25,205

o.w. French Retail Banking

8,839

7,777

7,315

7,746

7,860

o.w. International Retail Banking and Financial Services

9,122

8,117

7,524

8,373

8,317

o.w. Global Banking and Investor Solutions

10,082

9,530

7,613

8,704

8,846

o.w. Corporate Centre

16

374

(339)

(152)

182

Gross operating income

9,429

8,208

5,399

6,944

7,274

Cost/income ratio

66.4%

68.2%

75.6%

71.9%

71.1%

Operating income

7,782

7,508

2,093

5,666

 6,269

Group net income

2,018

5,641

(258)

3,248

3,864

Equity (In EURbn)

 

 

 

 

 

Group shareholders’ equity

66.5

65.1

61.7

63.5

61.0

Total consolidated equity

72.8

70.9

67.0

68.6

65.8

ROE after tax

2.6%

9.6%

-1.7%

5.0%

7.1%

Total Capital Ratio(1)

19.2%

18.7%

18.9%

18.3%

16.5%

Loans and deposits (In EURbn)

 

 

 

 

 

Customer loans(2)

496

488

440

430

421

Customer deposits(3)

524

502

451

410

399

(1)

Figures based on CRR2/CRD5 rules, excluding IFRS 9 phasing for 2020, 2021 and 2022.

(2)

Net customer loan outstandings, including lease financing, excluding assets and securities purchased under resale agreements.

(3)

Excluding assets and securities sold under repurchase agreements.

Note: figures as published for the respective financial years. Definitions and potential adjustments presented in methodological notes on pages 41 to 45.

1.3 A STRATEGY OF PROFITABLE AND SUSTAINABLE DEVELOPMENT, BASED ON A DIVERSIFIED AND INTEGRATED BANKING MODEL

The Societe Generale Group has built a solid diversified banking model suited to the needs of its 25 million corporate, institutional and individual clients. It is structured around three complementary and diversified businesses, all benefiting from strong market positions:

French Retail Banking;

International Retail Banking and Financial Services;

Global Banking and Investor Solutions.

In the Retail Banking businesses, the Group focuses on development in European markets selected for their growth potential (France, the Czech Republic and Romania) and Africa where it has an historic presence, refined understanding of the markets and top-tier positions. In International Financial Services, Societe Generale relies on franchises benefiting from leadership positions worldwide. As part of the Group’s prime focus on developing its mobility franchises, it announced ALD’s plan to acquire LeasePlan. 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 boasting a global network, 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.

2022 marked a decisive stage for the Group, which was able to deliver very strong commercial performances in all its businesses amid a complex and uncertain economic and financial environment, staying on track to meet its 2025 targets for profitable and sustainable growth. This positive momentum was borne out by solid commercial and financial performances across the board, driven by a record result in Financing & Adivisory, Global Markets and ALD, strong growth in International Retail Banking, Financial Services, and in Private Banking and a solid resilience from French Retail Banking. These performances bear out the Group’s extensive efforts over several years to strengthen the inherent quality of its businesses, improve operational efficiency and manage risk. It successfully passed key milestones in a number of other strategic projects, in particular:

completion on 1 January 2023 of the legal merger between Societe Generale and Crédit du Nord, thereby creating a single retail banking entity serving 10 million individual, professional and corporate clients. The operational merger of the two French branch networks will take place over the first half of 2023 with the IT migration of all Crédit du Nord clients to Societe Generale’s system;

accelerated growth of online bank Boursorama, taking the total client base to 4.7 million, including the 315,000 clients that were onboarded following the partnership agreement signed with ING in 2022;

further development in ALD’s long-term rental business which is due to close the deal to acquire LeasePlan in the first half of 2023, notably subject to receiving the remaining approvals and the performance of other standard conditions precedent. Looking to the medium term, the combined entity is poised to become world leader in sustainable mobility solutions;

consolidating the Group’s cash equities activity following the announcement of plans to form a joint venture combining Societe Generale’s and Bernstein Research Services’ equity research and execution platforms to create a leading global franchise.

The Group also finalised in May 2022 the effective and orderly withdrawal from Russia following the disposal of Rosbank and its Russian insurance subsidiaries.

The Group continued to pursue its selective scarce resource allocation strategy and its focus on achieving the optimal region/offer/client mix, and confirmed its strong resolve to keep costs firmly under control. The adjustments it has made are designed to mark out high-margin growth businesses that enjoy strong commercial franchises and create value for the Group.

Organic growth will continue to be accelerated 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.

One of the Group’s priorities is to push further ahead with its commercial development, focusing on quality of service, added value and innovation to ensure 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. To this end, the Group is pursuing various digital transformation and operational efficiency initiatives.

Fully aware of its role in the functioning of the economy, the Group has placed specific strategic importance on its environmental, social and governance commitments.

Environmental and social issues represent society’s greatest challenges this century – challenges that have been accentuated by geopolitical tensions and the pandemic.

Profound societal change is called for, involving substantial adjustments to how we produce and consume. This will inevitably give rise to a number of difficulties and constraints, but Société Générale also sees business opportunities in these transformations by contributing to the financing of the fair and inclusive environmental transition. According to the International Energy Agency, achieving NZE by 2030 will call for almost USD 4,000 billion in investments each year, an unprecedented amount for such a limited timeframe.

If it is to meet its stakeholders’ expectations and help its clients address these challenges, the Group needs to press on with its own transformation, making environmental and social issues a key factor in its decision-making processes and offering its clients financing and investment solutions adapted to their new needs. With this in mind, Societe Generale is training its teams on the transition challenges specific to each sector and developing a more holistic approach to how it analyses both financial and non-financial risk. The Group wants to do more than simply offer financial advice. It has put together teams with expert knowledge of the issues relevant to its major corporate clients’ value chains and established international cross-business working groups to identify emerging ESG standards and come up with ways to meet them. And of course, to ensure the transition is fair and inclusive, the financial system also needs to take care of disadvantaged populations, offering them solutions suited to their situation.

These Corporate Social Responsibility (CSR) challenges are central to Societe Generale’s strategy.

Committed to supporting its clients, the Bank has made CSR a core component of all of its businesses, viewing it as an opportunity to innovate and become more sustainable. In response to this new environment and the challenges it brings, and in keeping with the Group’s values and what its stakeholders expect from it – based on the findings of the materiality survey carried out in 2021 (see Chapter 5, page 336) – Societe Generale has reaffirmed its CSR ambition for 2025, placing the focus on four main priorities.

Of these, two form the framework for responsible banking:

1.

responsible employer (see Chapter 5, page 293-305);

2.

culture of responsibility (see Chapter 5, page 302-305).

The other two guide positive changes in connection with the Group’s activities:

3.

supporting the environmental transition (see Chapter 5, page 314-330);

4.

contributing to local communities (see Chapter 5, page 330-335).

The Group has upped its commitments to keep pace with its ongoing transformation: a EUR 300 billion contribution to sustainable finance by 2025, a 50% reduction in its CO2 emissions by 2030 (compared with 2019 levels) and ESG training for all staff.

Through its geographic presence, the diversity of its businesses and its responsible engagement, Societe Generale also contributes towards the UN’s Sustainable Development Goals (SDGs) (for more information, see https://www.un.org/sustainabledevelopment/sustainable-development-goals/). This can be clearly seen in the four core themes of its CSR ambition:

Core themes of the Group’s CSR ambition

SDG

Responsible employer

Monitoring quality of working life and the diversity and professional development of its teams is crucial to encouraging employee engagement within the Group and optimising performances. Societe Generale has undertaken to move the Group forward with five Human Resources priorities: Corporate Culture and Ethics Principles, Professions and Skills, Diversity and Inclusion, Performance and Compensation, Occupational Health and Safety (see “Being a responsible employer”, page 293).

 

 

 

 

Culture of responsibility

This involves the Group factoring in ESG concerns at the very highest levels of governance, rolling out a robust E&S risk management framework, holding itself to account on its commitments in terms of human rights, the climate and biodiversity and ensuring it operates ethically and responsibly in all aspects of its business (see Chapter 5, page 314).

 

 

 

 

Supporting the environmental transition

By assisting clients in transitioning to greener practices through innovative solutions tailored to their evolving needs, Societe Generale is also doing its part to help preserve biodiversity and develop the circular economy while simultaneously aligning its portfolios with a net-zero trajectory.

 

 

 

 

Making a positive impact on local communities

This means supporting societal and economic change at a local level, contributing to infrastructure financing and assisting local organisations, SMEs and entrepreneurs, leading the field in sustainable mobility and developing socially inclusive services.

 

 

 

 

The CSR ambition permeates all Group businesses:

in Retail Banking and Insurance, this means developing a sustainable and socially responsible range of products and services, backed up a stronger regional presence, with local teams of ESG specialists for SMEs and networks of experts on hand to advise clients;

in Financing and Investment Banking, it means assisting clients in their transition, rethinking how its specialist teams work and freeing them up to devise inventive financing solutions for investments to decarbonise the economy, capitalising on its extensive sector expertise and its partnerships with a broad range of industrial and institutional clients;

in Mobility, it means being at the cutting-edge of the transition to encourage and support clients looking to switch to more sustainable mobility solutions and cementing its partnerships with key players in the e-mobility sector.

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 & Conduct programme, embedding rules of conduct and strong shared values throughout the entire organisation.

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

In line with its strategy of fully addressing its clients’ needs and taking into account 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.

In 2022, the Board of Directors of Societe Generale decided to propose Slawomir Krupa as director to shareholders to replace Frédéric Oudéa at the General Meeting on 23 May 2023. Once elected, Slawomir Krupa will be appointed Chief Executive Officer by the Board of Directors.

The Group has set the following financial targets for 2023:

an underlying(1) cost to income ratio of between 66% and 68%, excluding the Single Resolution Fund;

a cost of risk ratio expected to range between 30 and 35 basis points.

Looking further out, the Group is fully on track to achieving its strategic milestones and has set targets for profitable and sustainable growth out to 2025 with:

average annual revenue growth of 3% or greater over the 2021-2025 period by focusing on growth in the most profitable businesses;

an improved cost to income ratio equal to or lower than 62% in 2025 and ROTE of 10% based on a targeted CET1 ratio of 12% in 2025;

disciplined management of scarce resources, in addition to keeping a tight rein on risks, will help strengthen and improve the quality of the Bank’s balance sheet;

stringent loan portfolio management with cost of risk of around 30 basis points in 2025;

increased use of new technologies and digital transformation;

commitments in Environmental, Social and Governance areas.

The Board of Directors decided its distribution policy which corresponds to an equivalent of EUR 2.25 per share(2). A cash dividend of EUR 1.70 will be proposed at the General Meeting of Shareholders on 23 May 2023. The dividend will be detached on 30 May 2023 and paid out on 1 June 2023.

The Group is also planning to launch a share buyback programme for a total of arond EUR 440 million, i.e., equivalent to EUR 0.55 per share. The rollout of the programme is subject to the usual approval by the ECB.

In light of the strong financial performance in 2022 and an exceptional year, this distribution level fairly remunerates shareholders and further strengthens the Group CET1 ratio.

The French Retail Banking business has made sweeping changes to its model in response to rapidly evolving client behaviours and demand for ever greater convenience, expertise and customised products and services. The pace of this transformation has picked up since 2020, with two major strategic initiatives: the 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.

The Group saw the Crédit du Nord-Societe Generale merger through to completion in 2022, with 1 January 2023 marking its legal entry into effect. The resulting new retail banking entity has been branded SG. The IT migration of all Crédit du Nord branches to Societe Generale’s system is scheduled for the first half of 2023, with branch mergers and back office changes due to take place progressively as of the second half of 2023 and through to 2025.

SG aims to become a leading banking partner for its 10 million clients within the French market and has set its sights on being among the Top 3 French banks for client satisfaction.

It has introduced a new relationship model, designed to improve the quality of service it provides to its individual, professional and corporate clients and establish SG as a leading operator in the French market for savings, insurance and first-rate solutions addressing corporates and professionals alike.

