Société Générale / Risk report 2021 - Pillar 3 2020

17 APPENDICES GLOSSARY PILLAR 3 - 2021 | SOCIETE GENERALE GROUP | 240 Bond : a bond is a fraction of a loan, issued in the form of a security, which is tradable and—in a given issue—grants rights to the issuer according to the issue’s nominal value (the issuer being a company, public sector entity or government). Cash Generating Unit (CGU) : the smallest identifiable set of assets which generates incoming cash flow which is generally independent from incoming cash flow generated by other assets or sets of assets in accordance with the IAS 36 accounting standard. “In accordance with IFRS standards, a company must determine the largest number of cash generation units (CGU) which make it up; these CGU should be generally independent in terms of operations and the Company must allocate assets to each of these CGU. Impairment testing must be conducted at the CGU level periodically (if there are reasons to believe that their value has dropped) or annually (if they include goodwill).” (Source: Les Echos.fr, citing Vernimmen) Collateral : transferable asset or guarantee used as a pledge for the repayment of a loan in the event that the borrower cannot meet its payment obligations. (Source: Bank of France Glossary - Documents et Débats - No. 4 - May 2012) Collateralised Debt Obligation (CDO) : see “Securitisation”. Collateralised Loan Obligation (CLO): see “Securitisation”. Commercial Mortgage-Backed Securities (CMBS) : see “Securitisation”. Common Equity Tier 1 capital : includes principally share capital, associated share premiums and reserves, less prudential deductions. Common Equity Tier 1 ratio : ratio between Common Equity Tier 1 capital and risk-weighted assets, according to CRD4/CRR rules. Common Equity Tier 1 capital has a more restrictive definition than in the earlier CRD3 Directive (Basel 2). Cost/income ratio : ratio indicating the share of net banking income (NBI) used to cover the Company’s operating costs. It is determined by dividing management fees by the NBI. Comprehensive Risk Measurement (CRM) : capital charge in addition to Incremental Risk Charge (IRC) for the credit activities correlation portfolio which accounts for specific price risks (spread, correlation, collection, etc.) The CRM is a 99.9% risk factor, meaning the highest risk obtained after eliminating the 0.1%most unfavourable incidents. Cost of commercial risk in basis points : the cost of risk in basis points is calculated comparing the net cost of commercial risk to loan outstanding at the start of the period. Net commercial risk load equals the cost of risk calculated for credit commitments (balance sheet and off-balance sheet), i.e. , allocations – recaptures (whether used or not used) + Losses on non-collectable receivables – collections on amortised loans and receivables. Allocations and recaptures of dispute provisions are excluded from this calculation. Counterparty credit risk : risk of losses stemming from market operations, should a counterparty fail to meet its payment obligations. The future market value of the exposure and the counterparty’s credit quality are uncertain and may vary over time as underlying market parameters change. Credit Conversion Factor (CCF) : the ratio between the currently undrawn amount of a commitment that could be drawn and that would therefore be exposed to default and the currently undrawn amount of the commitment, the extent of the commitment being determined by the authorised limit, unless the unauthorised limit is higher. Credit Default Swaps (CDS) : insurance mechanism against credit risk in the form of a bilateral financial contract, in which the protection buyer periodically pays the seller in return for a guarantee to compensate the buyer for losses on reference assets (government, bank or corporate bond) if a credit event occurs (bankruptcy, payment default, moratorium, restructuring). (Source: Bank of France Glossary - Documents et Débats - No. 4 - May 2012) Credit risk : risk of losses arising from the inability of the Group’s customers, issuers or other counterparties to meet their financial commitments. This risk includes the risk linked to securitisation activities and may be further amplified by individual, country and sector concentration risk. Credit Risk Mitigation (CRM) : a technique used by an institution to reduce the credit risk associated with an exposure or exposures that the institution continues to hold; Credit Value at Risk (CVaR) : the largest loss that would be incurred after eliminating the top 1% of the most adverse occurrences, used to set the risk limits for individual counterparties. CRD4/CRR (Capital Requirement Regulation) : the Directive 2013/36/ EU (“CRD4”) and the Regulation (EU) No. 575/2013 (“CRR”) constitute the corpus of the texts transposing Basel 3 in Europe. They therefore define the European regulations relating to the solvency ratio, large exposures, leverage and liquidity ratios, and are supplemented by the European Banking Authority’s (“EBA”) technical standards. Derivative : a financial asset or financial contract, the value of which changes based on the value of an underlying asset, which may be financial (equities, bonds, currencies, etc.) or non-financial (commodities such as agricultural commodities, etc.). Depending on the circumstances, this change may be accompanied by a leverage effect. Derivatives can take the form of securities (warrants, certificates, structured EMTNs, etc.) or the form of contracts (forwards, options, swaps, etc.). Doubtful loan coverage rate : ratio between portfolio provision and depreciation and doubtful outstanding (customer loans and receivables, loans and receivables with credit institutions, finance leases and basic leases). Expected Credit Loss (ECL) : Expected loss of credit materialised by accounting of a provision based on asset valuation. Expected Loss (EL) : losses that may occur given the quality of a transaction’s structuring and all measures taken to reduce risk, such as collateral. Exposure At Default (EAD) : Group exposure to default of a counterparty. The EAD includes both balance sheet and off-balance sheet exposures. Off-balance sheet exposures are converted to their balance sheet equivalent using internal or regulatory conversion. Fair value : the amount for which an asset could be exchanged or a liability settled, between informed and consenting parties under normal market conditions. Gross rate of doubtful outstanding : ratio between doubtful outstanding and gross book loan outstanding (customer loans and receivables, loans and receivables with credit institutions, finance leases and basic leases). Haircut : percentage by which the market value of securities is reduced to reflect their value in the context of stress (counterparty or market stress risk). The extent of the reduction reflects the perceived risk. Impairment : recording of probable loss on an asset. (Source: Bank of France Glossary - Documents et Débats - No. 4 - May 2012) Incremental Risk Charge (IRC) : an incremental charge for default and migration risks for non-securitised products. It charges capital requirement in respect of the risk of changes in rating and default of transmitters to horizon one year for the portfolio of trading (bonds and CDS) debt instruments. IRC is a Value at Risk to 99.9% that is the biggest risk obtained after removal of 0.1% of the most adverse occurrences. Insurance-related risks : Through its insurance subsidiaries, the Group is also exposed to a variety of risks linked to this business. In addition to balance sheet management risks (interest rate, valuation, counterparty and exchange rate risks), these risks include premium pricing risk, mortality risk and the risk of an increase in claims.