Société Générale / Risk report 2021 - Pillar 3 2020

12 LIQUIDITY RISK ASSET ENCUMBRANCE PILLAR 3 - 2021 | SOCIETE GENERALE GROUP | 206 liquidity reserves and the collateral used in funding transactions, managing the corporate centre, the Asset and Liability Management Department is in charge of - modelling and controlling structural risks, including liquidity risk alongside interest rate and foreign exchange risks in the Banking Book; Business Units feeding a central data repository from which all metrics are produced, either regulatory metrics ( e.g . the LCR or the NSFR) or metrics used for internal steering ( e.g. stress test indicators); also sitting with the Group Finance Division, the Metrics Production p Department runs the management information system regarding liquidity and funding risks across the Group. For liquidity metrics, the Group relies on a centralised system architecture, with all the ALM Risk Department, which leads the risk identification p process, designs the structure and the calibration of the liquidity and funding risks control framework and monitors compliance with related thresholds and limits. It also validates liquidity models and conventions. ASSET ENCUMBRANCE 12.4 An asset shall be treated as encumbered if it has been pledged or if it is subject to any form of arrangement to secure, collateralise or credit enhance any transaction from which it cannot be freely withdrawn. Analysis of the balance sheet structure Total Group encumbrance amounts to 31% over 2020, measured according to the EBA definition (1) . Securities encumbrance is 71%, while loan encumbrance is 14%. The majority of the Group's encumbered assets (around 77%) is in the form of securities as a result of the relative size of capital market activities, mainly through repos, reverse repos and collateral swaps. Securities encumbrance is concentrated in SGPM and its branches, where Group market activities are located. The main sources of encumbrance are repo operations and debt securities issued. Encumbrance on assets in US dollars stems mainly from debt securities. The level of encumbered loans varies among Group entities mainly due to their respective business models, funding strategies and the type of underlying loans, as well as to the law governing them. A few points are noteworthy: at SGPM level, the loan encumbrance rate amounts to close to 34% (2) p at 2020 year-end, stemming mainly from housing loans. Encumbered loans are affected as collateral for the ECB’s TLTRO operations as well as long-term refinancing mechanisms which are broadly used by banks for covered bonds (SG SFH, SG SCF and CRH), securitisations or specific mechanisms; at subsidiary level, the loan encumbrance rate stands at 20% (2) p overall, with discrepancies between entities due to different funding strategies. The highest levels of secured funding correspond to entities which contribute to the pooling scheme (see below) or having implemented external funding programmes through securitisations such as BDK ( Bank Deutsches Kraftfahrzeuggewerbe ) and ALD, or other forms of secured funding. Besides, some subsidiaries (Crédit du Nord) have participated directly in TLTRO operations, which in turn impacted their loan encumbrance rate. As far as the loan encumbrance is concerned, there is a pooling scheme in which Crédit du Nord, Boursorama and to a lesser extent BFCOI (Réunion) bring a share of their housing loans portfolio to the Group. Regarding major long-term secured funding mechanisms, over-collateralisation on covered bond vehicles was 129% on SG SCF and 114% on SG SFH as at 31 December 2020. As far as SG SFH is concerned, underlying assets are mortgage loans guaranteed by Crédit Logement. Regarding SG SCF, assets consist of exposures on counterparties from the public sector. The unencumbered “Other assets” (excluding loans) include all derivatives and options products (interest rate swaps, cross currency swaps, currency options, warrants, futures, forward contracts…) as well as some assets that cannot be encumbered in the normal course of business. These assets include goodwill, fixed assets, deferred tax, adjustment accounts, sundry debtors and other assets. Median values on quarterly data. (1) According to a methodology consisting of encumbering the least liquid eligible assets (encumbered loans/total loans) first. (2)