SG promises its clients convenience, responsiveness, expertise and responsibility. It will be:

a bank with a greater regional presence. The vast majority of decisions will be taken at regional level, and increasingly in branches and business centres directly. All clients will benefit from a denser branch network, reflecting the strategy of emphasising French Retail Banking’s local roots through 11 regional brands grouped under the national SG umbrella;

an expertise-centric bank, offering services even more tailored to the specific needs of its different types of client. For example, it will set up a private banking entity, assign each professional client a dedicated client relationship manager to handle both their personal and professional banking needs, and appoint more specialists throughout France to assist on savings and insurance matters and to offer its professional and corporate clients Financing and Advisory services;

an accessible and responsive bank, with streamlined processes to speed up decision-making and reduce response times to customer queries, state-of-the-art digital services enabling clients to perform their day-to-day banking transactions remotely and securely, and a mobile app through which clients can subscribe to a wide range of products and services;

a responsible bank that makes CSR the linchpin of its new model, adjusting how it is organised and its product and service range to strengthen its positive impact on its clients and local communities. More specifically, each region will have a dedicated CSR consultancy team to help SG step up its financing of the environmental transition and become a major player in the economic and social development of local regions and their ecosystems.

From a financial perspective, the merger will unlock considerable cost synergies. The cost to income ratio of Franch Retail Banking is expected to range between 67% and 69% in 2025 and the return on normative equity (RONE) under Basel IV is targeted at around 10% in 2025.

(1)

Underlying data.

(2)

Subjet to usual approvals from the General Meeting and the ECB.

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

maximising the potential of its integrated bancassurance model by anticipating changes in the life-insurance market and taking advantage of strong client take-up potential for personal protection and non-life insurance;

increasing business among corporate and professional clients by providing strategic advisory services and comprehensive solutions;

leveraging the expertise available in Private Banking to satisfy the expectations of high-net-worth clients in the French networks.

In Wealth Management, Private Banking is moving forward with its strategy of operating in open architecture, distributing savings solutions to clients throughout its network. By offering 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 Wealth & Investment Solutions business within Private Banking focuses primarily on structuring savings, asset management and investment solutions for the Group’s private banking and retail banking networks, as well as providing structured asset management solutions for its Global Markets clients.

Last, the Group continues to support the development of its online bank. Boursorama offers its clients a broad and diversified range of online banking services, an efficient model and an unbroken 15-year record as the lowest-cost bank on the market(1), resulting in excellent client satisfaction and recommendation scores.

Over 2022, Boursorama increased its lead on the French market, acquiring more than 1.4 million net new clients, bringing its total client base to over 4.7 million by the end of the year. It also finalised its partnership agreement with ING, resulting in around two-thirds of ING’s eligible clients transferring to Boursorama, bringing with them some EUR 9 billion in outstandings (half of which was in life-insurance savings).

The Group has confirmed its goal of onboarding an increasing number of clients at Boursorama and has set a target of more than 5.5 million customers by end-2023.

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. This last point has been illustrated by their orderly pull-out from Russia in response to the worsening conflict in Ukraine. As the conflict escalated, the Group decided to divest Rosbank and its Russian insurance subsidiaries – a transaction completed in May 2022.

International Retail Banking activities are mainly located in regions outside the eurozone. They benefit from positive long-term growth fundamentals and the current uptick in interest rates, despite the prevailing economic uncertainty in those regions due to high inflation. This uncertainty has not affected the Group’s plans for its international banking activities – it intends to press on with its strategy of consolidating leadership positions and pursuing responsible growth in Europe and Africa. Its capacity to meet client needs, coupled with its innovative, unique and efficient platforms, will serve it well in this undertaking:

in Europe, the pandemic sharply accentuated underlying trends, confirming the strategic vision of the Group’s target retail banking model, as well as the relevance of the transformation plans undertaken, which place special emphasis on ramping up digital transformation. Accordingly, the Group intends to put the finishing touches to its omnichannel banking model in the Czech Republic with its KB Change 2025 strategic plan and consolidate its franchise status in Romania as one of the country’s three leading banks. And now that interest rates are heading back up, retail banking activities in Europe will follow the same upward trajectory, becoming strong growth drivers for the Group. The Group also intends to tap into the full potential of its consumer finance activities in Europe through both its own retail banking networks and its specialist subsidiaries both in France and abroad;

in Africa, the Group plans to take advantage of the continent’s strong potential for economic growth and bank account penetration by building on its leading positions.

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 benefit from robust growth potential. All Financial Services and Insurance businesses are continuing to roll out their programmes to innovate and transform their operational model:

in Insurance, the Group plans to accelerate the rollout of both its bancassurance model – across all retail banking markets and all segments (life insurance, personal protection and non-life insurance) – and its digital strategy. The aim is to enhance its product range and client experience within an integrated omnichannel framework while diversifying its business models and growth drivers through a strategy of innovation and partnerships. This growth strategy goes hand in hand with greater commitments to responsible finance at SG Assurances;

in Operational Vehicle Leasing and Fleet Management, the Group is poised to create a global leader in sustainable mobility solutions by acquiring LeasePlan. The resulting new entity would be No. 1 worldwide, excluding captives and financial leasing companies. Representing a total fleet of 3.3 million(2) vehicles at end-September 2022 and with operations in over 40 countries, it would leverage highly complementary expertise and prospective synergies, factors that would serve it well when developing new activities and services in a mobility sector undergoing radical change. Its considerable investment capacity and unparalleled know-how would enable the new entity to take full advantage of the market’s strong growth, which is being driven by a number of confirmed trends: the shift from ownership to leasing, the transition towards sustainable mobility solutions, and the sector’s digital transformation. Having boosted its investment capacities and unmatched expertise, ALD has positioned itself at the heart of this changing world of mobility, asserting its global leadership to become a fully integrated player in sustainable mobility solutions with the rollout of its Move 2025 strategic plan and the proposed acquisition of LeasePlan. To this end, ALD forged ahead with its active innovation and digitalisation strategy over the year;

(1)

Le Monde/Panorabanques.com for 2022, 12 December 2022.

(2)

Adjusted for disposals as part of ALD’s proposed acquisition of LeasePlan and for the impact of the LeasePlan USA disposal.

and last, in Vendor and Equipment Finance, the Group plans to build on its leadership position in its top-tier markets in Europe to increase revenue and improve profitability, against a backdrop of higher financing costs as a result of climbing interest rates. It plans to draw on its service quality, capacity for innovation, product expertise and dedicated teams to retain its preferred partner status with vendors and clients alike.

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 further developing its bancassurance model.

In 2022, Global Banking and Investor Solutions (GBIS) pushed further ahead with initiatives rolled out since 2021 with respect to its five strategic pillars - balancing its business mix, bringing down its profitability threshold, reducing its idiosyncratic risk profile, increasing its share of CSR-native businesses and expanding the reach of its digitalisation.

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

Its growth strategy reflects where the opportunities for economic growth currently reside, i.e., increased financing needs for infrastructure and the energy transition, greater investment in private debt and the growing demand for savings solutions. At the same time, Global Banking and Investor Solutions is gradually and methodically recalibrating its businesses, particularly Global Markets and Financing and Advisory, making targeted capital allocations to growth initiatives for particular client segments, businesses and regions. In particular, the plans to form a joint venture in cash equities with AllianceBernstein, announced in November 2022, will bring further diversification to the Group’s investment banking activities and offer its large clients premier strategic expertise and insights.

The Group is therefore maintaining its unrelenting focus on:

reducing costs to improve operating leverage without business attrition and in keeping with its long-term commitment to disciplined cost control;

adopting stringent management of both market and credit risks – notably against a backdrop of weaker market risk appetite – and prudent management of its counterparty risk, aiming to maintain a healthy diversification of all risk categories across its businesses.

The uncertainty unleashed by the war in Ukraine continues to run rife and is fuelling supply chain disruptions in both goods and services, especially for energy and foodstuffs. In Europe, gas supply problems may continue even beyond 2023, with knock-on effects on electricity prices. A harsh winter and a decision by Russia to completely shut off the gas taps could make gas rationing a reality.

The coming quarters should see the remaining pandemic-related restrictions in China gradually lifted. Worldwide, the pandemic risk persists, however, necessitating investment in prevention and vaccines. But in emerging countries, this investment is likely to fall short of requirements, meaning that pandemic-related risks will continue to weigh on the global growth outlook.

Economic activity has slowed due to inflation and the resulting cost-of-living crisis, as well as economic policy tightening. Job markets and household savings are nonetheless holding up well in the more advanced economies, which should enable them to avoid slipping into deep recession. Technical recessions, on the other hand, are to be expected in both the US and Germany over 2023. We are likely to see a greater number of bankruptcy filings under the combined effects of the economic slowdown, tightening of financial conditions and higher debt levels.

Looking beyond 2023, rising interest rates will hamper the recovery. Although rates appear to have peaked, the lag effects of monetary tightening will continue to feed through to the economy. Financial conditions will also be affected by central banks continuing (the case of the Fed) or starting (the case of the ECB) to shrink their balance sheets.

Last, geopolitical divisions will remain a structural drag on global trade and capital flows.

In light of this, the Group’s baseline scenario is for global growth of 2.2% in 2023 after 3.1% in 2022. Looking forward beyond 2023, recovery will continue to be damped by a higher interest environment.

The 2022 regulatory landscape was marked by the specific measures taken in response to Russia’s invasion of Ukraine: successive waves of unprecedented sanctions, aid packages for refugees and companies affected by the war, and debate over how to reform hard-hit European energy markets.

The European Commission has temporarily lifted certain restrictions on State aid, freeing up member states to bolster their economies with targeted measures. In France, the financial support measures implemented for businesses during the pandemic have been adapted to help with the economic fallout from the war: new government-backed “Resilience” loans were introduced, the recovery loan scheme was extended and thought is being given to fuel subsidies. Unlike Germany and its Nordic neighbours, however, France has not introduced an ad hoc government-backed mechanism for utilities experiencing difficulties in paying down soaring margin calls on energy derivatives markets. In response to the shockwaves that rocked energy derivatives markets in the spring and summer of 2022, the European authorities are looking into what can be done to make trading and clearing on these markets more stable and resilient going forward.

The European Commission (EC), the European Central Bank (ECB) in its capacity as prudential supervisor, the European Banking Authority (EBA) and the French High Council for Financial Stability (HCSF) had all used the flexibility afforded them under prudential regulations to take action to preserve the liquidity and solvency of banks during the Covid-19 pandemic. They are now phasing out these measures, despite the ongoing conflict in Ukraine. Given that borrowing levels remain strong, the the HCSF decided on 7 April 2022 to start normalising its countercyclical capital buffer rate for French banks, raising it from 0% to 0.5% from 7 April 2023.

In addition to these measures prompted by the prevailing economic conditions, progress was also made in 2022 on a number of structural regulatory projects designed to strengthen the prudential framework, support environmental and digital transitions, protect consumers and develop European capital markets:

significant headway was made in negotiations on the CRD6/CRR3 proposal implementing the Basel Accords. A final compromise text is expected during Q1 2023. The European Council’s position leaves the main thrust of the Commission’s proposal unchanged and rubber-stamps certain measures advocated by the banking sector. Although the European Parliament’s position is less clear (the rapporteur is in favour of sticking to a strict transposition of the Basel Accords), the final compromise text is unlikely to fundamentally differ from the Commission’s proposal.

Uncertainty prevails over the timetable for rolling out this reform in the main non-EU jurisdictions, which is not expected to coincide with the Basel timetable of 1 January 2025;

despite outward enthusiasm for getting the ball rolling again on finalising plans for a banking union, there was no breakthrough in the talks between European finance ministers in the first half of 2022. Instead, they discussed how to reform the crisis management framework and tasked the European Commission to come up with proposals. The Commission has announced that it will publish draft legislation to harmonise and extend the EU’s resolution framework in Q1 2023;

over the course of 2022, the EU added to its regulatory arsenal designed to redirect capital flows towards more sustainable activities and make the financial system more resistant to climate risks. Major new legislation was passed, such as the Corporate Sustainability Reporting Directive, which will enter into effect as from 2024; the European Financial Reporting Advisory Group (EFRAG) has already issued its initial proposals for reporting standards. Negotiations on the proposed Corporate Sustainability Due Diligence Directive kicked off in 2022 and will continue throughout 2023. Eligibility reporting under the EU’s Green Taxonomy began in 2022, ahead of alignment reporting, which will become mandatory for non-financial corporates as from 2023 and for firms in the financial sector as of 2024.

