Société Générale / Risk report 2021 - Pillar 3 2020

8 SECURITISATION PRUDENTIAL TREATMENT OF SECURITISATION POSITIONS | SOCIETE GENERALE GROUP | PILLAR 3 - 2021 167 PRUDENTIAL TREATMENT OF SECURITISATION 8.6 POSITIONS APPROACH FOR CALCULATING RISK-WEIGHTED EXPOSURES Whenever traditional or synthetic securitisations, for which sponsorship, origination, structuring or management of Societe Generale is involved, achieve a substantial and documented risk transfer compliant with the regulatory framework, the underlying assets are excluded from the bank’s calculation of risk-weighted exposures for traditional credit risk. For the securitisation positions that Societe Generale decides to hold either on- or off-balance sheet, capital requirements are determined based on the bank’s exposure, irrespective of its underlying strategy or role. Institutions use one of the methods described in the hierarchy below to calculate the weighted exposure amounts: SEC-IRBA (approach based on internal ratings), when certain p conditions are met; when the SEC-IRBA cannot be used, the intitution uses the SEC-SA p (standardised approach); when the SEC-SA cannot be used, the institution uses the SEC-ERBA p (approach based on external ratings) for positions with an external credit rating or those for which it is possible to infer such a note. weighting by application of a correspondence table defined by the regulations. An annual review of the model makes it possible to verify that the performance and conservatism of the model. Also, in-depth analyses are carried out on inputs (transaction details such as default, dilution, or reserve rates), model parameters (transition matrices, PD, LGD) and an EL backtest. Methodological benchmarks are also regularly carried out in order to validate our internal approach in comparison with the best practices of the market. The unrated liquidity lines granted to ABCP programmes can be determined using the Internal Assessment Approach (IAA). With regard to the liquidity lines that the bank grants to the securitisation conduits it sponsors, Societe Generale obtained approval in 2009 to use the internal assessment approach. As such, Societe Generale has developed a rating model (IAA approach), which estimates the expected loss (Expected Loss - EL) for each Group’s exposure to securitisation conduits, which automatically leads to a capital In the other cases, the securitisation positions receive a risk weight of 1,250%. EXTERNAL CREDIT ASSESSMENT INSTITUTIONS USED BY SOCIETE GENERALE Assets securitised by Societe Generale are usually rated by one or more ECAIs (External Credit Assessment Institutions), the list of which is established by the French prudential supervisory authority ACPR ( Autorité de Contrôle Prudentiel et de Résolution ). The agencies used are DBRS, FitchRatings, Moody’s Investors Service and Standard & Poor’s. All four rating agencies have been registered with and supervised by the European Securities and Market Authority (ESMA) since 31 October 2011. The capital requirements for securitisation positions valued using the standardised approach are calculated based on the lowest external rating of the securitisation exposure. An equivalence (see table 29, p. 84) between external ratings and Societe Generale’s internal rating scale is provided, presenting Societe Generale’s internal rating scale and the corresponding scales of the main ECAIs, as well as the corresponding average estimated probabilities of default. TABLE 85: CREDIT RATING AGENCIES USED IN SECURITISATIONS BY TYPE OF UNDERLYING ASSETS Underlying assets MOODY'S FITCH S&P DBRS Residential mortgages P P P Commercial mortgages P P P Credit card receivables P P Leasing P P P Loans to corporates and SMEs P P P P Consumer loans P P Trade receivables P Other assets P Covered bonds P P P Other liabilites