Société Générale / Risk report 2021 - Pillar 3 2020

8 SECURITISATION MANAGEMENT OF SECURITISATION RISKS | SOCIETE GENERALE GROUP | PILLAR 3 - 2021 159 CREDIT RISK Securitisation exposures subject to credit risk are approved through the Group's standard credit approval process. New operations are presented by the business lines (LoD1) to the Risk Department, after approval by the business line manager. The Risk Department gives its opinion on these new transactions, which are approved according to the delegations in force. All exhibitions are subject to an annual review by the business line and the Risk Department. The rating of the transaction and the borrower as well as the LGD are therefore subject to an initial validation and an annual review for each transaction. In particular, the data used within the framework of the IAA (Internal Assessment Approach) securitisation model and the result of the calculations of this model are subject to specific validation. Regular monitoring is carried out independently of the business line and portfolio reviews are produced quarterly specifically on the bank's securitisation exposures. This monitoring makes it possible to identify any changes in the behaviour of securitised assets. Portfolio-level limits are granted by the Risk Committee for securitisation exposures. Stress tests are also carried out on these portfolios. The analysis of the credit risk of securitisation transactions covers the standard elements of credit risk: the performance of the underlying assets as well as that of the assignor/collector. Risk factors are reduced by structural elements of each transaction including default triggers, excess spread, delinquencies, segregated accounts and back-up collector. The monitoring of the credit risk on these transactions, of the performance of the underlying assets and of the covenants, is reviewed at portfolio level by the “Corporate and Investment Banking” division of the Risks department. each quarter during the Quarterly Portfolio Review prepared by the “Global Business Service Unit” with a focus on major events and sent to the “Corporate and Investment Banking” division of the Risk Department with a presentation in session every other quarter. A follow-up at the level of each transaction is carried out in detail each year during the Annual Review with a revalidation of the rating of the transaction. Resecuritisation exposures go through the same approval and monitoring process. MARKET RISK Securitisation exposures subject to market risk are monitored and controlled through Societe Generale's market risk standard market approval process, with additional controls specific to securitisation. The analysis of the market risk of securitisation transactions covers the standard elements of market risk: credit, spread, liquidity risk, interest rate risk (hedged with standard liquid interest rate instruments (US Treasuries , Eurodollar futures, interest rate swaps)). Securitisation exposures are subject to strict supervision through the setting of limits on specific assets in the securitisation field (CMBS, CLO, RMBS, ABS), according to several types of indicators: Value at risk (VaR) and Stressed value at risk (SVaR): synthetic p indicators, allowing day-to-day monitoring of market risk; stress test measurements, based on ten-year risk type indicators. p These metrics make it possible to limit the Group's exposure to systemic risks and cases of exceptional market shocks impacting securitisation activities; “sensitivity” and “nominal” indicators, which allow the size of p positions to be controlled; other specific indicators: nominal limits on the sizes of ABS p market-making inventories, cash at risk and stress test limits on financing activities collateralised by ABS, which makes it possible in particular to monitor the behaviour of the underlying assets under stress and supervise the Group's exposure in the event of market shocks. The Risk Department on Market Operations is in charge of examining limit requests made by the front office. These limits make it possible to ensure that the Group respects the appetite for the market validated by the Board of Directors, on a proposal from General Management. The daily monitoring of compliance with the limits by the front office is carried out by the Risk Department on market transactions. This continuous monitoring of the risk profile is the subject of frequent exchanges between the risk and business teams, which may result in various positions hedging actions by the front office aimed at reducing the level of risk of complying with the framework defined. In the event of an overrun, the front office must detail the reasons for the management concerned, and take the necessary measures to return to the defined framework, or otherwise request a temporary or permanent increase in the limit if customer demand, market conditions or risk assessment justify it. Resecuritisation exposures go through the same approval and monitoring process. STRUCTURAL AND LIQUIDITY RISKS The management of structural interest rate and change risks in securitisation activities does not differ from that of other Group assets. The management of the structural interest rate risk is described in Chapter 11 of this document. The liquidity risk linked to securitisation activities is monitored both at the level of the responsible business lines but also, centrally, at the level of the Finance Department, with in particular the measurement of the impact of these activities on liquidity ratios, stress tests and the Group's liquidity gaps. The organisation and management of liquidity risk are covered in Chapter 12 of this document.