The EU also introduced requirements for banks to be more thorough in addressing their exposure to climate and sustainability risks and more transparent about disclosing ESG risks in their prudential publications. The ECB conducted climate stress tests in 2022 and the Commission now includes ESG risks when reviewing the prudential framework. Starting in 2023, credit institutions will have to publish detailed information on their exposure to climate risks. The European Parliament made the prudential treatment of significant GHG-emitting assets part of the CRD6/CRR3 proposal implementing the Basel Accords, pre-empting the conclusions of the European Banking Authority (EBA) on the issue, expected in 2023.

With other national and international initiatives fast multiplying, the question of how the EU’s legislation will interact with measures introduced outside its borders is more relevant than ever. The EU will want to reassert its role as pioneer in the field and avoid any distortion of competition with non-EU operators;

digital transformation remained high on the regulatory agenda. Work continued on the legislation proposed in 2021: progress was made on the digital finance action plan and an agreement was reached on the Markets in Crypto-Assets (MiCA) Regulation (which will give rise to various Level 2 measures) in June 2022, and on the Digital Operations Resilience Act (DORA), designed to strengthen cybersecurity and the monitoring of outsourced services, in May. Headway was also made in discussions on initiatives concerning artificial intelligence, digital identity and the free movement of data.

In the wake of its targeted consultation, the Commission is expected to soon announce proposals on open finance, which will feed into fundamental discussions surrounding payments and retail banking (such as on the European Payment Initiative and how to generalise instant payments faster). The PSD2 evaluation and the ECB’s proposal for a central bank digital currency – both slated for the first half of 2023 – will be key steps in this respect;

consumer issues also commanded considerable attention both in France and at European level. The European Parliament and Council reached agreement on a revised Consumer Credit Directive at the beginning of December, heralding change for the small consumer loan market. And as part of the Commission’s push for structural reform in the retail investment product market, the first half of 2023 should bring revised versions of MiFID, IDD and the PRIIPs Regulations. In the midst of a cost-of-living crisis, the European Parliament’s debates on bank charges and measures to support the economy brought forth legislative proposals and commitments from those banks whose impacts remain in check. In France, the Lemoine Act of February 2022 on loan insurance reform entered into effect, although it is still premature to say how its two key measures (freedom to switch to a new insurer at any time and partial scrapping of the medical questionnaire) will affect the market;

and lastly, post-Brexit, the Commission is keen to return to the matter of the Capital Markets Union (CMU), picking up the debate based on the proposal outlined in the 2020 action plan. Initially focused on deepening and integrating European markets, CMU is now also seen as a way to ensure Europe’s financial autonomy. This has become increasingly important – the pandemic and the situation in Ukraine have shone a light on how the EU’s lack of autonomy leaves it vulnerable, as noted in the Commission’s strategic autonomy plan, published in January 2021, and the associated conclusions from the Council in April 2022. Accordingly, we have seen legislative proposals and discussions in Parliament and the Council on revisions to the Markets in Financial Instruments Regulation (MiFIR), the Alternative Investment Fund Managers (AIFM) Directive and the European Long Term Investment Funds (ELTIF) Regulation, as well as to the European Single Access Point (ESAP) for financial and non-financial information about EU companies and the European withholding tax framework, with a view to simplifying and harmonising the existing complex processes – seen as a significant disincentive to cross-border investment. In a press release issued on 7 December 2022, the Commission also put forward a series of new proposals to further develop the CMU. These proposals centred on three areas:

-

ensuring “safe, robust and attractive” clearing to encourage market participants to start using EU-based clearing houses for their euro-denominated products (revision of EMIR),

-

harmonising corporate insolvency rules, ironing out the disparities that currently discourage cross-border investment both within and from outside the EU,

-

simplifying the process for listing on public markets (through a new Listing Act) to make capital markets more attractive to European companies and facilitate access for SMEs.

1.4 THE GROUP’S CORE BUSINESSES

1.4.1 FRENCH RETAIL BANKING

French Retail Banking (RBDF) 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. It leverages on synergies with the Group’s specialised businesses, in particular the Insurance, the Private Banking or the Corporate & Investment Banking businesses. Accordingly, French Retail Banking distributes insurance products of Sogecap and Sogessur, subsidiaries which are part of the International Retail Banking and Financial Services’ division.

Relying on the know-how of its teams and an efficient multichannel network, the pooling of best practices, and the optimisation and digitalisation of processes, Retail Banking France combines the strength of three complementary brands: Societe Generale (a leading French bank that has housed Private Banking since January 2022) and Crédit du Nord (a group of regional banks) which are pushing further ahead with a transformational project to merge their networks, and Boursorama Banque, a key online banking operator.

In 2022, average life insurance outstandings reached EUR 120 billion, compared with EUR 119 billion in 2021.

The networks continue to support the economy and support their clients with their financing projects. Average loan outstandings of the networks rose from EUR 238 billion in 2021 to EUR 247 billion in 2022. At the same time and in a context of an intense competition, deposit collection generated a loan-to-deposit ratio of 85.2% in 2022, down 1.1 points compared to 2021.

*  Average quarterly outstandings.

The Societe Generale network offers solutions tailored to the needs of its 6.7 million individual clients as well as almost 420,000 professional clients, non-profit associations and corporate clients, representing EUR 180 billion in outstanding deposits and EUR 159 billion in outstanding loans in 2022.

To achieve this, the network leverages three major strengths:

approximately 1,200 main branches located mainly in urban areas where a large proportion of national wealth is concentrated;

an exhaustive and diversified range of products and services, ranging from savings vehicles and asset management solutions to corporate finance and payment means;

a comprehensive and innovative omnichannel system spanning internet, mobile, telephone and service platforms.

Societe Generale continued to expand its network and increase its service offering in 2022 in response to its clients’ requirements and with a view to enhancing customer satisfaction. These efforts focused notably on promoting the increased use of electronic signatures for professionals and in the short-term credit and MLT credit markets. Societe Generale broadened its commercial offering dedicated to TPEs and modified its lending services (on the application and decision for MLT loans), supported by training sessions and a change management programme.

Last, Societe Generale has made sustainable development the linchpin of its strategy by not only ensuring that its direct environmental impact is controlled through actions to reduce its waste and carbon footprint but by also developing an offer to support its clients in their own energy transition: in 2022, Societe Generale and Crédit du Nord launched a comprehensive support framework for companies, SMEs, associations and local authorities to enable them to develop a more sustainable model. They furnish new advisory and financing solutions in conjunction with top-name partners. Irrespective of their profile, the Bank also offers to measure clients’ greenhouse gas emissions, in partnership with Carbo.

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 1.6 million individual clients(1), 210,200 professional clients and non-profit associations and 46,400 corporate and institutional clients. In 2022, its average outstanding deposits totalled EUR 58 billion, compared with EUR 57 billion in 2021, while average loan outstandings stood at EUR 55 billion, compared with EUR 52 billion in 2021.

In December 2020, Société Générale and Crédit du Nord expressed their intention to merge their two networks to create a new retail bank with the aim of serving 10 million clients and ranking among the Top 3 for customer satisfaction.

The plan focuses on four main strategic planks:

a bank anchored locally throughout 11 regions: decisions will be predominantly taken at regional level and on an increasing basis directly in agencies and business centres;

a more reactive, accessible and efficient bank;

a bank that gears itself more to the specific needs of each client category: a bank that offers expertise, with resources increasingly focused on the specific requirements of the various client categories, notably with the introduction of a wealth management bank, across-the-board presence of a dedicated advisor for professional clients - covering both their personal and professional banking needs - and a wider array of savings, insurance, and professional and corporate solutions experts throughout France to deal with the full scope of their financing and advisory concerns;

a responsible bank: CSR issues are the linchpin of the new model which aims to expand the positive impact for clients and local communities through new choices regarding offers and organisation, particularly the introduction of CSR advisory teams in each region, enabling SG to accelerate financing for the environmental transition and to be a springboard for the development of France’s regions and its ecosystems from both an economic and social standpoint.

In 2022, several key milestones were achieved to create the new retail bank in France:

social framework: in February 2022, the Societe Generale Group signed a unanimous agreement with all trade union representative organisations on employment and skills as part of the planned creation of the new retail bank in France resulting from the merger of the Societe Generale and Crédit du Nord networks;

brand strategy: in April 2022, the Societe Generale Group unveiled the brand strategy of the new retail bank in France which underscored its local ties, showcasing a national SG brand rounded off by a number of regional brands: SG Crédit du Nord, SG Grand Est, SG Laydernier, SG Auvergne Rhône Alpes, SG SMC, SG Courtois, SG Sud Ouest, SG Tarneaud, SG Grand Ouest and, in Ile-de-France and in Corsica, SG Société Générale.

On 1 January 2023, Societe Generale Group carried out the legal merger of its two French Societe Generale and Crédit du Nord retail banking networks. SG will henceforth become the Group’s new retail bank in France.

Crédit du Nord’s IT system will initially be migrated in two stages to Societe Generale’s information system during the first quarter of 2023. Agency pooling will commence in the second half of 2023 and the initial phase will involve 150 batchings (30%). Some 80% of the link-ups will be performed by the end of 2024, with the remaining 20% finalised by the end of 2025.

(1)

Number of active clients.

Boursorama is a subsidiary of Societe Generale and a pioneer and leader in France for its three main businesses: online banking, 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 to boost their purchasing power.

At end-2022, Boursorama served nearly 4.7 million clients – a 41% increase in the space of a year alone. This rapid growth has been matched by an increase of more than EUR 15 billion in the bank’s outstandings over the period (over EUR 66 billion at end-December 2022, including EUR 16 billion in loans, EUR 13 billion in current accounts and EUR 37 billion in savings and share securities) which demonstrates the appeal of its fully online model based on client independence and a comprehensive range of 43 banking products and services, rounded out by 1,000 functionalities with automated processes.

The year 2022 was dominated by the i) a record client acquisition with 1.5 million new clients, on top of a substantial 20% drop in the client acquisition cost, ii) the successful integration of ING’s former clients (around 300,000 new clients and almost EUR 9 billion in outstandings, of which half covers life insurance savings, and iii) over and above its successful regular banking offer, it is committed to clients, providing a wide range of products and services, such as:

stock exchange products: the success of BoursoMarkets, the new zero-brokerage-fee trading offering encompassing over 40,000 products (e.g., volumes traded on warrants/certificates have doubled since 2021 in a shrinking market) and the launch of bespoke employee share plans;

savings products: the success of Matla, the market’s least expensive retirement savings plan (outstandings have tripled since 2021), and the launch of new asset classes with real estate crowdfunding, private equity and EMTNs;

loan products: the launch of the 100% online MyLombard loan and the expansion of the cli€ small loan (production has tripled since 2021);

insurance products: success of the comprehensive range of insurance products (loans and property and casualty) with over 830,000 contracts at end-2022, up 40% compared with end-2021;

acceleration of non-banking products (BAAP platform, The Corner, which generated EUR 150 million in revenue in 2022, which is thrice the amount for 2021.

Boursorama was voted the least expensive bank for the 15th consecutive year (source: Le Monde/Panorabanque 2022), best bank for students and young working adults (Selectra 2022) and France’s preferred bank for digital banking (source: Opinionway 2022). The online bank was ranked No. 1 on app stores, with a rating of 4.9/5 on iOS and 4.8/5 on GooglePlay. It boasts a Net Promoter Score of +35 for the sector (source: Bain and Company, January 2022).

Launched over 20 years ago, its online portal, www.boursorama.com, is consistently ranked the No. 1 website for financial and receives 50 million visits a month (Source ACPM – September 2022).

Boursorama generally attracts young clients – the average age is 35 – who are city dwellers, who work and who are financially stable. The average client outstanding is over EUR 15,000 (savings and loans). The acquisition of private banking clients continues to rise despite the rapid acceleration in growth. Boursorama has also pursued optimisation efforts and registered a decrease of almost 20% of IT costs per client and a 30% increase in the number of clients by employees.

Societe Generale Private Banking has an extensive foothold in Europe and offers global financial engineering and wealth management solutions, in addition to global expertise in structured products, hedge funds, mutual funds, private equity funds and real estate investment solutions. It also offers clients access to the capital markets.

Since January 2014 and in conjunction with the French Retail Banking core business, Societe Generale Private Banking has extensively modified its relationship banking model in France by extending its services to all individual customers with more than EUR 500,000 in their accounts. These customers reap the benefit of close-hand service provided by 80 regional franchises and the know-how of Private Banking’s expert teams.

