Société Générale / Risk report 2021 - Pillar 3 2020

5 CAPITAL MANAGEMENT AND ADEQUACY CAPITAL MANAGEMENT | SOCIETE GENERALE GROUP | PILLAR 3 - 2021 47 CAPITAL MANAGEMENT 5.2 As part of its capital management, the Group (under the supervision of the Finance Division) ensures that its solvency level is always compatible with the following objectives: maintaining its financial solidity and respecting the Risk Appetite p targets; preserving its financial flexibility to finance organic growth and p growth through acquisitions; allocating adequate capital to the various businesses, according to p the Group’s strategic objectives; maintaining the Group’s resilience in the event of stress scenarios; p meeting the expectations of its various stakeholders: supervisors, p debt and equity investors, rating agencies, and shareholders. The Group determines its internal solvency targets in accordance with these objectives and regulatory thresholds. The Group has an internal process for assessing the adequacy of its capital that measures and explains the evolution of the Group’s capital ratios over time, taking into account any future regulatory constraint. This process (ICAAP) also takes into account, in addition to future regulatory changes, any future changes in scope (asset disposals and acquisitions). The assessment of this adequacy is based on a selection of key metrics that are relevant to the Group in terms of risk and capital measurement, such as CET1, Tier 1 and Total Capital ratios. These regulatory indicators are supplemented by an assessment of the coverage of internal capital needs by available CET1 capital, thus confirming the relevance of the targets set in the risk appetite. Besides, this assessment takes into account the constraints arising from the other metrics of the risk appetite, such as rating, MREL and TLAC or leverage ratio. All of these indicators are measured on a forward-looking basis in relation to their target on a quarterly or even monthly basis for the current year. During the preparation of the financial plan, they are also assessed on an annual basis over a five-year horizon according to two distinct scenarios, central and adverse, in order to demonstrate the resilience of the bank’s business model in the face of adverse macroeconomic and financial environments. Capital adequacy is continuously monitored by the Executive Management and by the Board of Directors as part of the Group’s corporate governance process and is reviewed in depth during the preparation of the multi-year financial plan. It ensures that the bank always complies with its financial target with a buffer of +200 bps to the “Maximum Distributable Amount” (MDA) threshold. Besides, the Group maintains a balanced capital allocation among its three strategic core businesses: French Retail Banking; p International Retail Banking and Financial Services; p Global Banking and Investor Solutions. p Each of the Group’s core businesses accounts for around a third of total Risk-Weighted Assets (RWA), with a predominance of French and International Retail Banking (62% of total business RWA) and credit risk (82% of total Group RWA). As at 31 December 2020, Group RWA were up 2% to EUR 352 billion, compared with EUR 345 billion at end December 2019. The evolution of the business lines’ RWA is at the heart of the operational management of the Group’s capital trajectory based on a detailed understanding of the vectors of variations. Where appropriate, the General Management may decide, upon a proposal from the Finance Division, to implement managerial actions to increase or reduce the share of the business lines, for instance by validating the execution of synthetic securitisation or of disposals of performing or non-performing portfolios. SCOPE OF APPLICATION – PRUDENTIAL SCOPE 5.3 The Group’s prudential reporting scope includes all fully consolidated entities, with the exception of insurance entities, which are subject to separate capital supervision. All regulated entities of the Group comply with their prudential commitments on an individual basis. Non-regulated entities outside of the scope of prudential consolidation are subject to periodic reviews, at least annually.