Societe Generale Private Banking’s offering is available from three main centres: SGPB France, SGPB Europe (Luxembourg, Monaco and Switzerland) and Kleinwort Hambros (London, Jersey, Guernsey and Gibraltar). At the end of 2022, Private Banking held EUR 147 billion in assets under management.

Following the disposal of Lyxor at the end of 2021, the decision was made to house the following wealth management subsidiaries in Societe Generale Private Banking: SG 29 Haussmann(1) (France) et SGPWM(2) (Luxembourg) and to also combine in its ranks Global Markets’ structured fund activity, in addition to a number of UCITS/bonds supervisory and selection teams. Societe Generale Private Banking took advantage of the occasion to create a fourth Wealth Investment Services centre of expertise, bringing together these management and structuring skills (Investment Management Services) with the Market Solutions teams, thereby becoming a genuine one-stop shop that houses unique expertise within the Group to design investment and open-architecture solutions.

Societe Generale Private Banking was singled out for eight prizes at the 2022 Global Private Banking Innovations Awards.

SGPWM was named Asset Management Company of the Year for 2022;

SG 29 Haussmann took home Best Asset Manager for ESG Investment;

The Moorea Fund Sustainable Floating Rate Income fund was acclaimed ESG Fund of the Year 2022;

“Coach Financier” and “L’Espace Investissements” won Best Private Bank Robo Advisory;

SGPB took home Best Private Bank for Millennials;

SGPB was singled out as the Private Bank with the most innovative ESG offering;

SGPB Luxembourg was named Best Private Bank for Luxembourg;

SGPB Monaco won Best Private Bank for Monaco.

Kleinwort Hambros was awarded the Excellence in Employee Engagement prize at the 2022 Private Banker International Global Wealth Awards.

(1)

SG 29 Haussmann is a management company approved and regulated by the AMF (Autorité des marchés financiers – the French financial services authority). Its remit is to provide portfolio management services either as funds or by way of discretionary asset management, and manages in particular the assets of client portfolios of SG private banking clients, mainly for the benefit of clients of the Private Bank and clients of the Societe Generale network. It has multi-management expertise in structured management, equities, fixed income and alternative management. Since 1 November 2021, SG 29 has also integrated structured Global Markets’ structured fund management business (SIS).

(2)

SGPWM is a Luxembourg-based management company that manages (i) asset management mandates for the portfolios of SG private banking clients in Luxembourg, (ii) as is the case for the management of the UCITS Moorea sub-funds.

2 GROUP MANAGEMENT REPORT

 

2.1 SOCIETE GENERALE GROUP’S MAIN ACTIVITIES

2.2 GROUP ACTIVITY AND RESULTS

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

(In EURm)

2022

2021

Change

Net banking income

28,059

25,798

8.8%

9.7%*

Underlying net banking income

28,059

25,681

+9.3%

+10.2%*

Operating expenses

(18,630)

(17,590)

+5.9%

+7.5%*

Underlying operating expenses

(17,991)

(17,211)

+4.5%

+6.1%*

Gross operating income

9,429

8,208

14.9%

14.4%*

Underlying gross operating income

10,068

8,470

18.9%

18.4%*

Net cost of risk

(1,647)

(700)

x 2.4

93.0%*

Operating income

7,782

7,508

3.6%

5.3%*

Underlying operating income

8,421

7,770

8.4%

10.1%*

Net income from companies accounted for by the equity method

15

6

x 2.5

x 2.5*

Net profits or losses from other assets

(3,290)

635

n/s

n/s

Impairment losses on goodwill

0

(114)

100.0%

-100.0%*

Income tax

(1,560)

(1,697)

-8.1%

-5.8%*

Net income

2,947

6,338

-53.5%

-53.2%*

o.w. noncontrolling interests

929

697

33.3%

32.3%*

Group net income

2,018

5,641

-64.2%

-64.0%*

Underlying group net income

5,616

5,264

+6.7%

+7.9%*

Cost-to-income ratio

66.4%

68.2%

 

 

Average allocated capital(1)

55,164

52,634

 

 

ROTE

2.9%

11.7%

 

 

Underlying ROTE

9.6%

10.2%

 

 

(1)

Amounts restated compared with the financial statements published in 2020 (See Note1.7 of the financial statements).

Underlying net banking income grew strongly in 2022 at +9.3% (+10.2%*) vs. 2021, driven by historical highs in Financing & Advisory, Global Markets and ALD, sharp growth in Private Banking and International Retail Banking and a solid performance by French Retail Banking.

French Retail Banking revenues grew +4.1% vs. 2021 fuelled notably by robust service fee growth and a very solid showing by Private Banking.

International Retail Banking & Financial Services’ revenues rose +12.4% (+17.9%*) vs. 2021, driven by a record performance at ALD and strong growth at International Retail Banking whose revenues grew +11.5%* vs. 2021. Financial Services’ net banking income was significantly higher by +35.8%* vs. 2021, while Insurance net banking income increased by +6.5%* vs. 2021.

Global Banking & Investor Solutions’ revenues were up +14.3% (+12.9%*) vs. 2021. Global Markets & Investor Services’ revenues posted an +18.7% increase in revenues (14.1%*) vs. 2021, while Financing & Advisory activities increased by +15.2% (+10.7%*) vs. 2021.

In 2022, operating expenses totalled EUR 18,630 million on a reported basis and EUR 17,991 million on an underlying basis (restated for transformation costs), i.e., an increase of +4.5% vs. 2021 (on an underlying basis).

The rise can be mainly attributed to the EUR 864 million contribution to the Single Resolution Fund, which increased by EUR 278 million, currency effects, notably in US dollars, and a rise in the variable components of employee remuneration associated with higher revenues.

Underlying gross operating income increased by +18.9% to EUR 10,068 million in 2022, while the underlying cost to income ratio (excluding the Single Resolution Fund) posted a 3.4 point improvement to 61.0% (vs. 64.4% in 2021).

Excluding the Single Resolution Fund, the underlying cost to income ratio is expected to range between 66% and 68% in 2023, based notably on normalised revenues in Global Markets.

Over the full year, the cost of risk amounted to 28 basis points, landing below the guidance of between 30 and 35 basis points.

Offshore exposure to Russia was reduced to EUR 1.8 billion of EAD (Exposure At Default) at 31 December 2022, i.e., a decrease of around -45% since 31 December 2021. Exposure at risk on this portfolio is estimated at less than EUR 0.6 billion, compared with less than EUR 1 billion for the previous quarter. Total associated provisions stood at EUR 427 million at end-December 2022. Moreover, at end-December 2022, the Group’s residual exposure to Rosbank amounted to less than EUR 0.1 billion, corresponding mainly to guarantees and letters of credit.

The Group’s provisions on performing loans amounted to EUR 3,769 million at end-December, an increase of EUR 414 million in 2022.

The non-performing loans ratio amounted to 2.8%(1) at 31 December 2022, down 10 basis points vs. 31 December 2021. The gross coverage ratio on doubtful loans for the Group stood at 48%(2) at 31 December 2022.

The cost of risk in 2023 is expected to range between 30 and 35 basis points.

Operating income totalled EUR 7,782 million in 2022 compared with EUR 7,508 million in 2021. Underlying operating income came to EUR 8,421 million compared with EUR 7,770 million in 2021.

Net profits or losses from other assets totalled EUR -3,290 million in 2022, of which a EUR -3.3 billion accounting loss from the disposal of Rosbank and insurance activities in Russia recognised in H1 22.

(In EURm)

2022

2021

Reported Group net income

2,018

5,641

Underlying Group net income

5,616

5,264

(In %)

2022

2021

ROTE (reported)

2.9%

11.7%

Underlying ROTE

9.6%

10.2%

(1)

NPL ratio calculated according to EBA methodology published on 16 July 2019.

(2)

Ratio of S3 assets calculated on the gross carrying amount of the loans before netting of guarantees and collateral.

2.3 ACTIVITY AND RESULTS OF THE CORE BUSINESSES

2.3.1 RESULTS BY CORE BUSINESSES

 

French Retail

Banking

International

Retail Banking

and Financial

Services

Global Banking

and Investor

Solutions

Corporate

Centre

Group

(In EURm)

2022

2021

2022

2021

2022

2021

2022

2021

2022

2021

Net banking income

8,839

8,489

9,122

8,117

10,082

8,818

16

374

28,059

25,798

Operating expenses

(6,473)

(6,248)

(4,334)

(4,203)

(6,634)

(6,250)

(1,189)

(889)

(18,630)

(17,590)

Gross operating income

2,366

2,241

4,788

3,914

3,448

2,568

(1,173)

(515)

9,429

8,208

Net cost of risk

(483)

(125)

(705)

(504)

(421)

(65)

(38)

(6)

(1,647)

(700)

Operating income

1,883

2,116

4,083

3,410

3,027

2,503

(1,211)

(521)

7,782

7,508

Net income from companies accounted for by the equity method

8

1

1

0

6

4

0

1

15

6

Net profits or losses from other assets

57

23

11

18

6

(9)

(3,364)

603

(3,290)

635

Impairment losses on goodwill

-

-

-

-

-

-

-

(114)

-

(114)

Income tax

(504)

(592)

(996)

(840)

(576)

(452)

516

187

(1,560)

(1,697)

Net income

1,444

1,548

3,099

2,588

2,463

2,046

(4,059)

156

2,947

6,338

o.w. non-controlling interests

(1)

(2)

723

506

36

28

171

165

929

697

Group net income

1,445

1,550

2,376

2,082

2,427

2,018

(4,230)

(9)

2,018

5,641

Cost-to-income ratio

73.2%

73.6%

47.5%

51.8%

65.8%

70.9%

 

 

66.4%

68.2%

Average allocated capital(1)

12,417

12,009

10,619

10,246

14,916

14,055

17,213

16,323

55,164

52,634

RONE (businesses)/ROTE (Group)

11.6%

12.9%

22.4%

20.3%

16.3%

14.4%

 

 

2.9%

11.7%

(1)

Amounts restated compared with the financial statements published in 2020 (See Note1.7 of the financial statements).

2.4 EXTRA-FINANCIAL REPORT

 

Societe Generale applies a comprehensive approach to incorporating CSR considerations into its range of products and services. In addition to this broad framework, Societe Generale’s Corporate Social Responsibility efforts are concentrated in two main areas: the environmental transition and contributing to local communities. As a long-standing leader in energy, the Group has made the energy transition a priority in support for its clients. Societe Generale also plays a major role in economic development and has put sustainable development of local communities as the No. 2 priority in its action plans.

The Bank strives to help its clients on their pathway to a just, green and inclusive transition, in line with its own commitments. Sustainability is an integral part of the products and services offered to all the Group’s clients and extends not only to financing and investment products, but also to financial services. By placing sustainability high on the agenda, the Group aims to meet the increasing demand from stakeholders around the world, whether clients, corporates, investors or individuals, for banking with a positive impact on the economy and society overall.

To monitor its positive impact and support for its clients, the Group developed a standard several years ago to measure the distribution of its Sustainable and Positive Impact Finance offer – SPIF* (see Glossary, page 688) products for lending to the economy and companies, together with a range of Sustainable and Positive Investment (SPI* (see Glossary, page 688). The SPIF and SPI standards and the data collection scope have been revised to reflect changes in the Group. These amendments are presented in the Methodology note, page 354.

Above and beyond its commitment to clients, the Group is determined to set the example in how it conducts its business to be an exemplary financial company. In other words, Societe Generale aims to be a responsible employer and to act ethically and responsibly at all times.

To make the changes needed in today’s rapidly-changing environment, the Group launched “Building Together”, a programme to reinvent our businesses. The three core themes are:

1.

rethinking the Bank’s businesses: we are revamping our teams’ missions to develop solutions to support clients as they transition their businesses to more sustainable models;

2.

implementing the transformation: systematically building ESG into all the Group’s strategic decisions, management tools and processes and applying them to the business lines;

3.

building more expertise by training our teams: making sure all staff receive ESG training.

To underpin this approach, a specific programme was introduced to step up operational implementation of the transformation: ESG by Design. Its main aims are to:

apply the Group’s CSR policy at operational level;

augment ESG factors in existing processes (e.g. know your client, granting loans, design/structure of new products, IT architecture, etc.);

ensure compliance with the Group’s regulatory obligations and voluntary commitments by developing the processes and tools needed to manage them, with a particular focus on integrating climate and environmental risks into the Group’s risk management;

increase operational efficiency by expanding ESG reporting across the Board and building the infrastructure to shorten the time to produce ESG data, while minimising cost and ensuring high data quality.

2.4.1 DRIVERS OF POSITIVE TRANSFORMATION

The environmental transition and contributing to local communities are the Group’s two top strategic priorities for 2025 and the springboard for our positive transformation efforts. Societe Generale’s actions are aimed at ensuring the sustainability of its own business activities and at helping clients move towards a greener and more sustainable future.

Building on an improved product offering, and having achieved our target contribution to the energy transition ahead of schedule (EUR 157 billion at the end of 2021 vs. an initial target of EUR 120 billion in the period 2019–2023), Societe Generale has set a new target of a EUR 300 billion contribution to sustainable finance (SPIF) between 2022 and 2025, applicable to all business lines for both environmental and social issues. The Group’s contribution at end-2022 was EUR 100 billion, or one-third of the target.

2.4.1.1  Supporting clients in their environmental transition

Urgent action is required to tackle climate change and rethink how we produce and consume resources. With this in mind, the banking business has to change to meet new client needs. Alive to the challenge, the Group plans to incorporate ESG considerations right from the start when it analyses what clients need. Drawing on its network of partner start-ups, Societe Generale also seeks to weave an ecosystem to offer the very latest innovations to its clients. Lastly, the Group has pressed further ahead with its drive to align its credit portfolios with trajectories that are compatible with 1.5°C scenarios.

The Bank forged ahead with developing sustainable solutions in 2022. Keenly aware of the extent of the challenges involved in the environmental transition, the Group offers solutions that are more than just financial and involve including ESG factors in the client journey right from the analysis of need stage. The new range of advisory solutions for corporate clients aims to:

1.

assist them in navigating the complexities of the environment, informed by the Group’s participation in international industry initiatives. The aim is to help develop new skills, through both a sector-wide and cross-sector approach, backed by technical expertise and regulatory knowledge to provide the very best advice;

2.

cover their investment needs with a range of finance advice services spanning the debt and equity markets, engaging with public authorities to facilitate access to private investors and help ensure projects are financially viable.

The Group encourages the emergence of new environmental transition champions and puts out new product offerings to cater to financing small-scale projects and biodiversity-friendly solutions.

The Global Markets Incubator has been working with start-ups and entrepreneurs to turn their innovative ideas into market-ready solutions since 2018. The Incubator has also upped its support for Fintechs. Start-ups working on positive-impact solutions are invited to submit applications for the Incubator’s fifth round in 2022. Successful applicants will have access to the Bank’s experts in fields from capital markets to financing activities and private banking to nudge them to the next stage of their development – with the support of the Group. Societe Generale strives to forge strong partnerships with the start-ups selected for the programme to speed up development and bring innovative solutions to market to meet the sustainability goals of its corporate clients, financial institutions and private investors, as well as its own CSR ambitions.

The Group invested in Impak Finance, an impact rating agency, to provide ESG data and intelligence to start-ups so they can measure their CSR performance. Komercni banca, a subsidiary of the Group in the Czech Republic, acquired ESG consulting firm Enviros to grow its environmental transition advisory offer.

Looking more specifically at biodiversity, the Group joined forces with Ecotree to develop commercial offerings that promote meaningful CSR action by promoting reforestation to protect biodiversity. These partnerships were instrumental in the introduction this year of an investment product that contributes to the preservation of biodiversity.

Turning to sustainable mobility, ALD Automotive, the Group’s leasing subsidiary, took a stake in the capital of Skipr, an all-in-one corporate mobility solution for companies that want to offer options to their staff, for example, to choose a flexible and sustainable mobility budget instead of a company car. The mobility business and its associated costs are tracked using a dedicated centralised management platform. This new partnership will combine cutting-edge technology with deep mobility expertise, helping companies move towards more flexible, efficient and cost-effective sustainable mobility options.

Last, Societe Generale also partners with crowdfunding platform Lumo for energy infrastructure projects to offer opportunities for its retail customers to help finance the energy transition, and with Carbo, an app to measure – and cut – their carbon footprint.

By joining the UNEP-FI Net-Zero Banking Alliance in 2021, the Group undertook to align its portfolios with trajectories aiming for carbon neutrality by 2050 (limiting global warming to 1.5°C), setting itself targets for 2030 (or sooner) and 2050, giving priority to its most GHG-intensive sectors. On top of its previous targets for thermal coal sectors (pledging to fully withdraw from the sector by 2030 for OECD countries and by 2040 elsewhere) and the shipping industry, Societe Generale has raised the bar with bolder and more ambitious targets for the oil and gas production sectors and financing of power generation. After implementing solid measures, including withdrawing from onshore Reserve Based Lending activities in the US, the Group raised its exposure target to -20% by 2025 vs. 2019 (from the previous -10% by 2025). What is more, it has set a new target for 2030 (vs. 2019) for a 30% reduction in absolute carbon emissions related to end use of oil and gas production. As regards power generation, the Group now has a stricter target for CO2 emissions intensity of 125g of CO2 per kWh by 2030 compared to the previous 2030 target of 163g of CO2 per kWh.

Societe Generale’s efforts have been applauded: the Bank was acclaimed for its global leadership in sustainable finance, winning Outstanding Leadership in Sustainable Finance from Global Finance and World’s Best Bank Transition Strategy - 2022 for its energy transition strategy from Euromoney.

2.4.1.2  Making a positive impact on local communities

Putting its client-centric values into practice, the Group is focusing on making a positive impact on local communities. It gets in behind social and economic transformation at local level by financing infrastructure projects – especial social infrastructure – and supporting SMEs and entrepreneurs. Through its car leasing subsidiary, the Group’s ambition is to be at the forefront of the transition to sustainable mobility. Societe Generale is also expanding its social and inclusive range of products and services, particularly in Africa, where its presence dates back over a long period. This commitment to sustainable development on the African continent features regularly on award lists: the Bank received no fewer than 17 accolades at the 2022 EMEA Finance magazine African Banking Awards.

For Societe Generale, infrastructure financing is a key driver of sustainable regional development. Support for infrastructure projects will improve access to health, education and digital technologies, while also helping to create more sustainable mobility, namely public transport.

Backed by our acknowledged expertise, we lay special emphasis on developing digital cohesion, strong and resilient health and education infrastructure, and access to sustainable transport and public services both locally and internationally. Through the combined impact of innovation and agility, the Bank offers finance solutions tailored to the needs of developers, public bodies and infrastructure funds to step up and meet the myriad challenges of shifts in technologies and its uses, and the vital imperative of progressing the energy transition and the move to more sustainable models.

In France, for example, the Group is involved in financing 25 fibre projects with leading private operators to connect 16 million households and companies. All in all, Group financing for access to IT infrastructure in 2022 amounted to EUR 830 million (+20% vs. 2021).

In Africa, Societe Generale merges local (around 60 experts) and global expertise behind major projects with a positive impact on the continent. It partners with leading development banks, investment funds and international consulting firms to build out and deploy its range of services. The target for the period 2021–2025 is a 20% increase in the Group’s structured finance commitments in Africa. At end-2022, these commitments are estimated to be EUR 13.8 million, an increase of 12% vs. 2021.

In total, Societe Generale has committed nearly EUR 4 billion to social infrastructure financing.

The Group gives priority to developing local economies through its support for SMEs and entrepreneurs. In tandem with setting up its new retail bank in France, Societe Generale launched a specific new resource for this client segment which entails new advisory and financing solutions offered together with its leading partners. The main components of this offer are:

environmental and social loans (Prêt Environnemental et Social, PES) to fund environmental and social sustainability projects. PES loan origination totalled EUR 443.5 million in 2022;

positive impact loans in partnership with EcoVadis and EthiFinance for companies, organisations and locales or regional authorities to offer finance solutions that incorporate an ESG indicator and a target for this indicator;

a dedicated photovoltaic and wind energy team to handle financing of these projects;

partnership with LUMO, a Societe Generale subsidiary, the crowdfunding platform helping clients secure funding for environmental and social impact projects;

connecting Group customers with leading organisations, such as EcoVadis, Ethifinance and Carbo for CSR expertise;

local support system in the regions, based on key contacts.

On the international stage, the Group’s objective is to double its credit exposure to African SMEs between 2020 and 2025. In 2022, the figure totalled EUR 430 million.

Societe Generale subsidiary ALD Automotive (ALD) is a European leader in long-term vehicle lease solutions, with sustainable mobility as the linchpin of its strategy. Sustainable mobility is not just about vehicle technology, it’s also about transforming how we use transport and how to meet new expectations. In its 2025 growth plan, ALD sets specific targets for increasing the share of electric vehicles(1) in new vehicle deliveries to at least 30% by 2025 and 50% by 2030. At 31 December 2022, it was 27%. ALD is also investing in new shared, on-demand or multimodal mobility solutions. Take ALD Move, a mobility-as-a-service app: users can tap into daily advice on the best options for their travel needs (car, public transport, bike) and manage their “mobility budget”.

Under its financial inclusion policy, Societe Generale supports innovative approaches to sustainable economic development that combine environmental and societal performance, by supporting the development of microfinance operators, in France and abroad. It also offers tailored products and services for students, customers in financial difficulty or those looking for more autonomy as part of its drive for more inclusive finance. In France, it also offers services for customers in a financially precarious position so they have access to appropriate banking services for their situation.

The Group has worked in partnership with ADIE (a non-profit promoting the right to economic initiative) since 2006 to support microfinance throughout both metropolitan and overseas France. Credit lines provided in partnership with ADIE totalled EUR 18.2 million at the close of the year, vs. EUR 18.3 million at 31 December 2021.

Back in 2005, faced with the extent of the need for microfinance and its emergence in Africa, Societe Generale made the decision to support the sector and, through its intermediary, to help boost the local bank penetration rate for local people, micro-enterprises and SMEs with no access to traditional banks. Acting on its pledge to double lending to microfinance organisations by 2022, the Group met its target with EUR 120 million outstanding at the close of 2022.

In France, Societe Generale renewed its partnership with Bpifrance, offering loans to students who have no income and nobody to act as guarantor for them. Once again in 2022, the Group was the top distributor of Bpifrance student loans with a total of EUR 61 million paid out (from a budget of EUR 70 million).

Kapsul was introduced in 2022. This is a new inclusive tool intended for customers who want to be independent and manage on a budget. Available online or in-branch, the account costs EUR 2 per month. There are no income conditions and no other account charges. Account holders can make payments from anywhere in the world and can also get an international Visa card with insurance and assistance cover. At 31 December 2022, 5,622 customers had signed up for a Kapsul account (+9% vs. 2021).

The Groupe provides a free package of basic banking services in France. Customers can sign up to Généris, a banking services package designed to help them manage their finances for just EUR 1 a month, down from EUR 3 previously . At the end of 2022, Généris had 55,355 customers (55,831 at the end of 2021). Societe Generale is keenly aware of the needs of vulnerable customers and provides specific budget simulation tools and budget management advice. Its customer service teams also receive special training.

(1)

Electric vehicle = Battery-powered electric vehicle + Rechargeable hybrid electric vehicle + Hydrogen-powered vehicle. Targets set for deliveries of new passenger vehicles for the EU + Norway + United Kingdom + Switzerland.

WHAT WE ARE DOING TO HELP CUSTOMERS WITH THE COST-OF-LIVING SQUEEZE

Inflation is part of the new financial reality and the rising cost of living presents new challenges. As a responsible bank, the Group has taken steps to help customers worried about money, especially vulnerable customers and students who have faced a host of difficulties since the pandemic.

The cost of banking services for vulnerable customers will be reduced to EUR 1 per month (from EUR 3 currently). As well as being the No. 1 distributor of Bpifrance government-backed loans for students, without personal guarantees or income conditions, Societe Generale and Crédit du Nord also grant student loans at cost. Lastly, for all our customers, the Group has pledged not to raise bank fees in 2023 (card fees, account fees, etc.).

Societe Generale Insurance introduced four key measures for policyholders in 2022:

freeze on borrowers’ insurance rates for loans distributed by the Societe Generale Group network;

freeze on the rates for the main individual life assurance products so customers can protect their families against the unexpected;

below-inflation increases in average car and home insurance premiums in 2022 and 2023;

a series of specific measures to protect vulnerable customers, especially young people: freeze on home insurance rates for students and car insurance reductions for young working people and children of policyholders.

Societe Generale Insurance has given its full backing to the “anti-inflation pack” presented to the French government by the insurance industry to help young jobseekers contend with the rising cost of living: a EUR 100 discount on car insurance for under-25s and the option to stay on their parents’ health insurance policy. Societe Generale Insurance pays special heed to customers preparing for retirement with no fees on payments to Societe Generale individual retirement savings accounts (PER) until the end of 2022.

2.5 SIGNIFICANT NEW PRODUCTS OR SERVICES

2.5.1 LAUNCH OF SOCIETE GENERALE’S PAYMENT & TRANSACTION BANKING START-UP ACCELERATOR

Societe Generale launches its first acceleration programme dedicated to startups linked to Trade Finance, Cash Management, Factoring, and Cash Clearing & Correspondent Banking activities.

The Group, a partner of many startups, is launching a new call for projects to improve the customer experience in the transaction banking sector, by increasing the performance and productivity of its activities. With the new “Payment & Transaction Banking Accelerator” (P&T BAX), Societe Generale aims to repeat the successful experience of the previous four Global Markets Incubator initiatives that have enabled startups to emerge and develop in partnership with Societe Generale.

The P&T BAX programme is a unique opportunity for entrepreneurs to convert innovative ideas into market-ready solutions and to gain valuable exposure to the industry. The proposed solutions may be related to data, client communication interfaces, CSR and the fight against fraud, amongst other topics. The selected startups will have access to Societe Generale’s expertise, with the opportunity to present their solutions and services to real-life business environments.

“In a constantly changing environment, Societe Generale’s payment & transaction banking activities are accelerating their digital transformation thanks to their ability to collaborate with startups. By combining our respective expertise and cultures, we are resolutely accompanying our customers into the world of tomorrow”, commented Alexandre Maymat, Head of Global Transaction & Payment Services at Societe Generale.

“Being innovative and pioneering is part of Societe Generale’s DNA. With the Payments & Transaction Banking Accelerator, we are taking a strong role in supporting the startup ecosystem and in transforming transaction banking activities”, added Claire Calmejane, Chief Innovation Officer for Societe Generale Group.

2.6 ANALYSIS OF THE CONSOLIDATED BALANCE SHEET

(In EURbn)

31.12.2022

31.12.2021

Cash, due from central banks

207,013

179,969

Financial assets at fair value through profit or loss

329,437

342,714

Hedging derivatives

32,850

13,239

Financial assets at fair value through other comprehensive income

37,463

43,450

Securities at amortised cost

21,430

19,371

Due from banks at amortised cost

66,903

55,972

Customer loans at amortised cost

506,529

497,164

Revaluation differences on portfolios hedged against interest rate risk

(2,262)

131

Investments of insurance companies

158,415

178,898

Tax assets

4,696

4,812

Other assets

85,072

92,898

Non-current assets held for sale

1,081

27

Deferred policyholders’ participation asset

1,175

-   

-Investments accounted for using the equity method

146

95

Tangible and intangible fixed assets

33,089

31,968

Goodwill

3,781

3,741

TOTAL

1,486,818

1,464,449

(In EURbn)

31.12.2022

31.12.2021

Due to central banks

8,361

5,152

Financial liabilities at fair value through profit or loss

300,618

307,563

Hedging derivatives

46,164

10,425

Due to banks

133,176

135,324

Customer deposits

132,988

139,177

Debt securities issues

530,764

509,133

Revaluation differences on portfolios hedged against interest rate risk

(9,659)

2,832

Tax liabilities

1,638

1,577

Other liabilities

107,553

106,305

Non-current liabilities held for sale

220

1

Insurance contract related liabilities

141,688

155,288

Provisions

4,579

4,850

Subordinated debt

15,946

15,959

Shareholder’s equity

66,451

65,067

Non-controlling interests

6,331

5,796

TOTAL

1,486,818

1,464,449

2.6.1 MAIN CHANGES IN THE CONSOLIDATION SCOPE

The main changes to the consolidation scope at 31 December 2022 compared with the scope applicable at the closing date of 31 December 2021 is as follows:

Sale of Rosbank and its insurance subsidiaries in Russia: Societe Generale announced on 18 May 2022 the closing of the sale of the Rosbank group and its Russian insurance subsidiaries to Interros Capital. The financial consequences of the divestment are presented below:

- a reduction in the Group’s total balance sheet of EUR 16 billion, mainly including a decrease in Customer loans at amortised cost of EUR 10 billion and a decrease in Customer deposits of EUR 13 billion,

- a capital loss on the disposal, reported under Net income/expense from other assets in 2022, of EUR -3.3 billion before tax. The loss includes a translation difference reclassified into income for EUR -0.5 billion, which was the cumulated amount at 18 May after an increase of EUR 0.5 billion on back of ruble appreciation between 1 January 2022 and the date of the disposal.

2.7 FINANCIAL POLICY

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 in order to apply the regulatory changes related to the implementation of new “Basel 3” regulations.

2.7.1 GROUP SHAREHOLDERS’ EQUITY

Group shareholders’ equity totalled EUR 66.5 billion at 31 December 2022. Net asset value per share was EUR 70.50 and net tangible asset value per share was EUR 62.34 using the new methodology disclosed in Chapter 2 of this Universal Registration Document, on page 45. Book capital includes EUR 10.0 billion in deeply subordinated notes.

At 31 December 2022, Societe Generale possessed, directly or indirectly, 48.7 million Societe Generale shares, representing 5.73% of the capital (excluding shares held for trading purposes).

Under the liquidity contract implemented on 22 August 2011 with an external investment services provider, Societe Generale acquired 734,806 shares in 2022 for a value of EUR 19.7 million and sold 768,306 shares for a value of EUR 20.8 million. For the record, the liquidity contract was temporarily suspended from 8 August to 31 December 2022 throughout the share buyback period.

The information concerning the Group’s capital and shareholding structure is available in Chapter 7 of this Universal Registration Document, page 635 and following.

2.8 MAJOR INVESTMENTS AND DISPOSALS

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.

Business division

Description of investments

2022

 

 

No major investment finalised in 2022

2021

 

International Retail Banking and Financial Services

Acquisition of Fleetpool, a leading German car subscription company.

International Retail Banking and Financial Services

Acquisition of Banco Sabadell’s subsidiary (Bansabadell Renting) specialised in long-term renting and the signing of an exclusive white label distribution agreement with Banco Sabadell.

International Retail Banking and Financial Services

Acquisition by ALD of a 17% stake in Skipr, a start-up specialised in mobility as a service.

2020

 

International Retail Banking and Financial Services

Acquisition of Reezocar, a French platform specialised in the online sale of used cars to individuals.

French Retail Banking

Acquisition of Shine, the neobank specialised in the professional and SME segments.

International Retail Banking and Financial Services

Acquisition of Socalfi, entity specialised in consumer credit in New Calendonia.

French Retail Banking

Acquisition by Franfinance of ITL, the equipment leasing company specialised in the environmental, manufacturing and healthcare sectors.

Business division

Description of disposals

2022

 

International Retail Banking and Financial Services

Disposal of Societe Generale Group’s and Sogecap’s entire stakes in Rosbank and two joint ventures co-held with Rosbank (Societe Generale Strakhovanie LLC and Societe Generale Strakhovanie Zhizni LLC).

Corporate Centre

Sale of a 5% stake in Treezor to MasterCard, reinforcing an industrial partnership.

International Retail Banking and Financial Services

Disposal of a minority stake in Schufa, a credit rating agency in Germany.

2021

 

Global Banking and Investor Solutions

Disposal of Lyxor, a European asset management specialist.

2020

 

International Retail Banking and Financial Services

Disposal of SG Finans AS, an equipment finance and factoring company in Norway, Sweden and Denmark.

International Retail Banking and Financial Services

Disposal of Société Générale de Banque aux Antilles.

International Retail Banking and Financial Services

Disposal by ALD of its entire stake in ALD Fortune (50%) in China.

Global Banking and Investor Solutions

Disposal of the custody, depository and clearing activities in South Africa.

2.9 PENDING ACQUISITIONS AND MAJOR CONTRACTS

2.9.1 FINANCING OF THE MAIN ONGOING INVESTMENTS

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

2.10 PROPERTY AND EQUIPMENT

The gross book value of Societe Generale Group’s tangible operating fixed assets amounted to EUR 47.2 billion at 31 December 2022. The figure comprises land and buildings (EUR 5.2 billion), the right of use (EUR 3.2 billion), assets leased by specialised financing companies (EUR 32.9 billion) and other tangible assets (EUR 5.9 billion).

The net book value of tangible operating assets and investment property amounted to EUR 30.2 billion, representing only 2% of the consolidated balance sheet at 31 December 2022.

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

(1)

A call option would be granted to Societe Generale to purchase the 49% owned by AllianceBernstein and reciprocally, a put option would be granted to AllianceBernstein to sell its 49% to Societe Generale as of the fifth anniversary of the closing date, and for a one-month period each successive year thereafter.

2.11 POST-CLOSING EVENTS

None.

2.12 STATEMENT ON POST-CLOSING EVENTS

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 13 March 2023.

2.13 INFORMATION ABOUT GEOGRAPHIC LOCATIONS AND ACTIVITIES AT 31 DECEMBER 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 entities included in their consolidation scope, in each State or territory.

Société Générale publishes below the information relative to staff and the financial information by countries or territories.

The list of locations is published in the Note 8.5 of the notes to the consolidated financial statements.

Country

Staff*

NBI*

Earnings before

corporate tax*

Corporate tax*

Deferred

corporate tax*

Other taxes*

Subsidies*

South Africa

-

0

(0)

(0)

-

-

-

Algeria

1,621

169

72

(19)

(1)

(7)

-

Germany

2,983

1,082

322

(124)

17

(2)

-

Australia

62

42

8

(4)

0

(1)

-

Austria

83

26

5

(3)

(0)

(0)

-

Belarus

3

2

1

(0)

0

-

-

Belgium

358

123

58

(6)

(7)

(1)

-

Benin

229

25

12

(1)

(3)

(1)

-

Bermuda(1)

-

1

1

-

-

-

-

Brazil

371

82

37

(7)

(8)

(14)

-

Bulgaria

38

6

4

(0)

0

-

-

Burkina Faso

284

60

27

(6)

(1)

(3)

-

Cameroon

657

138

50

(16)

1

(4)

-

Canada

64

36

9

(4)

0

(1)

-

Chile

37

5

0

-

0

(0)

-

China

269

76

29

(4)

4

(0)

-

Colombia

29

4

2

(1)

2

(0)

-

Congo

144

29

8

(2)

(0)

(1)

-

South Korea

107

103

36

(20)

7

(3)

-

Cote d’Ivoire

1,403

315

145

(26)

(2)

(8)

-

Croatia

49

11

7

(1)

0

(0)

-

Curacao(2)

-

-

-

-

-

-

-

Denmark

131

43

24

(4)

1

-

-

United Arab Emirates

58

3

(13)

-

-

(0)

-

Spain

683

367

229

(56)

(7)

(2)

-

Estonia

13

3

2

(1)

-

(0)

-

United States

1,969

1,869

703

(11)

(116)

(7)

-

Finland

123

55

38

(8)

1

-

-

France

55,977

13,537

(1,824)

11

(139)

(1,638)

-

Ghana

543

77

25

(13)

5

(0)

-

Gibraltar

-

5

1

-

(0)

(1)

-

Greece

46

8

4

-

(1)

(0)

-

Guinea

302

78

24

(15)

4

(2)

-

Equatorial Guinea

236

16

6

(2)

-

(1)

-

Hong Kong

1,069

700

257

(30)

(0)

(1)

-

Hungary

99

18

12

(2)

(0)

(0)

-

Îles Caïmans(3)

-

-

-

-

-

-

-

India(4)

10,616

42

66

(55)

(0)

(1)

-

Ireland

188

113

50

(10)

0

(0)

-

Italy

2,014

932

457

(76)

(33)

(3)

-

Japan

214

235

93

(30)

1

(2)

-

Jersey

-

18

5

(2)

0

-

-

Latvia

21

4

2

(0)

-

-

-

Lithuania

13

5

4

(1)

(0)

(0)

-

Luxembourg

1,357

758

317

(34)

9

(29)

-

Madagascar

1,032

81

37

(8)

0

(5)

-

Malaysia

16

0

(3)

-

0

-

-

Morocco

3,667

527

195

(71)

(8)

(18)

-

Mauritius

190

29

11

(1)

(3)

(2)

-

Mexico

128

30

20

(10)

(1)

(0)

-

Monaco

321

130

25

(11)

1

(0)

-

Norway

66

17

4

-

(1)

-

-

New Caledonia

305

80

41

(12)

(1)

(0)

-

Netherlands

299

143

88

(13)

(11)

(0)

-

Peru

26

4

2

(1)

(0)

-

-

Poland

497

101

49

(11)

1

(3)

-

French Polynesia

262

52

26

(13)

(1)

(1)

-

Portugal

129

37

27

(5)

(2)

-

-

Czech Republic

7,887

1,625

910

(157)

(12)

(53)

-

Romania

9,003

713

361

(61)

(2)

(17)

-

United Kingdom

3,185

1,878

879

(219)

39

(12)

-

Russian Federation

115

393

114

(21)

(4)

(7)

-

Senegal

920

112

39

(16)

(0)

(8)

-

Serbia

32

10

8

(2)

0

(0)

-

Singapore

216

161

66

(4)

(0)

(0)

-

Slovakia

116

32

25

(4)

(1)

(0)

-

Slovenia

19

5

4

(1)

0

(0)

-

Sweden

165

85

43

(9)

0

(0)

-

Switzerland

550

264

59

(13)

0

(0)

-

Taiwan

44

33

(6)

(1)

5

(2)

-

Chad

212

29

4

(3)

0

(2)

-

Thailand

3

0

(0)

-

-

-

-

Togo

48

6

5

(0)

-

(0)

-

Tunisia

1,400

154

59

(27)

3

(5)

-

Turkey

105

103

98

(0)

(24)

(0)

-

Ukraine

45

4

1

(1)

(2)

-

-

TOTAL

115,466

28,059

4,507

(1,274)

(286)

(1,867)

-

*

Staff: Full-time equivalent (FTE) as at closing date. Staff members of entities accounted for by the equity method and entities removed during the year are excluded.

NBI: Net banking income by territorial contribution to the consolidated statement, in millions of euros, before elimination of intragroup reciprocal transactions. Net income from companies accounted for by the equity method is directly recorded in the earnings before tax, there is no contribution from them.

Earning before tax: Earning before tax by territorial contribution to the consolidation statement, in millions of euros, before elimination of intragroup reciprocal transactions.

Corporate taxes: Such as presented in the consolidated statement in accordance with the IFRS standards and by distinguishing the current taxes of the deferred taxes, in millions of euros.

Other taxes: Other taxes include among others payroll taxes, the C3S, the contribution to the SRF, CET taxes and local taxes. The data arise from the consolidated reporting and from management report, in millions of euros.

Public subsidies received: Non-matching or non-refundable subsidies granted by a public entity on a one-off or renewable basis to complete a clearly defined project.

(1)

Income from the entity located in Bermuda is taxed in France.

(2)

The entity located in Curacao was liquidated in 2022.

(3)

Income from the entity located in Cayman Islands is taxed in the United States.

(4)

Most of the staff located in India is assigned to a shared services centre, the re-invoicing income of which is recorded in general and administrative expenses and not in NBI.

 

3 CORPORATE GOVERNANCE

 

3.1 BOARD OF DIRECTORS’ REPORT ON CORPORATE GOVERNANCE

3.1.1 GOVERNANCE

Purpose

The Board of Directors reviewed the Bank’s purpose in 2019 following the introduction of French Act No. 2019-486 on 22 May 2019, referred to as the Pacte Law, the aim of which is to provide action plans for innovation, business growth and transformation. The Board defined the new purpose 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 of Directors determines the strategic focus of the Company’s activity and ensures that it is 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 take account of this change.

At 1 January 2023

The composition of the Board of Directors is presented on pages 74 and following of this report on corporate governance. The internal rules of the Board of Directors, which define the Board of Directors’ powers, are provided in Chapter 7 of this Universal Registration Document, on pages 650 and following. The Board of Directors’ work is presented on pages 92-94.

The composition of General Management and of the Management Committee is presented in the corresponding sections of this report (see pages 105-107 and 109).

The tasks of the supervisory committees are described on page 108.

The powers of the Board of Directors and of its various committees, along with the committees’ activity reports, are presented on pages 89 and following, and notably cover:

the role of the Chairman and the report on his activities, page 89;

the Audit and Internal Control Committee, page 95-98;

the Risk Committee, page 98-100;

the Compensation Committee, page 101-102;

the Nomination and Corporate Governance Committee, pages 102-104.

Information regarding the non-voting Director's role and a report on his activities appear on pages 72, 79, 93 and 104.

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 17 May 2022.

Frédéric Oudéa is 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 of office. The Chief Executive Officer and the two Deputy Chief Executive Officers are assisted by two Deputy General Managers who are not corporate officers.

On 17 January 2022, Frédéric Oudéa, the 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. On 1 January 2023, he took over responsibility for Resources & Digital Transformation, the IT Function and innovation, and the Information System.

On 17 January 2022, Diony Lebot became responsible for overseeing all ESG policies and their effective incorporation into the strategic trajectories adopted by the Group’s business units and functions. She also supervises the specialised financial services (ALD and SGEF) and insurance activities.

Philippe Aymerich is Deputy Chief Executive Officer in charge of French and International Retail Banking activities.

Societe Generale refers to the AFEP-MEDEF Corporate Governance Code for listed companies (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 states that it applies all recommendations from the AFEP-MEDEF Code.

An amended set of internal rules amended on 2 August 2022 (hereinafter referred to as the “internal rules”) governs the functioning of the Board of Directors and its committees. The Company’s internal rules and By-laws appear in the Universal Registration Document (see Chapter 7).

3.2 STATUTORY AUDITORS’ REPORT ON RELATED-PARTY AGREEMENTS

ERNST & YOUNG et Autres
Tour First
TSA 1444492037
Paris-La Défense Cedex
S.A.S. à capital variable
438 476 913 R.C.S. Nanterre

DELOITTE & ASSOCIÉS
6, place de la Pyramide
92908 Paris-La Défense Cedex
S.A.S. au capital de € 2.188.160
572 028 041 R.C.S. Nanterre

SOCIETE GENERALE
Société Anonyme
17, cours Valmy
92972 Paris-La Défense

Annual General Meeting held to approve the financial statements for the year ended December 31, 2022

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 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 inform 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 prior to their approval.

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 continuation of the implementation during the year ended December 31, 2022, of the 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.

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, 2022, 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).

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, 2022.

Paris-La Défense, March 13, 2023

The Statutory Auditors

ERNST & YOUNG et Autres

Micha Missakian Vincent ROTY

Deloitte & Associés

Jean-Marc MICKELER Maud MONIN

 

4 RISK AND CAPITAL ADEQUACY

 

KEY FIGURES

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 13.34% at end 2022, the phasing effect being +17 bps) and the effects of the ECB’s Covid-19 transitional measures ending on 31 December 2022.

4.1 RISK FACTORS BY CATEGORY

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.

As part of its internal risk management, Societe Generale has updated its risk typology. For the purposes of this section, these different types of risks have been grouped into six main categories (4.1 to 4.1.6), in accordance with Article 16 of the Regulation (EU) 2017/1129, also known as “Prospectus 3” regulation of 14 June 2017, according to the main risk factors that the Group believes could impact the risk categories. Risk factors are presented based on an evaluation of their materiality, with the most material risks indicated first within each category.

The diagram below illustrates how the categories of risks identified in the risk typology have been grouped into the six categories and which risk factors principally impact them.

4.1.1 RISKS RELATED TO THE MACROECONOMIC, GEOPOLITICAL, MARKET AND REGULATORY ENVIRONMENTS

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 2022), 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 and fluctuations in commodity prices (notably oil and natural gas). Other factors could explain such deteriorations, such as variations in 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). In addition, the Covid-19 crisis continues to have an impact mainly in China, where the so-called “Zero Covid” policy has begun to be relaxed. Such events, which can develop quickly and whose effects 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 and financial environment is exposed to intensifying geopolitical risks. The war in Ukraine which began in February 2022 has led to high tensions between Russia and Western countries, with significant impacts on global growth, energy and raw materials prices, as well as on a humanitarian level. The economic and financial sanctions imposed by a large number of countries, particularly in Europe and the United States, against Russia and Belarus could significantly affect operators with direct or indirect links to Russia, with a material impact on the Group’s risks (credit and counterparty, market, reputation, compliance, legal, operational, etc.). The Group will continue to analyse in real time the global impact of this crisis and to take all necessary measures to comply with applicable regulations.

In Asia, US-China relations are fraught with trade tensions and the risk of technological fractures.

After a long period of low interest rates, the current inflationary environment is leading the major central banks to raise rates. The entire economy will need to adapt to a context of higher interest rates. In addition to the impact on the valuation of equities, interest rate-sensitive sectors such as real estate will have to adjust. The US Federal Reserve and the European Central Bank (ECB) are expected to continue to tighten monetary conditions in the first half of 2023 before taking a break as inflation recedes according to our predictions. In the meantime, inflation in the US and Europe continues to impact the price of services, food and energy.

This crisis could generate strong volatility on the financial markets and a significant drop in the price of certain financial assets, potentially leading to payment defaults, with consequences that are difficult to anticipate for the Group. In France, after the long period of low interest rates which fostered an upturn of the housing market, a reversal of activity in this area could have an adverse effect on the Group’s asset value and on business, by decreasing demand for loans and resulting in higher rates of non-performing loans. More generally, the higher interest rates environment in a context where public and private debts have tended to increase is an additional source of risk.

Considering the uncertainty generated by this situation, both in terms of duration and scale, these disruptions could persist throughout 2023 and have a significant impact on the activity and profitability of certain Group counterparties.

Against the backdrop of the continuing war in Ukraine, the reduction in Russian gas imports and the introduction of an embargo on Russian oil on 5 December 2022, the European energy sector is facing a more difficult and uncertain situation. Gas prices have risen and remain highly volatile. A total halt in Russian gas supplies combined with a post-Covid-19 economic recovery in China could lead to a further spike in gas prices, affecting European economic growth.

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.

With regard to 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. 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.

On the mobility market, due to the shortage of new car supply, demand for used vehicles has risen, pushing up resale prices sharply. As a result, ALD has recorded a historically high result on used vehicle sales for the past year. The Group is exposed to a potential loss in a financial year from (i) resale of vehicles related to leases which expire during the period whose resale value is lower than their net carrying amount and (ii) additional impairment during the lease period if residual value drops below contractual residual value. Future sales and estimated losses are impacted by external factors such as macroeconomic conditions, government policies, tax and environmental regulations, consumer preferences, new vehicle prices, etc. The Group anticipates for 2023 that supply chains may not return to normal immediately, which could support the resale prices of used vehicles.

The Group’s results are therefore exposed to the economic, financial, political and geopolitical conditions of the main markets in which the Group operates.

4.1.1.2 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.

The Group is fully on track to achieving its strategic milestones and has set targets for profitable and sustainable growth out to 2025 with:

average annual revenue growth of 3% or greater over the 2021-2025 period by focusing on growth in the most profitable businesses;

an improved cost to income ratio equal to or lower than 62% in 2025 and ROTE of 10% based on a targeted CET1 ratio of 12% in 2025;

disciplined management of scarce resources, in addition to keeping a tight rein on risks, will help strengthen and improve the quality of the Bank’s balance sheet;

stringent loan portfolio management with cost of risk of around 30 basis points in 2025;

increased use of new technologies and digital transformation;

commitments in Environmental, Social and Governance areas.

More precisely, the Group’s “Vision 2025” project anticipates the merger between the Retail Banking network of Societe Generale in France and Crédit du Nord. Although this project has been designed to achieve controlled execution, the merger could have a short-term material adverse effect on the Group’s business, financial position and costs. System reconciliations could undergo delays, thereby postponing part of the expected merger benefits. The project could lead to some staff departures, requiring replacements and training efforts which could potentially generate additional costs. The merger could also lead to the departure of some of the Group’s customers, resulting in loss of revenue. The legal and regulatory aspects of the transaction could prompt delays and additional costs.

Following ALD’s announcement on 6 January 2022 of its plan to acquire LeasePlan, Societe Generale and ALD announced on 22 April 2022 the signing of a framework agreement, with the aim of creating a global leader in mobility solutions. The acquisition is notably subject to receiving certain regulatory approvals and to the performance of other standard conditions precedent.

The Group also announced in November 2022 the signing of a letter of intent with AllianceBernstein to combine the equity research and execution businesses in a joint venture to create a leading global franchise in these activities. This announcement was followed by the signature of an acquisition agreement in early February 2023.

The conclusion of final agreements on these strategic transactions depends on several stakeholders and, accordingly, is subject to a degree of uncertainty. The inability to close on the transactions would not have an immediate impact on the Group’s activity, but could potentially weigh on the share price, at least temporarily.

Societe Generale has placed Environmental, Social and Governance (ESG) at the heart of its strategy in order to contribute to positive transformations in the environment and the development of local regions. In this respect, the Group has made a certain number of commitments (see Chapter 2, page 46 and following and Chapter 5, page 291 and following). Failure to comply with these commitments, and those that the Group may make in the future, could harm its reputation. Furthermore, the rollout of these commitments may have an impact on the Group’s business model. Last, failure to make specific commitments could also generate reputation and strategic risk.

The Group may face execution risk on these strategic projects, which are to be carried out simultaneously. Any difficulty encountered during the process of integrating the activities (particularly from a human resources standpoint) is likely to generate higher integration costs and lower-than-anticipated savings, synergies and 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 General Management’s attention, which could have a negative impact on the Group’s business and results.

4.1.1.3 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 laws of the jurisdictions in which it operates. This includes French, European and US legislation as well as other local laws in light of the Group’s cross-border activities, among other factors. The application of existing laws and the implementation of future legislation require significant resources that could affect the Group’s performance. In addition, possible failure to compliance with laws could lead to fines, damage to the Group’s reputation, force the suspension of its operations or, in extreme cases, the withdrawal of operating licences.

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

several regulatory changes are still likely to significantly alter the framework for Market activities: (i) the possible strengthening of transparency constraints related to the implementation of the new requirements and investor protection measures (review of MiFID II/MiFIR, IDD, ELTIF (European Long-Term Investment Fund Regulation)), (ii) the implementation of the fundamental review of the trading book, or FRTB, which may significantly increase requirements applicable to European banks and (iii) possible relocations of clearing activities could be requested, despite the European Commission’s decision of 8 February 2022 to extend the equivalence granted to UK central counterparties until 30 June 2025;

new requirements resulting from the EU banking regulation reform proposal presented on 27 October 2021 by the European Commission. The reform consists of several legislative instruments to amend the directive on capital requirements (European Parliament and EU Council, Directive 2013/36/EU, 26 June 2013) as well as the regulation on capital requirements (CRR) (European Parliament and EU Council, regulation (EU) No. 575/2013, 26 June 2013);

in the United States, the implementation of the Dodd-Frank Act has almost been finalised. The Securities and Exchange Commission’s (SEC) regulations relating to security-based swap dealers have been implemented and Societe Generale has been registered with the SEC as a Securities Based Swap Dealer;

european measures aimed at restoring banks’ balance sheets, especially through active management of non-performing loans (“NPLs”), which are leading to a rise of prudential requirements and an adaptation of the Group’s strategy for managing NPLs. More generally, additional measures to define a framework of good practices for granting (e.g., loan origination orientations published by the European Banking Authority) and monitoring loans could also have an impact on the Group;

the strengthening of data quality and protection requirements and a future strengthening of cyber-resilience requirements in relation to the adoption by the Council on 28 November 2022, which completes the legislative process, of the European directive and regulation package on digital operational resilience for the financial sector;

the implementation of the European sustainable finance regulatory framework, with an increase in non-financial reporting obligations, enhanced inclusion of environmental, social and governance issues in risk management activities and the inclusion of such risks in the supervisory review and assessment process (Supervisory Review and Evaluation Process, or SREP);

the strengthening of the crisis prevention and resolution regime set out in the Bank Recovery and Resolution Directive of 15 May 2014 (“BRRD”), as revised, which gives the Single Resolution Board (“SRB”) the power to initiate a resolution procedure towards a credit institution when the point of non-viability is considered reached. In this context, the SRB could, in order to limit the cost to the taxpayer, force some creditors and the shareholders of the Group to incur losses in priority. Should the resolution mechanism be triggered, the Group could, in particular, be forced to sell certain of its activities, modify the terms and conditions of the remuneration of its debt instruments, issue new debt instruments, accept a depreciation of its debt instruments or convert them into equity securities. New legal and regulatory obligations could also be imposed on the Group in the future, such as:

-

the ongoing implementation in France of consumer-oriented measures affecting retail banking,

-

the potential requirement at the European level to open more access to banking data to third-party service providers,

-

new obligations arising from a package of proposed measures announced by the European Commission on 20 July 2021 aiming to strengthen the European supervisory framework around the fight against money laundering and terrorist financing, as well as the creation of a new European agency to fight money laundering;

from 2023, new regulatory texts will enter into force concerning rate risk of Banking Book (stress on IM, caps on maturity of deposits flows, etc.) and credit rate of banking portfolio. These new texts could constrain certain aspects of rate and credit risk monitoring.

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 largely implemented, 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.

4.1.1.4 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.), which themselves carry risks.

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.

4.1.1.5 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 risks, counterparty risks, market risks, structural risks (including liquidity and funding risks), operational risks, reputational risks, compliance risks and 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 certain of 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 in the absence of guarantee mechanisms provided by specialised financing companies).

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 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 labour rights or workplace health and safety issues, which may trigger or aggravate 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, 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 the operational cost of implementation of regulations related to labour laws and the management of its human resources.

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

4.1.1.6 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 a 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 minimising 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, paragraph 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 Societe Generale 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.

4.2 RISK MANAGEMENT ORGANISATION

4.2.1 RISK APPETITE

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

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:

an organisation with 14(1) Business Units (BUs) offering various products and services to the Group’s clients in different geographic locations;

balanced selective capital allocation between activities:

-

a preponderance of retail banking activities in France and abroad, which currently represent more than 50% of risk weighted assets (“RWA”) of the Group,

-

limitation of Business Unit Global Markets’ share in the RWA of the Group. In accordance with its client-focused development strategy, the Group ceased its trading activities for its own account(2) in 2019, and finalised its project to simplify the products processed in 2021,

-

non-bank services activities, in particular Insurance and operating leasing activities are conducted in line with the business strategy; they demonstrate a disciplined risk profile and thus generate profitability compliant with the Group’s expectations;

a geographically balanced model:

-

in Retail Banking, the Group focuses on international development where it benefits from a historical presence, extensive market knowledge and top-tier positions, in Retail Banking activities,

-

as regards Global Banking and Investor Solutions, apart from historical establishments, the Group targets activities for which it can leverage international expertise;

a targeted growth policy, favoring existing areas of expertise, the sound quality business fund and the search for synergies in the diversified banking model;

a positive and sustainable contribution to the transformation of our economies, in particular with regard to the technological revolution, and economic, social and environmental transitions; CSR concerns are therefore at the heart of its strategy and the Group’s relationships with stakeholders (internal and external);

a strong vigilance as regards its reputation, deemed by the Group to be a high-value asset which must be protected.

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

aiming for profitable and resilient business development;

maintaining a rating allowing access to financial resources at a cost consistent with the development of the Group’s businesses and its competitive positioning;

calibrating its capital and hybrid debt monitorings to ensure:

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meeting the minimum regulatory requirements on regulatory capital ratios,

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compliance with the financial conglomerate ratio which considers the combined solvency of the Group’s banking and insurance activities,

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one-year coverage of the “internal capital requirement” using available CET1 capital,

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a sufficient level of creditor protection consistent with a debt issuance program that is particularly hybrid consistent with the Group’s objectives in terms of rating and regulatory ratios such as Tier 1, TLAC (“Total Loss Absorbing Capacity”), MREL (“Minimum Required Eligible Liabilities”), and the leverage ratio;

ensuring resilience of its liabilities, which are calibrated by taking into account a survival horizon in a liquidity stress ratio, compliance with LCR (Liquidity Coverage Ratio) and NSFR (Net Stable Funding Ratio) regulatory ratios and the level of dependence on short-term fundings and the foreign exchange needs of the Group’s businesses, particularly in dollars;

controlling the leverage ratio.

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 particular, concerning the underwriting risk, the Group, mainly through GLBA, makes a steadfast commitment to transactions at a guaranteed price as debt financing arranger, prior to syndicating them to other banking syndicates and institutional investors. If market conditions deteriorate or markets close while the placement is under way, these transactions may create a major over-concentration risk (or losses, if the transaction placement requires selling below the initial price).

(1)

Fourteen BUs, after CDN and BDDF merged on 1 January 2023.

(2)

In accordance with French banking law, the few residual trading activities of the Group unrelated to clients were isolated in a dedicated subsidiary called Descartes Trading.

The Group limits the cumulative amount of approved underwriting or underwriting positions in order to limit its risk in the event of a prolonged closure of the debt markets.

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 relies for the internal rating of counterparties on Balois models allowing the assessment of credit quality, supplemented for “non-retail” counterparties, by expert judgment. 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 most often to say expert. 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.

Concerning ESG risks (Environmental, Social & Governance), the assessment and management of the impact of ESG risk factors on credit risk is based in particular on the establishment of exclusion lists, portfolio alignment indicators (oil and gas and electricity production for example) and sensitivity analyses (in particular transition risk via the CCVI or Corporate Climate Vulnerability Index).

In general, credit granting policies must comply with the criteria defined within the framework of the Group’s Social and Environmental Responsibility (CSR) policy, which is broken down through:

the general environmental and social principles and the sectoral and cross-cutting policies appended to them. Sector policies cover sectors considered potentially sensitive from an environmental, social or ethical point of view;

the targets for alignment with the objectives of the Paris agreement, which the Group has set itself, starting with the sectors with the highest CO2 emissions;

commitment to granting sustainable financing classified as Sustainable and Positive Impact Finance and to sustainability linked transactions.

Risks related to climate change (physical and transition risks), which are an aggravating factor in the types of risks facing the Bank must be taken into account in risk assessment processes. An assessment of climate vulnerability (particularly in terms of transition risk) must be provided by the Business Unit for certain specific sectors and may have an impact on the internal rating so that it incorporates the client’s adaptation strategy (See also section 4.13 “Environmental, social and governance risks” of this Universal Registration Document).

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:

indicators of potential future exposures (potential future exposures, or PFE), aimed at measuring exposure to our counterparties:

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the Group controls idiosyncratic counterparty credit risks via a set of CVaR(2) limits. The CVaR measures the potential future exposure linked to the replacement risk in the event of default by one of the Group’s counterparties. The CVaR is calculated for a 99% confidence level and different time horizons, from one day until the maturity of the portfolio,

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in addition to the risk of a counterparty default, the CVA (Credit Valuation Adjustment) measures the adjustment of the value of our portfolio of derivatives and repos account the credit quality of our counterparties;

the abovementioned indicators are supplemented by stress test impacts frameworks or on nominal ones in order to capture risks that are more difficult to measure:

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the more extreme correlation risks are measured via stress tests at different levels (wrong-way risk, stress monitoring at sector level, risk on collateralised financing activities and agency),

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the CVA risk is measured via a stress test in which representative market scenarios are applied, notably involving the credit spreads of our counterparties;

exposures to central counterparty clearing houses (CCP) are subject to specific supervision:

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the amount of collateral posted for each segment of a CCP: the initial posted margins, both for our principal and agency activities, and our contributions to CCP default funds,

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in addition, a stress test measures the impact linked to (i) the default of an average member on all segments of a CCP and (ii) the failure of a major member on a segment of a CCP;

the Global Stress Test on market activities includes cross market-counterparty risks, it is described in more detail in the “Market risk” section;

besides, a specific framework that has been set up aims to avoid individual concentration related to counterparty risk in market operations.

(1)

For non-automated processes.

(2)

The CVaR economic indicator is built on the same modeling assumptions as the regulatory Effective Expected Positive Exposure (EEPE) indicator used to calculate RWAs.

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.

Non-financial risks are defined as non-compliance risk, risk of inappropriate conduct, IT risk, cybersecurity risk, other operational risks, including operational risk associated with credit risk, market risk, model risk, liquidity and financing, structural and rate risk. These risks can lead to financial losses.

Governance and a methodology have been put in place for the scope of non-financial risks.

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: