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1 2016 risk report Pillar2 Abbreviations used: Millions of euros: EUR m Billions of euros: EUR bn.3 Table of contents 1....

2016

r isk r eport

Pillar 3 2015

Abbreviations used: Millions of euros: EUR m Billions of euros: EUR bn.

Ta b l e o f c o n t e n t s 1. Key figures��2 2. G overnance and risk management organisation��4 2.1. 2.2. 2.3. 2.4. 2.5. 2.6.

Introduction�� 5 Types of risks�� 6 The group’s risk appetite�� 7 Risk mapping framework and stress tests�� 9 Risk players and management�� 10 Risk factors�� 13

3. c apital management and adequacy�� 22 3.1. 3.2. 3.3. 3.4. 3.5. 3.6. 3.7. 3.8.

The regulatory framework�� 23 Scope of application – prudential scope�� 24 Regulatory capital�� 27 Capital requirements�� 31 Capital management�� 33 Leverage ratio management�� 34 Ratio of large exposures�� 36 Appendix: information on regulatory own funds and solvency ratios�� 37

4. Credit risks�� 44 4.1. 4.2. 4.3. 4.4. 4.5. 4.6. 4.7. 4.8. 4.9.

Credit risk management: organisation and structure�� 45 Credit policy�� 45 Risk supervision and monitoring system�� 46 Replacement risk�� 48 Hedging of credit risk�� 50 IFRS 9 organisation�� 52 Risk measurement and internal ratings�� 54 Credit risk: quantitative information�� 61 Credit risk: additional quantitative information�� 67

5. Securitisation�� 88 5.1. 5.2. 5.3. 5.4. 5.5. 5.6.

Securitisations and regulatory framework�� 89 Accounting methods�� 89 Structured entities�� 90 Monitoring of securitisation risks�� 90 Societe Generale’s securitisation activities�� 91 Prudential treatment of securitisation positions�� 98

6. Market risks��102 6.1. Organisation�� 6.2. Independent pricing verification�� 6.3. Methods for measuring market risk and defining limits�� 6.4. 99% Value at risk (VAR)�� 6.5. Stress test assessment�� 6.6. Market risk capital requirements��

7. Operational risks��112 7.1. Operational risk management: organisation and governance�� 7.2. Operational risk measurement�� 7.3. Operational risk monitoring process�� 7.4. Operational risk modelling�� 7.5. Operational risk insurance�� 7.6. Capital requirements��

113 113 114 116 118 119

8. S tructural interest rate and exchange rate risks��120 8.1. Organisation of the management of structural interest rate and exchange rate risks�� 121 8.2. Structural interest rate risk�� 122 8.3. Structural exchange rate risk�� 124

9. Liquidity risk��126 9.1. 9.2. 9.3. 9.4. 9.5. 9.6. 9.7.

Governance and organisation�� The group’s approach to liquidity risk management�� Refinancing strategy �� Disclosure on asset encumbrance �� Liquidity reserve�� Regulatory ratios�� Balance sheet schedule��

127 128 129 130 132 133 134

10. Compliance, reputational and legal risks��136 10.1. Compliance�� 137 10.2. Risks and litigation�� 142

11. Other risks��146 11.1. 11.2. 11.3. 11.4. 11.5.

Equity risks�� Strategic risks�� Activity risk�� Risks relating to insurance activities�� Environmental and social risks��

147 149 149 149 149

12. Appendix ........................................................................................... 150 12.1. Cross reference table of Risk and Pillar 3 report�� 12.2. Cross reference table with the recommendations made by the Enhanced Disclosure Task Force - EDTF�� 12.3. Risk and Pillar 3 report tables index�� 12.4. Glossary of main technical terms��

151 152 154 156

103 103 104 104 107 109

A cross-reference table between disclosures included in the Risk report and CRD and CRD4 requirements is included in chapter 12, p.151.

SOCIETE GENERALE GROUP I 2016 - pillar 3 report I 1

Risk Report I k e y figures

1. key figures REGULATORY CAPITAL RATIOS(1)

The Risk Report provides in-depth information on capital management and how the Societe Generale Group manages its risk. In addition, this report aims to meet the requirements of its various stakeholders, including regulators (compliance with part eight of the CRR), investors and analysts.

16.3% 13.4%

14.3%

2.8%

1.7%

1.6% 1.8%

2.5%

10.0%

10.1%

2.6%

Tier 2 Add. Tier 1 CET1

10.9%

31.12.2013 31.12.2014

31.12.2015

REGULATORY CAPITAL(1) (IN EUR BN) 58.1 50.5

46 5.7 6.0

Tier 2

10.0

5.9

9.2

8.8

Add. Tier 1

34.3

CET1

35.8

38.9

31.12.2013 31.12.2014

Leverage ratio(1)(2) 3.5%

31.12.2013

31.12.2015

LCR ratio(1) 3.8%

31.12.2014

4.0%

31.12.2015

> 100%

118%

124%

31.12.2013

31.12.2014

31.12.2015

In accordance with provisions of article R 511-16-1 of the French Monetary and Financial Code, return on assets (i.e. Net Income divided by the total balance sheet per consolidated accounts) for Societe Generale stood at 0.33% in 2015 and 0.23% in 2014. On a prudential basis (fully loaded) the ratio was 0.33% in 2015 and 0.22% in 2014, calculated by dividing the Group Net Income reflected in Table 7 by the Total Balance Sheet for prudential purposes reflected in Table.

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key f i g ur es I R i s k R e port I

Distribution of RWA by risk type

GEOGRAPHIC BREAKDOWN OF GROUP CREDIT RISK EXPOSURE (EAD) 5%

Credit risk

7% Eastern Europe EU

13%

North America

Europe de l’est hors UE

Market risk

12% 2%

Operational risk

Asia Pacific

24%

Western Europe excl. France

Africa and Middle East

CVA

81%

43%

RWA at end-2015: EUR 357 bn (RWA at end-2014: EUR 354 bn)

Latin America and Caribbean

France

Credit risk exposure (EAD) at end-2015: EUR 781 bn

Distribution of RWA by pillar

Distribution of market risks (RWA) by risk type 39%

French Retail Banking

IRC

26%

CRM

International Retail Banking and Financial Services

Standard 10%

27%

Global Banking and Investor Solutions Corporate Centre

30%

11%

SVaR

33%

RWA at end-2015: EUR 357 bn (RWA at end-2014: EUR 354 bn)

EAD Additional indicators Total Group exposure (EAD ) in EUR bn

VaR

20%

Market risk RWA at end-2015: EUR 19.3 bn

31.12.2015

31.12.2014

781

722

Percentage of Group EAD to industrialised countries

87%

86%

Percentage of Corporate EAD to investment grade counterparties

64%

Gross doubtful loans ratio (doubtful loans/gross book outstandings)

5.3%

6.0%

Gross doubtful loans coverage ratio (overall provisions/doubtful loans)

64%

63%

(3)

Cost of risk in basis points (bp)(4)

Average annual VaR (in EUR m) Group global sensitivity to structural interest rate risk (in % of Group regulatory capital) Phased-in Basel 3 Common Equity Tier 1 ratio

(1) (2) (3) (4)

< 1.5%

11.4%

10.9%

Disclosed ratios are fully loaded, calculated according to CRR/CRD4 rules published on 26th June 2013, including the Danish compromise for Insurance. Fully loaded ratio calculated according to CRR rules published in October 2014 (Delegated Act). Leverage Ratio calculated based on previous rules for 2013. EAD are presented according to the Capital Requirement Directive as transcripted in French Law. Calculated by dividing the annual provision and impairment charge by the average end-of-period outstanding amounts of the four quarter closed before current quarter.

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I Risk Repo rt I G Overnance and ris k management o rganisat i o n

in brief This section describes Societe Generale’s approach and strategy for managing its risks. It describes how the risk management functions are organised, how they ensure their independence from the business divisions and how they promote a risk culture throughout the Group.

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G O v e rn an c e an d r i sk m an ag e m en t o r g an i sat i o n I R i s k R e port I

2 . G o v e r n a n c e a n d r i s k m a n a g e m e n t o r g a n i s ati o n 2.1. Introduction Implementing a high-performance and efficient risk management structure is a critical undertaking for Societe Generale, in all businesses, markets and regions in which it operates, as are maintaining a balance between strong risk culture and promoting innovation. The Group’s risk management, supervised at the highest level is compliant with the regulations in force ((see Board of Directors’ mission page 76 in

Registration Document), in particular articles 258 to 266 of the decree of November 3rd, 2014 related to internal control of companies in the banking sector, payment services and investment services subject to control of the ACPR (Autorité de Contrôle Prudentiel et de Resolution) and the European regulation CRR/CRD4.

GENERAL MANAGEMENT INTERNAL CONTROL COORDINATION DIVISION(1) Coordination of permanent and periodic controls

GROUP INTERNAL AUDIT DIVISION(2) Periodic control (inspection and internal audit)

RISK DIVISION(5) Supervision of credit, market and operational risks

FINANCE DIVISION(4) Financial oversight of the Group: structural, liquidity, strategic and business risks; supervision of the Group’s equity portfolio

NEW PRODUCT COMMITTEE (CNP7)

GROUP CORPORATE SECRETARY(3) Supervision of legal, tax, compliance and reputational risks, and of the Group’s corporate social responsibility

CORPORATE RESOURCES AND INNOVATION DIVISION(9) Responsible for information system architecture and security

HUMAN RESOURCES DIVISION(8) Oversight of HR-related issues, dissemination of risk culture, selection of high-potential employees

GROUP COMPLIANCE COMMITTEE (CCG6)

Identification of risks associated with new products, compliance assessment, approval by support functions, implementation of an appropriate supervisory framework prior to a launch

Review of compliance issues, investigation of anomalies and resolution follow-up

BUSINESS DIVISIONS Oversight of risks associated with transactions within the framework of the Group’s internal control system (permanent supervision) FRENCH RETAIL BANKING

INTERNATIONAL RETAIL BANKING & FINANCIAL SERVICES

(1) Permanent and periodic controls, p. 124 of the Registration Document and following. (2) See p. 127 of the Registration Document. (3) Legal and tax risks, p. 142 of this Risk report ; compliance and reputational risks, p. 137 of this Risk report; corporate social responsibility, p. 209 of the Registration Document. (4) Structural risks, p. 121 of this Risk report; liquidity risk, p. 127 of this Risk report; equity portfolio, p. 127. of this Risk report.

GLOBAL BANKING AND INVESTOR SOLUTIONS

(5) Credit risk, p. 45 of this Risk report; market risk, p. 103 of this Risk report; operational risks, p. 113 of this Risk report. (6) Group Compliance Committee, p. 123 of the Registration Document. (7) New Product Committee, p. 124 of the Registration Document. (8) See p. 232 of the Registration Document and following, particularly p. 234 (training), p. 239 (high-potential employees) and p. 242 (remuneration). (9) See p. 123. of the Registration Document.

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Specifically, the main objectives of the Group’s risk management strategy are: nn

to contribute to the development of the Group’s various businesses by optimising its overall risk-adjusted profitability in accordance with its risk appetite; to guarantee the Group’s sustainability as a going concern, through the implementation of an efficient system for risk analysis, measurement and monitoring; to make risk management a differentiating factor and a competitive strength acknowledged by all.

This can take the form of:

clear principles for governing, managing and organising risks;

determining and formally defining the Group’s risk appetite;

effective risk management tools;

a risk culture that is cultivated and established at each level of the Group.

These various items are currently under focus, with a series of initiatives established as part of the ERM (Enterprise Risk Management) programme, which aims to improve the consistency and effectiveness of the Group’s risk management system by fully integrating risk prevention and control in the day-to-day management of the bank’s businesses.

2.2. Types of risks Given the diversity and evolution of the Group’s activities, risk management involves the following main categories: nn

Credit and counterparty risk (including country risk): risk of losses arising from the inability of the Group’s customers, issuers or other counterparties to meet their financial commitments. Credit risk includes counterparty risk linked to market transactions (replacement risk) and securitisation activities. In addition, credit risk may be further amplified by concentration risk, which arises from a large exposure to a given risk, to one or more counterparties, or to one or more hom*ogeneous groups of counterparties; Country risk arises when an exposure (loan, security, guarantee or derivative) becomes liable to negative impact from changing political, economic, social and financial conditions in the country of exposure.

nn nn

Market risk: risk of a loss of value on financial instruments arising from changes in market parameters, the volatility of these parameters and correlations between them. These parameters include but are not limited to exchange rates, interest rates, and the price of securities (equity, bonds), commodities, derivatives and other assets, including real estate assets. Structural interest and exchange rate risk: risk of losses of interest margin or value of the fixed rate structural position arising from variations in interest or exchange rates. Structural interest and exchange rate risk arises from commercial activities and from transactions entered into by the Corporate Centre. Liquidity risk: risk of the Group not being able to meet its cash or collateral requirements as they arise and at a reasonable cost. Operational risks (including accounting and environmental risks): risk of losses arising from inadequacies or failures in internal procedures, systems or staff, or from external events, including low-probability events that entail a high risk of loss.

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Non-compliance risk (including legal and tax risks): risk of legal, administrative or disciplinary sanction, or of material financial losses, arising from failure to comply with the provisions governing the Group’s activities. Reputational risk: risk arising from a negative perception on the part of customers, counterparties, shareholders, investors or regulators that could negatively impact the Group’s ability to maintain or engage in business relationships and to sustain access to sources of financing. Strategic risk: risks inherent in the choice of a given business strategy or resulting from the Group’s inability to execute its strategy. Business risk: risk of losses if costs exceed revenues. Risk related to insurance activities: through its insurance subsidiaries, the Group is also exposed to a variety of risks linked to the insurance business. In addition to balance sheet management risks (interest rate, valuation, counterparty and exchange rate risk), these risks include premium pricing risk, mortality risk and structural risk of life and non-life insurance activities, including pandemics, accidents and catastrophes (such as earthquakes, hurricanes, industrial disasters, terrorist attacks and military conflicts).

The Group is also exposed to the following risks: nn

Risk related to the investment portfolio: risk of unfavourable changes in the value of the Group’s investment portfolio; Risk related to specialised finance activities: through its Specialised Financial Services activities, mainly in its operational vehicle leasing subsidiary, the Group is exposed to residual value risk (when the net resale value of an asset at the end of the lease is less than estimated).

G Overnance and ris k management o rganisat i o n I R i s k R e port I

2.3. The group’s risk appetite Societe Generale defines risk appetite as the level of risk, by type and by business, that the Group is prepared to incur given its strategic targets. Risk appetite is defined using both quantitative and qualitative criteria. The Risk Division and the Finance Division, in coordination with the business lines, have jointly carried out measures as part of the Group Risk Appetite approach, consisting in formally defining a three-year overview including: nn

nn nn

targets for certain key Group indicators (financial solidity, profitability, solvency, leverage and liquidity);

Risk Appetite Statement Societe Generale has a balanced universal banking model with a strong foothold in Europe and a global presence in certain areas of expertise. This is reflected in: nn

risk/return ratios for the different Group businesses; and the Group’s risk profile, by risk type (credit, market, operational and structural).

The Risk Appetite approach takes into account earnings sensitivities to business cycles and credit, market and operational events under both a core budgetary macroeconomic scenario and a macroeconomic scenario of severe but plausible stress. The Risk Appetite definition is one of the strategic oversight tools available to the Group governing bodies. It underpins the budgeting process and draws on the global stress test system (described below), which is also used to ensure capital adequacy under stressed economic scenarios.

during approval of the risk appetite targets by the Board of Directors, after presentation to the Board’s Risk Committee in the middle of the year with a view to incorporation in the budget; during the finalisation of the budget process, the Board of Directors, based on the Executive Committee’s recommendations and after examination by the Board of Directors’ Risk Committee, approves the trajectory in relation to various Group key indicators and their adequacy given the established risk appetite targets.

Furthermore, the positioning of businesses in terms of risk/return ratio as well as the Group’s risk profile by type of risk are analysed and approved by the Board of Directors’ Risk Committee. The Group’s risk appetite strategy is implemented by General Management in collaboration with the Executive Committee and applied by corporate and operating divisions through an appropriate operational steering system for risks, covering: nn

governance (decision-making, management and supervisory bodies); management (identification of risk areas, authorisation and risktaking processes, risk management policies through the use of limits and guidelines, resource management); and supervision (budgetary monitoring, reporting, leading risk indicators, permanent controls and internal audits).

Essential indicators for determining Risk Appetite and their adaptations are regularly supervised over the year in order to detect any events that may result in unfavourable developments on the Group’s risk profile. Such events may give rise to remedial action, up to the deployment of the recovery plan in the most severe cases.

a geographically balanced model with a high percentage of revenues generated in mature countries. The Group develops a diversified portfolio of businesses dedicated to individual customers in Europe and Africa. For business, corporate and investor customers, the Group pursues activities across the world in which it has recognised expertise.

The Group’s growth strategy focuses on its existing areas of expertise, its quality customer base and the search for synergies within the Group. Societe Generale strives for sustainable profitability consistent with its cost of capital and a universal banking model. To this end, the Group: nn nn

Governing bodies discuss it at different key moments: nn

a well-balanced capital allocation between the Group’s businesses (Retail Banking, International Financial Services, Investment Banking and Investor Solutions), with Retail Banking activities holding a predominant place. Global Markets receive a limited capital allocation;

seeks to contain the volatility of its results; calibrates its capital and liquidity ratios to ensure a significant safety margin relative to the minimum regulatory requirements; maintains a rating in line with its principal peers, providing access to financing that is compatible with the growth of its activities;

monitors the stability and diversification of its funding sources;

ensures sufficient resilience in scenarios of liquidity shortages;

tightly controls its structural interest-rate and foreign-exchange risks.

Societe Generale aims to maintain a quality credit portfolio with a high proportion of Investment Grade securities and a diversified customer base of individuals, professionals, businesses and financial institutions: nn

for the same types of products, applied credit standards are identical, regardless of whether they will be redistributed or not; any commitment implying a credit risk is based on indepth knowledge of the customer and its business, and an understanding of the purpose and nature of the transaction, as well as the sources of income that will allow the loan to be reimbursed.

Counterparty ratings, based on internal models that comply with Basel principles and parameters, are one of the key criteria underpinning the credit policy. As a general rule, collateral is not the principal criterion of the lending decision. Risks of individual concentration are strictly managed.

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With the exception of small loan transactions, the Group prefers to share its operations’ credit risk through syndication, while maintaining a final portion as a sign of commitment to its customers and to continue monitoring originated exposures over time. nn

concentration by sector and by type of counterparty or business is monitored periodically, in particular through stress tests, and may result in the setting of limits;

The Group’s activities strictly comply with provisions relating to banking and financial activities, be they legislative or regulatory in nature, professional or ethical rules, or internal rules, at the national and international levels. In particular: nn

lastly, the loan approval process for individual customers in Retail Banking is based on decisions and recommendations drawn from analytical and business intelligence tools used within the Group and designed with the aid of statistical models.

Global Markets, focusing on the needs of the Group’s customers, are subject to strict controls: nn

Societe Generale aims to contain operational risk losses to a maximum of 1% of recurrent revenues.

market risk is controlled in the form of a global stress test limit applied to all activities, rounded out by a range of more specific limits, such as Value at Risk (VaR) and Stressed Value at Risk (SVaR) limits, limits on long-term positions or nominal limits; the Group’s appetite for market risk, characterised by a Revenue/ Consumption of limits ratio in stress tests, is stable overall; market risk limits are determined in particular according to the manoeuvrability of positions (nature and complexity of the product, maturity, size of SG’s position relative to the market and participation effect), and according to the risk/reward performance of the transaction or the activity and the market conditions; these limits are rounded out by alert thresholds to avoid any risk of breaches.

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the Group ensures that compliance rules are rigorously respected, especially in the area of anti-money laundering and counterterrorism financing, embargo directives and international financial sanctions, the fight against corruption and its tax code of conduct commitments; the Group monitors the loyalty of the behaviour of its employees with regard to customers and all its stakeholders, as well as the integrity of its banking and financial practices.

Societe Generale considers its reputation to be an asset of great value that must be protected to ensure the Group’s sustainable development. The prevention and detection of the risk of harm to its reputation are integrated within all the Group’s operating practices: nn

the protection of the Group’s reputation notably involves making its employees aware of the values of responsibility, ethical behaviour and commitment; lastly, in a spirit of social and environmental responsibility, the Group has pledged to comply with a body of business conduct principles formalised in a collection of internal instructions applicable to the entire Group.

G Overnance and ris k management o rganisat i o n I R i s k R e port I

2.4. Risk mapping framework and stress tests Group risk mapping framework

This procedure aims at identifying and estimating the main risks of potential loss expected for the year to come, in all risk categories: credit risks, market risks, operational and structural risks. These risks are placed on a grid relating impact and probability of occurrence for each of them. A loss level is assigned to each scenario, combining statistical approaches using historical data, and independent expert analyses. These scenarios are categorised on a scale representing three distinct levels of stress: base case, stress and extreme stress. It may relate to isolated losses that are material because of their extent (for example, the default of a major counterparty), or to events involving many counterparties (for example, contagion affecting a sector of activity or several sectors, within a country or specific region).

Credit risk is modelled based on the historical relationship between portfolio performance and relevant economic variables (gross domestic product, unemployment, exchange rates, property prices, etc.). In line with the regulatory Pillar, stress tests systematically take into account the potential impact of the Group’s main counterparties’ performance against a stressed market backdrop: nn

The risk map is presented annually to the members of the Board of Directors’ Risk Committee and to the members of the Board of Directors.

Stress tests Stress tests or crisis simulations are used to measure the potential impact of a downturn in activity on the behaviour of a portfolio, activity or entity. At Societe Generale, they are used to help identify, measure and manage risk, and to assess the Group’s capital adequacy with regard to risks. Accordingly, they are an important indicator of the Group’s resilience, activities and portfolios, and a core component in the definition of its risk appetite. The Group’s stress test framework covers credit risk, market risk, operational risk, liquidity risk and structural interest rate and exchange rate risks. Stress tests are based on extreme but plausible hypothetical economic scenarios defined by Group’s economists. These scenarios are translated into impacts on the Group’s activities, taking into account the potential countermeasures and systematically combining quantitative methods with an expert judgement (risk, finance or business lines). As such, the stress test framework in place includes: nn

an annual global stress test which is integrated into the budget process as part of preparing the Group Risk Appetite and Internal Capital Adequacy Assessment Process (ICAAP) for the European Central Bank and the French Prudential Supervision and Resolution Authority. It is used in particular to check the Group’s compliance with the prudential ratios.

specific credit stress tests (on portfolios, countries, activities, etc.), both recurrent or on request, which complement the global analysis with a more granular approach and allow the identification, measurement and operational management of risk.

specific market stress tests which estimate the loss resulting from an extreme change in market parameters (indexes, credit spreads, etc.). This stress test risk assessment is applied to all the Bank’s market activities. It is based on a set of historical (three) and hypothetical (15) scenarios, which apply shocks to all substantial risk factors, including exotic parameters (see 4.6 “Market risks” section in this report); operational risk stress tests which use scenario analyses and the modelling of losses to calibrate the Group’s capital in terms of operational risk, and which are used to appreciate the exposure to operational loss linked to the severity of economic scenarios, including exposure to rare and extreme losses not covered by the historical period; stress tests to analyse the Group’s structural fixed-rate position value and interest rate margin sensitivity to structural interest rate risk. The Group measures these sensitivities to different interest rate yield curve configurations (steepening and flattening); liquidity stress tests to ensure that the time period during which the Group may continue to operate is respected in a stressed market environment.

Along with the internal stress test exercises, the Group is part of a selection of European banks that participate in the large-scale international stress tests supervised by the European Banking Authority and European Central Bank.

It covers all of the Group’s activities and is based on two global three-year horizon macroeconomic scenarios: a core budgetary macroeconomic scenario and a macroeconomic scenario of severe but plausible stress. For each case, (core and stressed), potential losses relating to credit, market and operational risks are estimated over three years;

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I Risk Repo rt I G Overnance and ris k management o rganisat i o n

2.5. Risk players and management The implementation of a high-performance and efficient risk management system in all businesses, markets and regions in which the bank operates is a critical undertaking for Societe Generale Group, as well as the balance between strong risk culture and the development of its activities.

The first phase of the ERM programme was carried out between 2011 and 2015. It has improved the consistency and effectiveness of the Group’s risk management system by fully integrating risk prevention and management within the day-to-day management of the bank’s businesses

The Enterprise Risk Management Programme (ERM)

Players involved in risk management

The ERM programme is closely monitored at the highest level of the bank: it is supervised by General Management, with the participation of members of the Executive Committee, and is the subject of regular reporting to the Board of Directors’ Risk Committee.

Two main bodies govern Group risk management: the Board of Directors and General Management. The Board of Directors, and more specifically its Risk Committee, approves the Group Risk Appetite exercise and regularly conducts a thorough analysis of the risk management, prevention and assessment system.

A risk dashboard is submitted to it. In particular, the Board of Directors ensures the adequacy of the Group’s risk management infrastructure, monitors changes in the cost of risk and approves the risk limits for market risks. Presentations on the main aspects of, and notable changes to, the Group’s risk management strategy are made to the Board of Directors by the General Management at least once a year (more often if circ*mstances require it). ROLE OF THE BOARD OF DIRECTORS’ RISK COMMITTEE The Risk Committee advises the Board of Directors on the overall strategy and the appetite to all kinds of risks, both current and future, and helps the Board when it verifies that this strategy is implemented. In particular, it is responsible for: nn

reviewing the risk control procedures and is consulted about setting overall risk limits; reviewing on a regular basis the strategies, policies, procedures and systems used to detect, manage and monitor the liquidity risk and submitting its conclusions to the Board of Directors; formulating an opinion on the Group’s global provisioning policy, as well as on specific provisions relating to large sums; reviewing the policies in place and the reports prepared to comply with the banking regulations on internal control; reviewing the policy concerning risk management and the monitoring of off-balance sheet commitments, especially in light of the memoranda drafted to this end by the Finance Division, the Risk Division and the Statutory Auditors;

reviewing, as part of its mission, whether the prices for the products and services mentioned in books II and III of the French Monetary and Financial Code and offered to clients are compatible with the Company’s risk strategy. When these prices do not correctly reflect the risks, it informs the Board of Directors accordingly and gives its opinion on the action plan to remedy the situation; without prejudice to the Compensation Committee’s missions, reviewing whether the incentives provided by the compensation policy and practices are compatible with the Company’s situation with regard to the risks it is exposed to, its share capital, its liquidity and the probability and timing of expected benefits.

It is provided with all information on the Company’s risk situation. It may use the services of the Chief Risk Officer or outside experts. It may interview, under the conditions it determines, in addition to the people listed in Article 9 of the Internal Rules of the Board of Directors, the Statutory Auditors and the managers in charge of drawing up financial statements, internal control, risk management, compliance control and periodic internal audits. The committee met 10 times in 2015.

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ROLE OF THE BOARD OF DIRECTORS’ AUDIT AND INTERNAL CONTROL COMMITTEE This Committee’s mission is to monitor issues concerning the production and control of accounting and financial information, and to monitor the efficiency of the internal control and risk assessment, monitoring and management systems.

–– regularly reviewing the internal control and risk control of the business segments, divisions and main subsidiaries,

In particular, it is responsible for: nn

monitoring the process of preparing financial information, in particular examining the quality and reliability of the systems in place and making suggestions for their improvement, and verifying that corrective actions have been implemented if faults are found in the procedure; analysing the draft financial statements to be submitted to the Board, in order in particular to verify the clarity of the information provided and to offer an assessment of the relevance and consistency of the accounting methods used to draw up parent company and consolidated financial statements; ensuring the independence of Statutory Auditors, in particular by reviewing the breakdown of the fees paid by the Group to them as well as to the network to which they may belong and through prior approval of all assignments that do not fall within the framework of a statutory audit of accounts, but which may be the consequence of, or a supplement to, the same, all other assignments being prohibited; implementing the procedure for selecting the Statutory Auditors and submitting an opinion to the Board of Directors concerning the appointment or renewal of such as well as their remuneration; examining the work programme of the Statutory Auditors and more generally ensuring the supervision of account monitoring by the Statutory Auditors;

Chaired by the General Management, the specilised committees of the Group Executive Committee responsible for central oversight of internal control and risk management are: nn

the Risk Committee, which met 17 times in 2015, discusses Group’s risk strategy, in particular the management of the different risks (credit, country, market and operational risks) as well as the structure and implementation of the risk monitoring system. The Group also has a Large Exposures Committee, which focuses on reviewing large individual exposures; the Finance Committee, which, as part of the Group’s financial policy oversight, validates the structural risk monitoring and control system and reviews the Group’s structural risks evolution through reports consolidated by the Finance Division; the Group Internal Control Coordination Committee, which manages the consistency and effectiveness of the internal control mechanism as a whole; the Compliance Committee, established in 2015, meets quarterly in order to define the main orientations of the Group in terms of compliance;

offering an assessment of the quality of internal control, in particular the consistency of risk assessment, monitoring and management systems, and proposing additional actions where appropriate. To this end, the Committee is responsible primarily for:

–– reviewing the Group’s internal audit programme and the Annual Report on Internal Control drawn up in accordance with banking regulations, as well as formulating an opinion on the organisation and operation of the internal control departments, –– reviewing the follow-up letters sent by the French Prudential and Resolution Supervisory Authority and formulating an opinion on the draft responses to these letters. It gives the Board of Directors its opinion on the section of the Registration Document dealing with these issues and produces an Annual Activity Report, submitted to the Board for its approval, which is then inserted in the Registration Document. Aside from the persons referred to in Article 9 of the Internal Rules of the Board of Directors, the Committee may interview, under conditions it shall establish, the Statutory Auditors and the managers in charge of drawing up financial statements, internal control, risk management, compliance control and internal audits. The Statutory Auditors shall be invited to the meetings of the Audit and Internal Control Committee unless the Committee decides otherwise. The committee met 10 times in 2015.

Under the authority of the general management, the group’s corporate divisions, which are independent from the core businesses, contribute to the management and internal control of risks. They are the second line of defense, the first one being ensured by businesses. The Corporate Divisions provide the Group’s Executive Committee with all the information needed to assume its role of managing the Group’s strategy, under the authority of the Chief Executive Officer. With the exception of the Core Businesses Finance Departments, all the Corporate Divisions report directly to the Group’s General Management or to the Group Corporate Secretary (who in turn reports directly to the General Management), also responsible for compliance within the Group. nn

The main responsibilities of the Risk Division are to contribute to the development of the Group’s activities and profitability by defining the Group’s Risk Appetite (broken down by business) under the aegis of the General Management and in collaboration with the Finance Department and Core Businesses, and to establish a risk management and monitoring system.

the Company’s Strategic Architecture Committee (CSAE) defines the company’s architecture of data, reference systems, operational processes and information systems. It ensures the consistency between Group projects and the defined Group architecture.

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In exercising its functions, the Risk Division reconciles independence from and close cooperation with the Core Businesses, which are primarily responsible for the transactions that they initiate.

Accordingly, the Risk Division: –– oversees hierarchically or functionally the Group’s Risk function. To this end, the Head of Risk Management is responsible for the Group’s Risk function as defined by the Order of 3 November 2014 relating to the internal control of companies in banking, payment services, and investment services,

Starting on 1st January, 2016, they will report hierarchically to the Group Finance Division and functionally to the managers of the Core Businesses. nn

–– is co-responsible, with the Finance Division, for setting the Group’s risk appetite which is then submitted to the executive body and to the Boards of Directors for their approval, –– identifies all Group risks, –– implements a governance and monitoring system for these risks, including cross-business risks, and regularly reports on their nature and extent to the General Management, the Board of Directors and the supervisory authorities, –– contributes to the definition of risk policies, taking into account the aims of core businesses and the relevant risk issues, –– defines and validates risk analysis, assessment and approval methods and procedures, –– validates transactions and limits proposed by business managers, –– defines and validates the risk monitoring information system, and ensures its suitability for the needs of businesses. nn

The Group Finance Division, in addition to its financial management responsibilities, also carries out extensive accounting and finance controls. As such: –– the Mutualised Accounting Activities Department is responsible for accounting, regulatory and tax production for entities under its responsibility (o/w Societe Generale); it is also responsible for coordinating the continuous improvement and management process set up for entities in its perimeter. –– the missions of the ALM Department, Balance Sheet and Global Treasury Management Department and Strategic Financial Management Department are detailed in the Structural and liquidity risks section, page 122 of this report.

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The Finance Departments of Core Businesses, which report hierarchically to the Core Businesses’ managers and functionally to the Group Finance Division, ensure that the accounts are prepared correctly at the local level and control the quality of the information in the consolidated financial reports submitted to the Group.

The Group Compliance Division reports to the Corporate Secretary, who is also Head of Compliance, and ensures that the Group’s banking and investment activities are compliant with all laws, rules and ethical principles applicable to them. It also ensures the prevention of reputational risk. The Group Legal Department reports to the Corporate Secretary and monitors the security and legal compliance of the Group’s activities, relying if necessary on the legal departments of the Group’s subsidiaries and branches. The Group Tax Department reports to the Corporate Secretary and monitors compliance with all applicable tax laws in France and abroad. The Group Human Resources Division monitors, amongst others, the implementation of compensation policies. The Group Corporate Resources Division is specifically responsible for information system security. The Group Internal Audit Division is in charge of internal audits, under the authority of the Head of Group Internal Audit.

In performing their missions, the Risk Division, Compliance Division and Information System Security department rely on functions in businesses, formed by representatives who report to them directly or functionally. According to the latest voluntary census (at the end of December 2015), employees in full time-equivalent (FTE): nn

nn nn

working in the Group Risk function represented about 5,100 FTE (including 812 FTE within the Group Risk Division). working in the Compliance function were about 1,421 FTE. working in the Information System Security function were about 290 FTE.

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2.6. RISK FACTORS 1. The global economy and financial markets continue to display high levels of uncertainty, which may materially and adversely affect the Group’s business, financial situation and results of operations.

2. A number of exceptional measures taken by governments, central banks and regulators could be completed or terminated, and measures at the European level face implementation risks.

As part of a global financial institution, the Group’s businesses are sensitive to changes in financial markets and economic conditions generally in Europe, the United States and elsewhere around the world. The Group could be confronted with a significant deterioration in market and economic conditions resulting from, in particular, crises affecting capital or credit markets, liquidity constraints, regional or global recessions, sharp fluctuations in commodity prices (including oil), currency exchange rates or interest rates, inflation or deflation, sovereign debt rating downgrades, restructurings or defaults, or adverse geopolitical events (including acts of terrorism and military conflicts). Such occurrences, which may develop quickly and may not be hedged, could affect the operating environment for financial institutions for short or extended periods and have a material adverse effect on the Group’s financial situation, results of operations or cost of risk.

In response to the financial crisis, governments, central banks and regulators implemented measures intended to support financial institutions and sovereign states and thereby stabilise financial markets. Central banks took measures to facilitate financial institutions’ access to liquidity, in particular by lowering interest rates to historic lows for a prolonged period.

Financial markets have in recent years experienced significant disruptions as a result of concerns regarding the sovereign debt of various Eurozone countries, uncertainty relating to the pace of US monetary policy tightening as well as fears related to a slowdown of the Chinese economy. Since the end of 2014, the marked decrease in oil prices has lead to new concerns especially with respect to oil-producing countries. Moreover, the prolonged period of weak demand and very low inflation in the Eurozone fosters the risk of deflation, which might adversely affect banks through low interest rates, with a particular impact on interest rate margins for retail banks. The Group is exposed to the risk of substantial losses if sovereign states, financial institutions or other credit counterparties become insolvent or are no longer able to fulfil their obligations to the Group. A resumption of tensions in the Eurozone may trigger a significant decline in the Group’s asset quality and an increase in its loan losses in the affected countries. The Group’s inability to recover the value of its assets in accordance with the estimated percentages of recoverability based on past historical trends (which could prove inaccurate) could further adversely affect its performance. In the event of a pronounced macroeconomic downturn, it may also become necessary for the Group to invest resources to support the recapitalisation of its businesses and/or subsidiaries in the Eurozone or in countries closely connected to the Eurozone such as those in Central and Eastern Europe. The Group’s activities and/or subsidiaries in certain countries could become subject to emergency legal measures or restrictions imposed by local or national authorities, which could adversely affect its business, financial situation and results of operations.

Various central banks decided to substantially increase the amount and duration of liquidity provided to banks, loosen collateral requirements and, in some cases, implement “non-conventional” measures to inject substantial liquidity into the financial system, including direct market purchases of government bonds, corporate commercial paper and mortgage-backed securities. These central banks may decide, acting alone or in concert, to modify their monetary policies or to tighten their policies regarding access to liquidity, which could substantially and abruptly decrease the flow of liquidity in the financial system. For example, in October 2014, the United States Federal Reserve (the “Fed”) terminated its asset purchase under its third quantitative easing programme. On 16th December 2015, the Fed began raising interest rates, ending seven years of a zero interest rate policy. However it announced its intention to maintain the size of its balance sheet and continue to roll over maturing Treasury bonds and refinance other assets acquired under its quantitative easing programme. The market is now focusing on the pace of interest rate rises as a function of the American economic recovery. Such changes, or concerns about their potential impact, could increase volatility in the financial markets and push interest rates significantly higher. Given the uncertainty of the nascent economic recovery, such changes could have an adverse effect on financial institutions and, hence, on the Group’s business, financial situation and results of operations. Steps taken in 2014 to support the Eurozone, including exceptional monetary policy measures, the 2014 launch of a Single Supervisory Mechanism under the supervision of the European Central Bank (ECB) and the successful 2014 completion of the Asset Quality Review (AQR) process and stress tests covering all major European banks, have contributed to a tangible easing of financial stability tensions. In June and September 2014 and December 2015, the ECB further eased monetary conditions by announcing additional interest rate cuts (including negative interest rates for deposit facilities). It also launched Targeted Longer-term Refinancing Operations (TLTRO) and two new asset purchase programmes, namely the ABS purchase programme (ABSPP) and the third covered bond purchase programme (CBPP3). In response to continued low inflation and an economic environment that continued to be weak, on 22 January 2015, the ECB announced an expanded asset repurchase programme consisting of up to EUR 60 billion per month in public and private debt repurchases, starting in March 2015 and lasting until at least March 2017. In spite of these measures, a resurgence of financial tension in Eurozone markets cannot be ruled out, which could result in national policies restricting cross-border flows of liquidity.

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3. The Group’s results may be affected by regional market exposures. The Group’s performance is significantly affected by economic, financial and political conditions in the principal markets in which it operates, such as France and other European Union countries. In France, the Group’s principal market, weak growth and an unfavourable trend in the real estate market have had, and could continue to have, a material adverse impact on its business, resulting in decreased demand for loans, higher rates of non-performing loans and decreased asset values. In the other European Union countries, economic stagnation or a deteriorating economic environment could result in increased loan losses or higher levels of provisioning. The Group is involved in commercial banking and investment banking operations in emerging markets, in particular in Russia and other Central and Eastern European countries as well as in North Africa. Capital markets and securities trading activities in emerging markets may be more volatile than those in developed markets and more vulnerable to certain risks, such as political instability and currency volatility. It is likely that these markets will continue to be characterised by higher levels of uncertainty and therefore risk. Unfavourable economic or political changes affecting these markets could have a material effect on the business, results and financial position of the Group. This is also true in Russia given the ongoing Ukraine crisis. Since March 2014, the United States, the European Union and other countries and international organisations have imposed several rounds of sanctions against Russian individuals and corporates. These sanctions, combined with the substantial decline in world oil prices, have adversely impacted the value of the rouble, financing conditions and economic activity in Russia. There is a risk of further adverse developments in the event of increased geopolitical tensions and/or additional sanctions by Western countries and/or by the Russian Federation. Unfavourable developments in the political or economic conditions affecting the markets in which the Group operates or is considering operating may adversely affect its business, results of operations or financial situation. 4. The Group operates in highly competitive industries, including in its home market. The Group is subject to intense competition in the global and local markets in which it operates. On a global level, it competes with its peers principally in its core businesses (French Retail Banking, International Retail Banking and Financial Services, Global Banking and Investor Solutions, and Corporate Divisions). In local markets, including France, the Group faces substantial competition from locally-established banks, financial institutions, businesses providing financial and other services and, in some instances, governmental agencies. This competition exists in all of the Group’s lines of business. In France, the presence of large domestic competitors in the banking and financial services sector, as well as emerging market participants such as online retail banking and financial services providers, has resulted in intense competition for virtually all of the

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Group’s products and services. The French market is a mature market and one in which the Group holds significant market share in most of its lines of business. Its financial situation and results of operations may be adversely affected if it is unable to maintain or increase its market share in key lines of business. The Group also faces competition from local participants in other geographic markets in which it has a significant presence. In addition, certain sectors of the financial services industry have become more concentrated, as institutions involved in a broad range of financial services have been acquired by or merged into other firms, or have declared bankruptcy. Such changes could result in the Group’s remaining competitors benefiting from greater capital resources or other advantages, such as the ability to offer a broader range of products and services or greater geographic diversity. As a result of these factors, and Societe Generale competitors’ efforts to increase market share by reducing prices, the Group has experienced pricing pressures in the past, and may continue to experience them in the future. Competition on a global level, as well as on a local level in France and in other key markets, could have a material adverse effect on the Group’s business, results of operations and financial situation. 5. Reputational damage could harm the Group’s competitive position. The financial services industry is highly competitive and the Group’s reputation for financial strength and integrity is critical to its ability to foster loyalty and develop its relationships with customers and counterparties (supervisors, suppliers, etc.). Its reputation could be harmed by events attributable to it, flaws in its control measures, non-compliance with its commitments or strategic decisions (business activities, appetite for risk, etc.), as well as by events and actions of others outside its control. Independent of the merit of information being disseminated, negative comments concerning the Group could have adverse effects on its business and its competitive position. The Group’s reputation could be adversely affected by a weakness in its internal control measures (operational risk, regulatory risk, credit risk, etc.) or following misconduct by employees such as with respect to clients (non-compliance with consumer protection rules) or by issues affecting market integrity (market abuse and conflicts of interest). The Group’s reputation could also be affected by external fraud. Similarly, reputational issues could also result from a lack of transparency, communication errors or a restatement of, or corrections to, its financial results. The impact of these events can vary depending on the context and whether they become the focus of extensive media reports. Reputational damage could translate into a loss of business or investor confidence or a loss of clients (and prospects) that could have a material adverse effect on the Group’s results of operations and financial position or on its ability to attract and retain employees.

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6. The Group depends on access to financing and other sources of liquidity, which may be restricted for reasons beyond its control. The ability to access short-term and long-term funding is essential to the Group’s businesses. Societe Generale funds itself on an unsecured basis, by accepting deposits, by issuing long-term debt, promissory notes and commercial paper and by obtaining bank loans or lines of credit. The Group also seeks to finance many of its assets on a secured basis, including by entering into repurchase agreements. If the Group is unable to access secured or unsecured debt markets on terms it considers acceptable or if it experiences unforeseen outflows of cash or collateral, including material decreases in customer deposits, the Group’s liquidity could be impaired. In particular, if the Group does not continue to successfully attract customer deposits (because, for example, competitors raise the interest rates that they are willing to pay to depositors, and accordingly, customers move their deposits elsewhere), the Group may be forced to turn to more expensive funding sources, which would reduce the Group’s net interest margin and results. The Group’s liquidity could be adversely affected by factors the Group cannot control, such as general market disruptions, operational difficulties affecting third parties, negative views about the financial services industry in general, or the Group’s shortterm or long-term financial prospects in particular, as well as changes in credit ratings or even market perceptions of the Group or other financial institutions. The Group’s credit ratings can have a significant impact on the Group’s access to funding and also on certain trading revenues. In connection with certain OTC trading agreements and certain other securities agreements, the Group may, for example, be required to provide additional collateral to certain counterparties in the event of a credit ratings downgrade. The ratings agencies continue to monitor certain issuer-specific factors, including governance, the level and quality of earnings, capital adequacy, funding and liquidity, risk appetite and management, asset quality, strategic direction, business mix and liability structure. Additionally, the rating agencies look at the regulatory and legislative environment, as well as the macro-economic environment in which the bank operates. A deterioration in any of the factors above may lead to a ratings downgrade of the Group or of other actors in the European banking industry. Lenders have the right to accelerate some of the Group’s debts upon the occurrence of certain events, including the Group’s failure to provide the necessary collateral following a downgrade of its credit rating below a certain threshold, and other events of default set out in the terms of such indebtedness. If the relevant lenders declare all amounts outstanding due and payable due to a default, the Group may be unable to find sufficient alternative financing on acceptable terms, or at all, and the Group’s assets might not be sufficient to repay its outstanding indebtedness in full.

Moreover, the Group’s ability to access the capital markets and the cost of its long-term unsecured funding is directly related to its credit spreads in both the bond and credit derivatives markets, which are also outside of its control. Liquidity constraints may have a material adverse effect on the Group’s business, financial situation, results of operations and ability to meet its obligations to its counterparties. 7. The protracted decline of financial markets or reduced liquidity in such markets may make it harder to sell assets and could lead to material losses. In a number of the Group’s businesses, a protracted market decline, particularly in asset prices, can reduce the level of activity in the financial markets or reduce market liquidity. These developments can lead to material losses if the Group is not able to close out deteriorating positions in a timely way or adjust the hedge of its positions. This is especially true for the assets the Group holds for which the markets are relatively illiquid by nature. Assets that are not traded in regulated markets or other public trading markets, such as derivatives contracts between banks, are valued based on the Group’s internal models rather than publicly-quoted prices. Monitoring the deterioration of prices of assets like these is difficult and could lead to losses that the Group did not anticipate. 8. The volatility of the financial markets may cause the Group to suffer significant losses on its trading and investment activities. Market volatility could adversely affect the Group’s trading and investment positions in the debt, currency, commodity and equity markets, as well as its positions in private equity, property and other investments. Severe market disruptions and extreme market volatility have occurred in recent years and may occur again in the future, which could result in significant losses for the Group’s capital markets activities. Such losses may extend to a broad range of trading and hedging products, including swaps, forward and future contracts, options and structured products. Market volatility makes it difficult to predict trends and implement effective trading strategies; it also increases risk of losses from net long positions when prices decline and, conversely, from net short positions when prices rise. Such losses, if significant, could adversely affect the Group’s results of operations and financial situation. 9. Changes in interest rates may adversely affect the Group’s banking and asset management businesses. The Group’s performance is influenced by changes and fluctuations in interest rates in Europe and in the other markets in which it operates. Interest rate sensitivity refers to the relationship between changes in market interest rates and changes in net interest margins and balance sheet values. Any mismatch between interest owed by the Group and interest due to it (in the absence of adequate hedging) could have adverse material effects on the Group’s business, financial situation and results of operations.

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10. Fluctuations in exchange rates could adversely affect the Group’s results of operations. The Group’s main operating currency is the euro. However, a significant portion of the Group’s business is carried out in currencies other than the euro, such as the US dollar, the British pound sterling, the Czech koruna, the Romanian lei, the Russian rouble and the Japanese yen. The Group is exposed to exchange rate movements to the extent its revenues and expenses or its assets and liabilities are recorded in different currencies. Because the Group publishes its consolidated financial statements in euros, which is the currency of most of its liabilities, the Group is also subject to translation risk in the preparation of its financial statements. Fluctuations in the rate of exchange of these currencies into euros may have a negative impact on the Group’s consolidated results of operations, financial position and cash flows, despite any hedges that may be implemented by the Group to limit its foreign exchange exposure. Exchange rate fluctuations may also affect the value (denominated in euros) of the Group’s investments in its subsidiaries outside the Eurozone. 11. The Group is subject to extensive supervisory and regulatory regimes in the countries in which it operates and changes in these regimes could have a significant effect on the Group’s businesse. The Group is subject to extensive regulation and supervision in all jurisdictions in which it operates. The rules applicable to banks seek principally to limit their risk exposure, preserve their stability and financial solidity and protect depositors, creditors and investors. The rules applicable to financial services providers govern, among other things, the sale, placement and marketing of financial instruments. The banking entities of the Group must also comply with requirements as to capital adequacy and liquidity in the countries in which they operate. Compliance with these rules and regulations requires significant resources. Non-compliance with applicable laws and regulations could lead to fines, damage to the Group’s reputation, forced suspension of its operations or the withdrawal of operating licenses. Since the onset of the financial crisis, a variety of measures have been proposed, discussed and adopted by numerous national and international legislative and regulatory bodies, as well as other entities. Certain of these measures have already been implemented, while others are still under discussion. It therefore remains difficult to accurately estimate the future impacts or, in some cases, to evaluate the likely consequences of these measures. In particular, the Basel 3 reforms are being implemented in the European Union through the Capital Requirements Regulation (CRR) and Capital Requirements Directive 4 (CRD4) which came into effect on 1 January 2014, with certain requirements being phased in over a period of time, at least until 2019. Basel 3 is an international regulatory framework to strengthen capital and liquidity requirements with the goal of promoting a more resilient banking sector. Recommendations and measures addressing systemic risk exposure of global banks, including additional loss absorbency requirements, were adopted by the Basel Committee and by the Financial Stability Board (FSB), which was established following the G20 London summit in 2009. Societe Generale, among other global banks, has been named by the FSB as a “systemically important financial institution” (G-SIB) and as a result will be subject to additional capital buffer requirements.

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In France, the French law No. 2013-672 dated 26 July 2013 on the separation and regulation of banking activities (loi de séparation et de régulation des activités bancaires) (as amended by ordonnance No. 2014-158 dated 20 February 2014 (ordonnance portant diverses dispositions d’adaptation de la législation au droit de l’Union européenne en matière financière)) (the Banking Law) mandates the separation of certain market activities by significant credit institutions that are considered to be “speculative” (i.e. those deemed not necessary for financing the economy). Unless an exception applies under the law (such as market making), this obligation covers all banks’proprietary trading. In accordance with the Banking Law, the Group has segregated the relevant activities in a special subsidiary as from 1 July 2015. Given the recent implementation of the Banking Law, it is still too early to estimate the potential impact of these reforms on the Group’s activities. Ordonnance No. 2015-1024 dated 20 August 2015 (ordonnance n° 2015-1024 du 20 août 2015 portant diverses dispositions d’adaptation de la législation au droit de l’Union européenne en matière financière) (the Ordonnance) has amended the provisions of the French Monetary and Financial Code (Code monétaire et financier) to implement into French law Directive 2014/59/EU of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms (the BRRD). Many of the provisions contained in the Banking Law were already similar in effect to the provisions of the Ordonnance. Decree No. 2015-1160 dated 17 September 2015 and three orders (arrêtés) dated 11 September 2015 regarding (i) recovery planning, (ii) resolution planning and (iii) criteria to assess the resolvability for institutions or groups, were published on 20 September 2015 to supplement the provisions of the Ordonnance implementing the BRRD into French law. The Ordonnance requires that credit institutions subject to the direct supervision of the ECB (such as Societe Generale) and credit institutions and investment firms that are a significant part of the financial system, draw up and submit to the ECB a recovery plan providing for measures to be taken by such institutions to restore their financial position following a significant deterioration of the same. The Ordonnance expands the powers of the ACPR over these institutions under resolution, in particular by allowing business disposals, the establishment of a bridge institution, the transfer of their assets to an asset management vehicle or the write-down and conversion or the amendment of the terms (including altering the maturity and/or payable interests and/or ordering a temporary suspension of payments) of their capital instruments and eligible liabilities (referred to as the bail-in tool). These reforms could have a significant impact on the Group and its structure and the value of its equity and debt securities. Regulation (EU) No. 806/2014 of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund has created the Single Resolution Board (the Board). Since 1 January 2015, the Board has authority to collect information and cooperate with the ACPR for resolution planning purposes. As from 1 January 2016, the resolution powers of the ACPR have been overridden by those of the Board within the framework of the Single Resolution Mechanism. The entry into force of such mechanism could impact the Group and its structure in ways that cannot currently be estimated.

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Since November 2014, Societe Generale and all other major financial institutions in the Eurozone are subject to the supervision of the ECB as part of the implementation of the single supervisory mechanism. As set out above, Societe Generale is also subject to the Single Resolution Mechanism since January 2016. The impact of this new supervisory structure on the Group cannot yet be fully evaluated. Nevertheless, the new structure and the implementation of additional supervisory measures may increase volatility in financial markets. The MREL ratio “Minimum requirement for own funds and eligible liabilities”) is defined in the BRRD and has been implemented into French law by the Ordonnance. It entered into force on 1 January 2016. The MREL ratio is a minimum requirement for own funds and eligible liabilities that are available to absorb losses under resolution. This requirement is calculated as the amount of own funds and eligible liabilities expressed as a percentage of the total liabilities and own funds of the institution The TLAC ratio (Total loss absorbing capacity”) has been created by the FSB at the request of the G20. In November 2015, the FSB finalized its Principles on Loss-absorbing and Recapitalisation Capacity of G-SIBs in Resolution, including the TLAC Term Sheet. It introduced a new international standard for external and internal TLAC. The final Term Sheet, published on 9 November 2015 and approved by the G20 Leaders in Antalya, provides for the following TLAC principles, which will form a new international standard for G-SIBs: (i) G-SIBs may be required to meet the TLAC requirement alongside the minimum regulatory requirements set out in the Basel III framework. Specifically, G-SIBs may be required to meet a Minimum TLAC Requirement of at least 16% plus Basel III regulatory capital buffers of the resolution group’s risk-weighted assets (TLAC RWA Minimum) as from 1 January 2019. As from 1 January 2022, the TLAC RWA Minimum will amount to at least 18% plus Basel III regulatory capital buffers. Minimum TLAC must also be at least 6% of the Basel III leverage ratio denominator (TLAC Leverage Ratio Exposure Minimum) as from 1 January 2019, and at least 6.75% as from 1 January 2022. Home authorities may apply additional firm-specific requirements above these minimum standards. (ii) The Term Sheet determines the core features for TLAC-eligible external instruments. TLAC instruments must be subordinated (structurally, contractually or statutorily) to operational liabilities, except for EU banks which will be allowed to include a limited amount of senior debt (2.5% of RWA in 2019, 3.5% of RWA in 2022) subject to regulatory approval. TLAC instruments must have a remaining maturity of at least one year. Insured deposits, sight or short term deposits, derivatives and structured notes are excluded.

(iii) In order to reduce the risk of contagion, G-SIBs may be required to deduct exposures to eligible external TLAC instruments and liabilities issued by other G-SIBs from their own TLAC position. The impact of the MREL and TLAC ratios on the Group and its structure may not be currently fully estimated, although our financial position and cost of funding could be materially and adversely affected. The US Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 “Dodd-Frank”) affects the Group and some of its businesses. Under Dodd-Frank, US regulators are required to implement significant structural reforms in the financial services industry, and many of its provisions apply to non-US banking organisations with US operations. Among other things, Dodd-Frank establishes or calls for new systemic risk oversight, bank capital standards, the orderly liquidation of failing systemically significant financial institutions, regulation of the over-the-counter derivatives market, and limitations on banking organisations’trading and fund activities. Although the majority of required rules and regulations have now been finalised, many are still in proposed form, are yet to be proposed or are subject to extended transition periods. Finalised rules may in some cases be subject to ongoing uncertainty about interpretation and enforcement. Further implementation and compliance efforts may be necessary based on subsequent regulatory interpretations, guidelines or exams. Nevertheless, the rules and regulations are expected to result in additional costs and impose certain limitations, and the Group could be materially and adversely affected thereby. The European Market Infrastructure Regulation (EMIR) published in 2012 places new constraints on derivatives market participants in order to improve the stability and transparency of this market. Specifically, EMIR requires the use of central counterparties for products deemed sufficiently liquid and standardised, the reporting of all derivative products transactions to a trade repository, and the implementation of risk mitigation procedures (e.g. exchange of collateral) for OTC derivatives not cleared by central counterparties. Some of these measures are already in effect, while others are expected to come into force in 2016 (e.g. mandatory central clearing for interest rate derivatives), making it difficult to accurately estimate their impact. In addition, Regulation (EU) 2015/2365 of 25th November 2015 on transparency of securities financing transactions and of reuse was published in the Official Journal of the European Union on 23rd December 2015. In January 2015, the European Banking Authority (EBA) published the final draft Regulatory Technical Standards “RTS”) laying out the requirements related to prudent valuation. Even though a prudent valuation of fair value assets was already specified in CRD3, the RTS implement uniform prudent valuation standards across Europe. The Additional Valuation Adjustments (AVAs) are defined as the difference between the prudent valuation and the accounting fair value and are deducted from “Common Equity Tier One Capital”.

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Lastly, additional reforms are being considered that seek to enhance the harmonisation of the regulatory framework and reduce variability in the measurement of Risk Weighted Assets (RWA) across banks. In particular, the final text on the reform of internally-modelled and standardised approaches for market risk (the Minimum capital requirements for market risk) was published in January 2016 with a view to implementation in January 2019. Banks would be required to report under the new standards by the end of 2019. Further, in December 2014 and 2015, the Basel Committee on Banking Supervision (BCBS) published two consultative papers for a revision of methods for measuring credit risk, including, for example, the establishment of RWA floors and integrating standard approaches that are more sensitive to risk. At this stage, it is difficult to estimate the potential impact of these reforms with precision. 12. The Group is exposed concentration risk.

counterparty

risk

and

The Group is exposed to credit risk with respect to numerous counterparties in the ordinary course of its trading, lending, deposit-taking, clearance and settlement, and other activities. These counterparties include institutional clients, brokers and dealers, commercial and investment banks and sovereign states. The Group may realise losses if a counterparty defaults on its obligations and the collateral that it holds does not represent a value equal to, or is liquidated at prices not sufficient to recover the full amount of, the loan or derivative exposure it is intended to cover. Many of the Group’s hedging and other risk management strategies also involve transactions with financial services counterparties. The weakness or insolvency of these counterparties may impair the effectiveness of the Group’s hedging and other risk management strategies, which could in turn materially adversely affect its business, results of operations and financial situation. The Group may also have concentrated exposure to a particular counterparty, borrower or issuer (including sovereign issuers), or to a particular country or industry. A ratings downgrade, default or insolvency affecting such a counterparty, or a deterioration of economic conditions in such a country or industry, could have a particularly adverse effect on the Group’s business, results of operations and financial situation. The systems the Group uses to limit and monitor the level of its credit exposure to individual entities, industries and countries may not be effective to prevent concentration of credit risk. Because of a concentration of risk, the Group may suffer losses even when economic and market conditions are generally favourable for its competitors.

18 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

13. The financial soundness and conduct of other financial institutions and market participants could adversely affect the Group. The Group’s ability to engage in funding, investment and derivative transactions could be adversely affected by the soundness of other financial institutions or market participants. Financial services institutions are interrelated as a result of trading, clearing, counterparty, funding and other relationships. As a result, defaults by, or even rumours or questions about, one or more financial services institutions, or the loss of confidence in the financial services industry generally, may lead to market-wide liquidity scarcity and could lead to further losses or defaults. The Group has exposure to many counterparties in the financial industry, directly and indirectly, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients with which it regularly executes transactions. Many of these transactions expose the Group to credit risk in the event of default by counterparties or clients. It should be noted that the number of cleared transactions is increasing and will continue to do so, thereby increasing our exposure to clearing houses while reducing our bilateral positions. 14. The Group’s hedging strategies may not prevent all risk of losses. If any of the variety of instruments and strategies that the Group uses to hedge its exposure to various types of risk in its businesses is not effective, it may incur significant losses. Many of its strategies are based on historical trading patterns and correlations that may not be effective in the future. For example, if the Group holds a long position in an asset, it may hedge that position by taking a short position in another asset whose value has historically moved in an offsetting direction. However, the hedge may only cover a part of its exposure to the long position, and the strategies used may not protect against all future risks or may not be fully effective in mitigating its risk exposure in all market environments or against all types of risk in the future. Unexpected market developments may also reduce the effectiveness of the Group’s hedging strategies. 15. The Group’s results of operations and financial situation could be adversely affected by a significant increase in new provisions or by inadequate provisioning. The Group regularly sets aside provisions for loan losses in connection with its lending activities. Its overall level of loan loss provisions, recorded as “cost of risk” in its income statement, is based on its assessment of the recoverability of the relevant loans. This assessment relies on an analysis of various factors, including prior loss experience, the volume and type of lending being conducted, industry standards, past due loans, certain economic conditions and the amount and type of any guarantees and collateral. Notwithstanding the care with which the Group carries out such assessments, it has had to increase its provisions for loan losses in the past and may have to substantially increase its provisions in the future following an increase in defaults or for other reasons. Significant increases in loan loss provisions, a substantial change in the Group’s estimate of its risk of loss with respect to loans for which no provision has been recorded, or the occurrence of loan losses in excess of its provisions, could have a material adverse effect on its results of operations and financial situation.

G Overnance and ris k management o rganisat i o n I R i s k R e port I

16. The Group relies on assumptions and estimates which, if incorrect, could have a significant impact on its financial statements. When applying the IFRS accounting principles disclosed in the Financial Information (Chapter 6) of the Registration Document and for the purpose of preparing the Group’s consolidated financial statements, management makes assumptions and estimates that may have an impact on figures recorded in the income statement, on the valuation of assets and liabilities in the balance sheet, and on information disclosed in the notes to the consolidated financial statements. In order to make these assumptions and estimates, management exercises judgment and uses information available at the date of preparation of the consolidated financial statements. By nature, valuations based on estimates involve risks and uncertainties relating to their occurrence in the future. Actual future results may differ from these estimates, which could have a significant impact on the Group’s financial statements. The use of estimates principally relates to the following valuations: nn

fair value of financial instruments that are not quoted on an active market, presented in the balance sheet or the notes to the financial statements; the amount of impairment of financial assets (loans and receivables, available-for-sale financial assets, held-tomaturity financial assets), lease financing and similar agreements, tangible or intangible fixed assets and goodwill; provisions recognised under liabilities, including provisions for employee benefits or underwriting reserves of insurance companies, and deferred profit-sharing on the asset side of the balance sheet; the amount of deferred tax assets recognised in the balance sheet; initial value of goodwill determined for each business combination; and in the event of the loss of control of a consolidated subsidiary, fair value of the entity’s interest retained by the Group, where applicable.

17. The Group is exposed to legal risks that could negatively affect its financial situation or results of operations. The Group and certain of its former and current representatives may be involved in various types of litigation including civil, administrative and criminal proceedings. The large majority of such proceedings arise from transactions or events that occur in the Group’s ordinary course of business. There has been an increase in investor litigation and regulatory actions against intermediaries such as banks and investment advisors in recent years, in part due to the challenging market environment. This has increased the risk, for the Group as well as for other financial institutions, of losses or reputational harm deriving from litigation and other proceedings. Such proceedings or regulatory enforcement actions could also lead to civil or criminal penalties that adversely affect the Group’s business, financial situation and results of operations. It is inherently difficult to predict the outcome of litigation, regulatory proceedings and other adversarial proceedings involving the Group’s businesses, particularly those cases in which the matters are brought on behalf of various classes of claimants, cases where claims for damages are of unspecified or indeterminate amounts or cases involving novel legal claims. In preparing the Group’s financial statements, management makes estimates regarding the outcome of legal, regulatory and arbitration matters and records a provision when losses with respect to such matters are probable and can be reasonably estimated. Should such estimates prove inaccurate or the provisions set aside by the Group to cover such risks inadequate, its financial situation or results of operations could be materially and adversely affected. (See “Compliance, reputational and legal risks”.) 18. If the Group makes an acquisition, it may be unable to manage the integration process in a cost-effective manner or achieve the expected benefits. The selection of an acquisition target is carried out by the Group following a careful analysis of the business or assets to be acquired. However, such analyses often cannot be exhaustive due to various factors. As a result, certain acquired businesses may include undesirable assets or expose the Group to increased risks, particularly if the Group was unable to conduct full and comprehensive due diligence prior to the acquisition. The successful integration of a new business typically requires effectively coordinating business development and marketing initiatives, retaining key managers, recruitment and training, and consolidating information technology systems. These tasks may prove more difficult than anticipated, require more management time and resources than expected, and/or the Group may experience higher integration costs and lower savings or earn lower revenues than expected. The pace and degree of synergy building is also uncertain.

SOCIETE GENERALE GROUP I 2016 - pillar 3 report I 19

I Risk Repo rt I G Overnance and ris k management o rganisat i o n

19. The Group’s risk management system may not be effective and may expose the Group to unidentified or unanticipated risks, which could lead to significant losses. The Group has devoted significant resources to develop its risk management policies, procedures and assessment methods, and intends to continue to do so in the future. Nonetheless, its risk management techniques and strategies may not be fully effective in mitigating its risk exposure in all economic market environments or against all types of risk, including risks that it fails to identify or anticipate. Some of its qualitative tools and metrics for managing risk are based upon observed historical market behaviour. The Group applies statistical and other tools to these observations in order to assess its risk exposures. These tools and metrics may fail to predict accurate future risk exposures that arise from factors the Group did not anticipate or correctly evaluate in its statistical models. Failure to anticipate these risks or accurately estimate their impact could significantly affect the Group’s business, financial situation and results of operations. 20. Operational failure, termination or capacity constraints affecting institutions the Group does business with, or failure or breach of the Group’s information technology systems, could result in losses. The Group is exposed to the risk of operational failure, termination or capacity constraints of third parties, including clients, financial intermediaries that it uses to facilitate cash settlement or securities transactions (such as clearing agents, exchanges and clearing houses), and other market participants. An increasing number of derivative transactions are now cleared on exchanges or will be in the near future, which has increased the Group’s exposure to these risks, and could affect its ability to find adequate and costeffective alternatives in the event of any such failure, termination or constraint. The interconnectivity of multiple financial institutions with clearing agents, exchanges and clearing houses, and the increased centrality of these entities, increases the risk that an operational failure at one institution or entity may cause an industry-wide operational failure that could materially impact the Group’s ability to conduct business. Industry consolidation, whether among market participants or financial intermediaries, can exacerbate these risks as disparate complex systems need to be integrated, often on an accelerated basis. As the Group becomes more interconnected with its clients, it also faces the risk of operational failure with respect to its clients’information technology and communication systems. Any failure, termination or constraint could adversely affect its ability to effect transactions, service its clients, manage its exposure to risk or expand its businesses or result in financial loss or liability to its clients, impairment of its liquidity, disruption of its businesses, regulatory intervention or reputational damage. In addition, an increasing number of companies, including financial institutions, have experienced intrusion attempts or even breaches of their information technology security, some of

20 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

which have involved sophisticated and highly targeted attacks on their computer networks and resulted in the loss, theft or disclosure of confidential data. Because the techniques used to obtain unauthorised access, disable or degrade service or sabotage information systems change frequently and often are not recognised until launched against a target, the Group may be unable to anticipate these techniques or to implement effective countermeasures in a timely manner. Similarly, technical internal and external fraud are fluid and protean and closely follow the technological evolution of financial activities and customer behavior leading them Fraudsters regularly to develop new techniques attacks . Such actions could have a material adverse effect on the Group’s business and be the origin of operational losses. The Group relies heavily on communications and information systems to conduct its business. Any failure, interruption or breach in security of these systems, even if only brief and temporary, could result in business interruptions and lead to additional costs related to information retrieval and verification, reputational harm and a potential loss of business. A failure, interruption or security breach of its information systems could have a material adverse effect on its business, results of operations and financial situation. 21. The Group may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks or natural disasters. The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic or other widespread health crises (or concerns over the possibility of such crises), terrorist attacks or natural disasters, could create economic and financial disruptions, lead to operational difficulties (including travel limitations or relocation of affected employees) that could impair the Group’s ability to manage its businesses, and expose its insurance activities to significant losses and increased costs (such as re-insurance premiums). 22. The Group may generate lower revenues from brokerage and other commission and fee-based businesses during market downturns. During the recent market downturn, the Group experienced a decline in the volume of transactions that it executed for its clients, resulting in lower revenues from this activity. There is no guarantee that the Group will not experience a similar trend in future market downturns, which may occur periodically and unexpectedly. Furthermore, changes in applicable regulations, such as the adoption of a financial transaction tax, could also impact the volume of transactions that the Group executes for its clients, resulting in lower revenues from these activities. In addition, because the fees that the Group charges for managing its clients’portfolios are in many cases based on the value or performance of those portfolios, a market downturn that reduces the value of its clients’portfolios or increases the amount of withdrawals would reduce the revenues the Group generates from its asset management, custodial and private banking businesses.

G Overnance and ris k management o rganisat i o n I R i s k R e port I

23. The Group’s ability to retain and attract qualified employees is critical to the success of its business, and the failure to do so may materially adversely affect its performance. Societe Generale’s employees are its most important resource, and industry competition for qualified personnel is intense. In order to attract, retain and engage talented employees, the Group must offer career paths, training and development opportunities and compensation levels in line with its competitors and market practices. If the Group were unable to continue to engage highly-qualified employees, its performance, including its competitive position and client satisfaction, could be materially adversely affected. Furthermore, the financial industry in Europe will continue to experience more stringent regulation of employee compensation, including rules related to bonuses and other incentive-based compensation, clawback requirements and deferred payments, and Societe Generale, like all participants in the financial industry, will need to adapt to this changing environment in order to attract and retain qualified employees. The CRD4, which applies to banks from the European Economic Area, introduced a ceiling on the variable component of compensation in relation to the fixed component in 2014. This regulatory constraint could cause a relative increase in the fixed compensation in relation to its variable component based on riskadjusted performance. This could lead to challenges in attracting and retaining key personnel and to an increase in the fixed cost base, both of which would be detrimental to the financial stability of the Group.

Societe Generale has undertaken a review of the risks that could have a material adverse effect on its business, financial position and results of operations, and does not consider there to be other material risks beyond those presented in the “Types of risks” and “Risks factors” of this chapter.

SOCIETE GENERALE GROUP I 2016 - pillar 3 report I 21

Risk Report I ca p i ta l management and adequac y

in brief

REGULATORY CAPITAL RATIOS(1) 16.3%

This section provides details on capital resources, regulatory requirements and the composition of leverage ratio.

14.3%

2.8%

1.7% 2.6%

2.5%

Tier 2 Capital Additionnal Tier 1 CET1 Common Equity Tier 1 Ratio

Evolution of CET1

+EUR 3.1 bn between 31.12.2014 and 31.12.2015

Evolution of own funds

10.1%

10.9%

31.12.2014

31.12.2015

REGULATORY CAPITAL (IN EUR BN)

+EUR 7.6 bn

58.1 50.5

between 31.12.2014 and 31.12.2015 Tier 2 Capital

CET1 Ratio at end-2015

CET1

Basel 3 capital allocated to businesses (Annual average)

International Retail Banking and Financial Services French Retail Banking

9.2

8.8

Additionnal Tier 1

10.9%

Global Banking and Investor Solutions

10.0

5.9

35.8

38.9

31.12.2014

31.12.2015

Leverage ratio(1)(2)

29.7

30.3

40.2

12.4

13.1

14.7

10.5

10.2

9.6

9.9

9.8

31.12.2013

31.12.2014

31.12.2015

3.5%

31.12.2013

4.0%

3.8%

31.12.2014

31.12.2015

(1) Fully loaded proforma based on CRR/CRD4 rules as published on 26th June 2013, including Danish compromise for insurance. (2) Fully loaded based on CRR rules as adopted by the EU in October 2014 (Delegated Act); 2013 calculated using previously applicable rules.

22 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

c api tal m an ag em e n t an d adeq uac y I R i s k R e port I

3 . c a p ita l m a n a g e m e n t a n d a d e q u a c y 3.1. THE REGULATORY FRAMEWORK In response to the financial crisis of recent years, the Basel Committee, mandated by the G20, has defined the new rules governing capital and liquidity aimed at making the banking sector more resilient. The new so-called Basel 3 rules were published in December 2010. They were translated into European law by a directive (CRD4) and a regulation (CRR) which entered into force on 1st January 2014. In 2014 and 2015, several delegated and implementing acts entered into force in order to specify the regulation. The general framework defined by Basel 3 is structured around three pillars, as in Basel 2: nn

Pillar 1 sets the minimum solvency requirements and defines the rules that banks must use to measure risks and calculate associated capital requirements, according to standard or more advanced methods; Pillar 2 relates to the discretionary supervision implemented by the competent authority, which allows them – based on a constant dialogue with supervised credit institutions – to assess the adequacy of capital requirements as calculated under Pillar 1, and to calibrate additional capital requirements with regard to risks; Pillar 3 encourages market discipline by developing a set of qualitative or quantitative disclosure requirements which will allow market participants to make a better assessment of a given institution’s capital, risk exposure, risk assessment processes and, accordingly, capital adequacy.

In terms of capital, the main new measures introduced to strengthen banks’ solvency were as follows: nn

the complete revision and harmonisation of the definition of capital, particularly with the amendment of the deduction rules, the definition of a standardised Common Equity Tier 1 (or CET1) ratio, and new Tier 1 capital eligibility criteria for hybrid securities; new capital requirements for the counterparty risk of market transactions, to factor in the risk of a change in CVA (Credit Value Adjustment) and hedge exposures on the central counterparties (CCP); the set-up of capital buffers that can be mobilised to absorb losses in case of difficulties. The new rules require banks to create a conservation buffer and a countercyclical buffer to preserve their solvency in the event of adverse conditions. Moreover, an additional buffer is required for systemically important banks. As such, the Societe Generale group, as a global systemically important bank (GSIB), has had its Common Equity Tier 1 ratio requirement increased by an additional 1%. Requirements related to capital buffers will gradually enter into force as from 1st January 2016, for full application by January 2019;

the set-up of restrictions on distributions, relating to dividends, AT1 instruments and variable remuneration, via the maximum distributable amount (MDA) mechanism. At end-2015, the European Banking Authority (EBA) issued an opinion to clarify that the MDA should be applied when a bank no longer complies with its CET1 ratio requirements, including those of Pillar 2 and capital buffers. in addition to these measures, there will be measures to contain the size and consequently the use of excessive leverage. To this end, the Basel Committee defined a leverage ratio, for which the definitive regulations were published in January 2014. The Basel leverage ratio compares the bank’s Tier 1 capital to the balance sheet and off-balance sheet items, with restatements for derivatives and pensions. Banks have been obliged to publish this ratio since 2015. By 2018, regulators will decide whether it is relevant to set a minimum requirement applicable to all banks.

From a regulatory perspective, the year 2015 saw the continued implementation of the Banking Union. The European Central Bank (ECB) took the helm of the Single Supervisory Mechanism in the Eurozone in November 2014, and in 2015 determined the Pillar 2 minimum requirements applicable to Societe Generale group and some of its subsidiaries. These requirements were previously determined by the Autorité de Contrôle Prudential et de Résolution (ACPR – French Prudential Supervisory and Resolution Authority). The ECB applied the new Supervisory Review and Evaluation Process (SREP) methodology in accordance with the guidelines of the EBA, published end-2014. The SREP review led to the notification of the Pillar 2 requirement applicable in 2016, i.e. a CET1 ratio requirement of 9.75% (phased-in). Lastly, Societe Generale Group is classified as a financial conglomerate and is therefore subject to additional supervision by the French Prudential Supervisory and Resolution Authority. At 31st December 2015, Societe Generale Group’s financial conglomerate equity covered the solvency requirements for both banking activities and insurance activities. Throughout 2015, the Societe Generale Group complied with the minimum ratio requirements applicable to its activities.

SOCIETE GENERALE GROUP I 2016 - pillar 3 report I 23

I Risk Repo rt I ca p i ta l management and adequac y

3.2. SCOPE OF APPLICATION – PRUDENTIAL SCOPE The Group’s prudential reporting scope includes all fully and proportionally consolidated subsidiaries, with the exception of insurance subsidiaries, which are subject to a separete capital supervision.

||TABLE 1: DIFFERENCE BETWEEN ACCOUNTING SCOPE AND PRUDENTIAL REPORTING SCOPE Accounting treatment

Prudential treatment under Basel 3

Subsidiaries with a finance activity

Full consolidation

Capital requirement based on the subsidiary’s activities

Subsidiaries with an Insurance activity

Full consolidation

Weighted equity value

Equity method

Weighted equity value

Type of entity

Holdings, joint ventures with a finance activity by nature

The following table provides a reconciliation of the consolidated balance sheet and the accounting balance sheet within the prudential scope. The amounts presented are accounting data and not a measure of risk-weighted assets, EAD or prudential capital.

||TABLE 2: RECONCILIATION OF THE CONSOLIDATED BALANCE SHEET AND THE ACCOUNTING BALANCE SHEET ASSETS at 31.12.2015 (In EUR m)

Cash and amounts due from Central Banks Financial assets at fair value through profit and loss Hedging derivatives

Consolidated balance sheet

Prudential restatements(1)

Accounting balance sheet within the prudential scope

78,565

519,333

(28,216)

491,117

See table 6a, p.37

16,538

(378)

16,160

134,187

(72,303)

61,884

71,682

(7,263)

64,419

458

378,048

899

378,947

27,204

Revaluation of macro-hedged items

2,723

Financial assets held to maturity

4,044

Tax assets

7,367

(23)

7,344

1,671

696

2,367

2 3

Available-for-sale assets Loans and advances to credit institutions of which subordinated loans to credit institutions Loans and advances to clients Lease financing and equivalent transactions

of which deferred tax assets that rely on future profitability excluding those arising from temporary differences of which deferred tax assets arising from temporary differences Other assets of which defined-benefit pension fund assets Non-current assets held for sale Investments in subsidiaries and affiliates accounted for by the equity method Tangible and intangible assets of which intangible assets exclusive of leasing rights Goodwill Total Assets

4,257

(699)

3,558

69,398

(960)

68,438

171

1,352

2,978

4,330

19,421

(648)

18,773

1,511

(46)

1,465

4,358

4,363

1,334,391

(105,909)

1,228,482

(1) Restatement of subsidiaries excluded from the prudential scope and reconsolidation of intragroup transactions related to its subsidiaries. NB. The table 6a on page 37 provides detailed information on the creation of own funds and solvency ratios.

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ca pi ta l managemen t and adequacy I R i s k R e port I

LIABILITIES at 31.12.2015 (In EUR m)

Central banks Liabilities at fair value through profit or loss Hedging derivatives

Consolidated balance sheet

Prudential restatements(1)

Accounting balance sheet within the prudential scope

6,951

454,981

1,412

456,393

9,533

9,535

95,452

(762)

94,690

Amounts owed to clients

379,631

2,085

381,716

Debt securities

106,412

4,415

110,827

Amounts owed to credit institutions

See table 6a, p.37

Revaluation reserve of interest-rate-hedged portfolios

8,055

Tax liabilities

1,571

(519)

1,052

83,083

(4,680)

78,403

526

107,257

(107,257)

5,218

(22)

5,196

13,046

245

13,291

12,488

240

12,728

1,271,716

(105,081)

1,166,635

59,037

(1)

59,036

19,979

of which other capital instruments

8,772

of which retained earnings

4,921

21,364

(1)

21,363

4,001

11 12

Other Liabilities Debts related to Non-current liabilities held for sale Technical provisions of insurance companies Provisions Subordinated debts of which redeemable subordinated notes including revaluation differences on hedging items Total debts

EQUITY Equity, Group share of which capital and related reserves

of which accumulated other comprehensive income (including gains and losses accounted directly in equity) of which net income Minority interests Total equity Total LIABILITIES

3,638

(826)

2,811

62,675

(827)

61,848

1,334,391

(105,908)

1,228,482

(1) Restatement of subsidiaries excluded from the prudential scope and reconsolidation of intragroup transactions related to its subsidiaries.

SOCIETE GENERALE GROUP I 2016 - pillar 3 report I 25

I Risk Repo rt I ca p i ta l management and adequac y

The main Group companies outside the prudential reporting scope are as follows:

||TABLE 3: SUBSIDIARIES OUTSIDE THE PRUDENTIAL REPORTING SCOPE Company

Activity

Country

Antarius

Insurance

France

Catalyst RE International LTD

Insurance

Bermuda

Société Générale strakhovanie zhizni LLC

Insurance

Russia

Sogelife

Insurance

Luxembourg

Genecar - Société Générale de courtage d'assurance et de réassurance

Insurance

France

Inora life ltd

Insurance

Ireland

SG Strakhovanie LLC

Insurance

Russia

Sogecap

Insurance

France

Komercni Pojstovna A.S.

Insurance

Czech Republic

La Marocaine Vie

Insurance

Morocco

Oradea Vie

Insurance

France

Société Générale Re SA

Insurance

Luxembourg

Sogessur

Insurance

France

Société Générale Life Insurance Broker SA

Insurance

Luxembourg

La Banque Postale Financement

Bank

France

SG Banque au Liban

Bank

Lebanon

Regulated financial subsidiaries and affiliates outside Societe Generale’s prudential consolidation scope are all in compliance with their respective solvency requirements. More generally, all regulated Group undertakings are subject to solvency requirements set by their respective regulators.

26 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

ca pi ta l managemen t and adequacy I R i s k R e port I

3.3. REGULATORY CAPITAL Reported according to International Financial Reporting Standards (IFRS), Societe Generale’s regulatory capital consists of the following components:

Common Equity Tier 1 capital

Additional Tier 1 Capital

According to CRR/CRD4 regulations, Common Equity Tier 1 capital is made up primarily of the following:

According to CRR/CRD4 regulations, additional Tier 1 capital is composed of deeply subordinated notes that are issued directly by the bank, and have the following features:

ordinary shares (net of repurchased shares and treasury shares) and related share premium accounts;

retained earnings;

components of other comprehensive income;

other reserves;

minority interest limited by CRR/CRD4.

Deductions from Common Equity Tier 1 capital essentially involve the following: nn nn

goodwill and intangible assets, net of associated deferred tax liabilities; unrealised capital gains and losses on cash flow hedging;

income on own credit risk;

deferred tax assets on tax loss carryforwards;

nn nn

estimated dividend payment;

nn nn

these instruments are perpetual and constitute unsecured, deeply subordinated obligations. They rank junior to all other obligations of the bank, including undated and dated subordinated debt, and senior only to common stock shareholders; in addition, Societe Generale may elect, on a discretionary basis, not to pay the interest and coupons linked to these instruments. This compensation is paid out of distributable items; they include neither a step-up in compensation nor any other incentive to redeem; they must have a loss-absorbing capacity; subject to the prior approval of the European Central Bank, Societe Generale has the option to redeem these instruments at certain dates, but no earlier than five years after their issuance date.

Deductions of additional Tier 1 capital essentially apply to the following:

deferred tax assets resulting from temporary differences beyond a threshold;

AT1 hybrid treasury shares;

assets from defined benefit pension funds, net of deferred taxes;

holding of AT1 hybrid shares issued by financial sector entities;

minority interest beyond the minimum T1 requirement.

any positive difference between expected losses on customer loans and receivables, risk-weighted using the Internal Ratings Based (IRB) approach, and the sum of related value adjustments and collective impairment losses; expected loss on equity portfolio exposures; value adjustments resulting from the requirements of prudent valuation; securitisation exposures weighted at 1 250%, where these positions are not included in the calculation of total risk-weighted exposures.

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I Risk Repo rt I ca p i ta l management and adequac y

||TABLE 4: TOTAL AMOUNT OF DEBT INSTRUMENTS ELIGIBLE FOR TIER 1 EQUITY Issuance Date

Currency

Issue amount (in currency m)

First call date

Yield before the call date and frequency

Yield after the call date and frequency

Book value at 31.12.2015

Book value at 31.12.2014

05-Apr-07

USD

200 M

05-Apr-17

3-months USD Libor + 0.75% annually

05-Apr-07

USD

1,100 M

05-Apr-17

5.922% semi-annually

3-months USD Libor + 0.75% annually

742

665

19-Dec-07

EUR

600 M

19-Dec-17

6.999% annually

Euribor 3 months + 3.35% annually

468

689

649

16-Jun-08

GBP

700 M

16-Jun-18

8.875% annually

Libor 3 months + 3.40% annually

07-Jul-08

EUR

100 M

07-Jul-18

7.715% annually

Euribor 3 months + 3.70% annually

100

27-Feb-09

USD

450 M

29-Feb-16

9.5045% annually

Libor 3 months + 6.77% annually

371

04-Sep-09

EUR

1,000 M

04-Sep-19

9.375% annually

Euribor 3 months + 8.9% annually

1,000

07-Oct-09

USD

1,000 M

07-Apr-15

8.75% annually

824

06-Sep-13

USD

1,250 M

29-Nov-18

8.25% annually

Mid Swap Rate USD 5 years + 6.394%

1,148

1,030

7.875% annually

Mid Swap Rate USD 5 years + 4.979%

1,607

1,441

1,000

1,000 1,235

18-Dec-13

USD

1,750 M

18-Dec-23

07-Apr-14

EUR

1,000 M

07-Apr-21

6.75% annually

Mid Swap Rate USD 5 years + 5.538%

25-Jun-14

USD

1,500 M

27-Jan-20

6% semi-annually

Mid Swap Rate USD 5 years + 4.067%

1,378

8.000% semi-annually

Mid Swap Rate USD 5 years + 5.873%

1,148

9,338

8,835

22-Sep-15

USD

1,250 M

29-Sep.-25

Total

Tier 2 Capital Tier 2 capital includes: nn nn nn

Deductions of Tier 2 capital essentially apply to the following:

undated deeply subordinated notes;

Tier 2 hybrid treasury shares;

dated subordinated notes;

holding of Tier 2 hybrid shares issued by financial sector entities;

any positive difference between (i) the sum of value adjustments and collective impairment losses on customer loans and receivables exposures, risk-weighted using the IRB approach and (ii) expected losses, up to 0.6% of the total credit risk-weighted assets using the IRB approach; value adjustments for general credit risk related to collective impairment losses on customer loans and receivables exposures, risk-weighted using the standard approach, up to 1.25% of the total credit risk-weighted assets.

share of non-controlling interest in excess of the minimum capital requirement in the entities concerned.

Tier 2 instruments are listed in Note 6.2 to the parent company financial statements for dated subordinated notes issued by Societe Generale SA, and in Note 7.1 to the consolidated financial statements for undated subordinated notes. All capital instruments and their features are detailed online(1).

(1) Information available on the www.sociétégénérale.com website, under Investors, Registration Document and Pillar 3.

28 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

ca pi ta l managemen t and adequacy I R i s k R e port I

||tABLE 5: CHANGES IN DEBT INSTRUMENTS ELIGIBLE FOR THE SOLVENCY CAPITAL REQUIREMENTS (In EUR m)

31.12.2014

Issues

Redemptions

Prudential supervision valuation haircut

Others

31.12.2015

Debt instruments eligible for Tier 1

8,835

1,148

(1,195)

550

9,338

Debt instruments eligible for Tier 2

6,759

4,993

(11)

(831)

233

11,143

15,594

6,141

(1,206)

(831)

783

20,481

Total eligible debt instruments

Solvency ratio The solvency ratio is set by comparing the group’s equity with the sum of risk-weighted assets for credit risk and the capital requirement multiplied by 12.5 for market risk and operational risk. Since 1st January 2014, the new regulatory framework sets minimum requirements to be met for the CET1 ratio and the Tier 1 ratio. For 2015, the minimum requirement for CET1 was 4%, and that of Tier 1 5.5%, excluding the Pillar 2 requirement. The total equity requirement, including CET1, AT1 and Tier 2 equity, was set at 8%. In 2016, the minimum requirement for CET1 will be 4.5%, and that of Tier 1 6%.

In 2016, under Pillar 2, following the results of the Supervisory Review and Evaluation Process (SREP) performed by the European Central Bank (ECB), Societe Generale group is required to meet a Common Equity Tier 1 (CET1) ratio of 9.5% (phased-in ratio, including conservation buffer). The G-SIB buffer required by the Financial Stability Board (FSB) to be applied on top of this SREP ratio is equal to 0.25% for the Societe Generale Groupand will be increased by 0.25% per annum thereafter, ultimately reaching 1% in 2019. The prudential capital requirement of the Societe Generale Group will therefore be 9.75% as of 1st January 2016.

||TABLE 6: REGULATORY CAPITAL AND CRR/CRD4 SOLVENCY RATIOS – FULLY LOADED 31.12.2015

(In EUR m)

31.12.2014

Shareholders' equity (IFRS), Group share

59,037

55,168

Deeply subordinated notes

(9,552)

(9,364)

(366)

(335)

49,119

45,470

Perpetual subordinated notes Consolidated shareholders’ equity, Group share, net of deeply subordinated and perpetual subordinated notes Non-controlling interests

2,487

2,671

Intangible assets

(1,443)

(1,419)

Goodwill

(4,533)

(5,132)

Proposed dividends (General Meeting of Shareholders) and interest expenses on deeply subordinated and perpetual subordinated notes

(1,764)

(1,120)

Deductions and regulatory adjustments

(5,000)

(4,679)

Common Equity Tier One Capital

38,865

35,792

9,338

8,835

Deeply subordinated notes and preferred shares Other additional tier 1 capital Additional Tier 1 deductions

(137)

(27)

Tier One Capital

48,112

44,650

Tier 2 instruments

11,143

6,759

Other tier 2 capital

278

441

Tier 2 deductions

(1,400)

(1,337)

Total regulatory capital

58,134

50,514

Total risk-weighted assets

356,725

353,196

Credit risk-weighted assets

293,543

285,095

Market risk-weighted assets

19,328

24,170

Operational risk-weighted assets

43,854

43,931

Common Equity Tier 1 Ratio

10.9%

10.1%

Tier 1 Ratio

13.5%

12.6%

Total capital adequacy ratio

16.3%

14.3%

Solvency ratios

SOCIETE GENERALE GROUP I 2016 - pillar 3 report I 29

I Risk Repo rt I ca p i ta l management and adequac y

Group shareholders’ equity at 31st December 2015 totalled EUR 59 billion (compared to EUR 55.2 billion at 31st December 2014). After taking into account non-controlling interests and prudential deductions, Common Equity Tier 1 capital was EUR 38.9 billion at 31st December 2015, vs. EUR 35.8 billion at 31st December 2014. The table below shows the key factors in this change.

||TABLE 7: FULLY LOADED DEDUCTIONS AND REGULATORY ADJUSTMENTS UNDER CRR/CRD4 (In EUR m)

31.12.2015

Unrecognised minority interests

(1,131)

(1,366)

Defered tax assets

(2,318)

(2,641)

(735)

(557)

200

880

Prudent Valuation Adjustment Adjustments related to changes in the value of own liabilities Others

(1,016)

(995)

Total Basel 3 deductions and regulatory adjustments

(5,000)

(4,679)

||TABLE 8: FULLY LOADED REGULATORY CAPITAL FLOWS (In EUR m)

End-2014 Common Equity Tier One Capital Change in share capital resulting from the capital increase Net income, Group share Change in the provision for 2016 dividends

35,792 1 1,311 (651)

Change linked to translation differences

252

Change in value of financial instruments

170

Change in non-controlling interests

185

Change in goodwill and intangible assets Change in deductions Other End-2015 Common Equity Tier 1 capital End-2014 Additional Tier 1 capital Change in debt instruments eligible for additional Tier 1 Change in other additional Tier 1 capital Change in deductions

575 (321) 1,551 38,865 8,858 503 (122) 8

End-2015 Additional Tier 1 capital

9,247

Change in debt instruments eligible for Tier 2

5,864

Variation des instruments Tier 2

4,384

Change in other Tier 2 capital Change in deductions End-2015 Tier 2 capital

30 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

(13) (213) 10,022

ca pi ta l managemen t and adequacy I R i s k R e port I

3.4. CAPITAL REQUIREMENTS The Basel 3 Accord established the new rules for calculating minimum capital requirements with the aim of more accurately assessing the risks to which banks are exposed. The calculation of risk-weighted assets for credit risk takes into account the transaction risk profile,

by means of two approaches for determining risk-weighted assets: a standard method, and advanced methods based on internal models for rating counterparties.

||TABLE 9: GROUP CAPITAL REQUIREMENTS AND RISK-WEIGHTED ASSETS (In EUR m)

31st December 2015

31st December 2014

Minimum capital requirements

Riskweighted assets

Minimum capital requirements

Riskweighted assets

Sovereign

Institutions

Corporate

294

3,673

282

3,519

Total credit risk assessed using the foundation IRB approach

294

3,679

282

3,523

Sovereign

468

5,849

415

5,187

Institutions

847

10,591

859

10,733

8,423

105,288

7,517

93,961

Type of risk

Corporate Retail

2,319

28,982

2,413

30,162

12,057

150,710

11,203

140,044

1,477

18,462

1418

17,725

126

1,576

130

1,629

13,956

174,456

13,037

162,957

Sovereign

834

10,421

900

11,256

Institutions

512

6,403

347

4,342

Corporate

4,144

51,806

4,248

53,102

Retail

2,060

25,747

2,145

26,813

238

2,972

409

5,115

289

374

Other non-credit obligation assets

1,273

15,914

1,218

15,221

Total credit risk assessed using the standard approach

9,084

113,551

9,298

116,224

23,040

288,008

22,334

279,181

Value at Risk

311

3,892

319

3,983

Stressed Value at Risk

510

6,379

828

10,349

Incremental default and migration risk (IRC)

403

5,038

422

5,276

Correlation portfolio (CRM)

163

2,031

173

2,160

1,387

17,340

1,741

21,769

Total credit risk assessed using the advanced IRB approach Shares in the banking book Securitisation positions Other non-credit obligation assets Total credit risk assessed using the IRB approach

Shares in the banking book Securitisation positions

Credit, counterparty and delivery risk Total credit risk

Market risk assessed using the IRB approach General risk and specific risk related to interest rates (excluding securitisation)

414

323

Specific risk related to securitisation positions

467

300

Market risk assessed using the standard approach for ownership interests

510

445

Market risk assessed using the standard approach for currency positions

513

101

1,268

Market risk assessed using the standard approach for commodities

159

1,987

192

2,401

Market risk

1,546

19,327

1,934

24,170

Operational risk assessed using AMA

3,257

40,717

3,230

40,375

251

3,137

284

3,556

3,508

43,854

3,514

43,931

Market risk assessed using the standard approach

Operational risk assessed using the standardised approach Operational risk Credit Value Adjustment Totals

443

5,535

505

6,318

28,538

356,725

28,288

353,600

Further information on each type of risk (credit risk, market risk and operational risk) is provided in the ad-hoc sections ofhe Pillar 3.

SOCIETE GENERALE GROUP I 2016 - pillar 3 report I 31

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Change in risk-weighted assets and capital requirements The following table presents the risk-weighted assets by pillar.

||TABLE 10: RWA By PILLAR AND RISK TYPE Credit

Market

Operational

French Retail Banking

91.82

0.08

4.75

96.65

93.9

International Retail Banking and Financial Services

97.92

0.09

7.5

105.51

103.8

Global Banking and Investor Solutions

91.29

18.63

28.26

138.18

136.2

Corporate Centre

12.51

0.54

3.34

16.39

19.7

293.54

19.34

43.85

356.73

353.6

(In EUR bn) at 31.12.2015

Group

Total

Total 2014

Risk-weighted assets (EUR 356.7 billion) by type of activity break down at 31st December 2015 as follows: nn

credit risk accounted for 83% of risk-weighted assets (of which 31% for French Retail Banking);

market risk accounted for 5% of risk-weighted assets (of which 96% for Global Banking and Investor Solutions);

operational risk accounted for 12% of risk-weighted assets (of which 65% for Global Banking and Investor Solutions).

The two following tables present the change in RWA between end-2014 and end-2015 for credit and market risks. Between 31st December 2014 and 31st December 2015, risk-weighted assets for credit risk increased by EUR 8.0 billion, whereas risk-weighted assets for market risk decreased by EUR 4.9 million.

||TABLE 11: Change in credit RWAS

||TABLE 12: Change in market risk RWAS

(In EUR bn)

End-2014 Credit risks RWAs Scope effect

285.5

End-2014 Market risks RWAs

24.2

(0.3)

Change in Internal Model RWA

(4.4)

Foreign exchange effect

4.9

of which change in VaR

Other (including volume, rating, etc.)

3.4

of which change in SVaR

End-2015 Credit risks RWAs

32 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

293.5

(0.1) (4)

of which change in IRC

(0.2)

of which change in CRM

(0.1)

Change in Standard Model RWA

(0.4)

End-2015 Market risks RWAs

19.3

ca pi ta l managemen t and adequacy I R i s k R e port I

Information relative to key subsidiaries’ contributions to the group’s risk-weighted assets The contributions of the three key subsidiaries collectively contributing more than 10% of the Group’s risk-weighted assets are as follows:

||TABLE 13: KEY SUBSIDIARIES’ CONTRIBUTION TO THE GROUP’S RISK-WEIGHTED ASSETS Crédit du Nord

Rosbank

Komerčni Banka

IRB

Standard

IRB

Standard

IRB

Standard

16,280

2,377

794

6,025

9,955

1,839

739

403

163

145

428

1,084

Corporate

8,739

400

3,925

5,237

815

Retail

5,862

732

1,303

3,040

605

1,515

311

190

786

319

384

(In EUR m)

Credit and counterparty risk Sovereign Financial institutions

Securitisation Equity investments Other assets

Operational risk

Market risk

1,016

1,333

688

Total 2015

19,748

8,220

12,490

Total 2014

18,475

9,833

11,437

3.5. CAPITAL MANAGEMENT Capital management is implemented by the Finance Division. As part of managing its capital, the Group ensures that its solvency level is always compatible with the following objectives:

Since mid-2015, the Group has been managed with a target Common Equity Tier 1(1) ratio of 11%. At 31st December 2015, the Common Equity Tier 1 ratio of the Group was 10.9%.

maintaining its financial solidity and respecting the Risk Appetite targets;

In 2015, the Group’s capital generation funded growth in risk-weighted assets and the developments in its operations portfolio (specifically the year’s disposals and acquisitions), all while maintaining a sufficient margin to ensure dividend distribution and hybrid coupons payment.

nn nn

preserving its financial flexibility to finance organic growth and growth through acquisitions; adequate allocation of capital among the various business lines according to the Group’s strategic objectives;

In addition, the Group maintains a balanced capital allocation among its three strategic pillars:

maintaining the Group’s resilience in the event of stress scenarios;

French Retail Banking;

meeting the expectations of its various stakeholders: supervisors, debt and equity investors, rating agencies, and shareholders.

International Retail Banking and Financial Services;

Global Banking and Investor Solutions.

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 the adequacy of the Group’s capital ratios in light of regulatory constraints.

Each of the Group’s three pillars accounts for around a third of all riskweighted assets (RWA), with French and International Retail Banking (more than 59% of total business line loans and receivables) and credit risks (representing nearly 65% of the Group’s risk-weighted assets) accounting for the largest share. At 31st December 2015, the Group’s risk-weighted assets were up 0.9% to EUR 356.7 billion, compared to EUR 353.6 billion at endDecember 2014.

(1) Fully loaded ratio determined according to CRR/CRD4 rules.

SOCIETE GENERALE GROUP I 2016 - pillar 3 report I 33

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3.6. LEVERAGE RATIO MANAGEMENT The Group steers its leverage effect according to the CRR leverage ratio rules, as amended by the delegated act of 10th October 2014. Steering the leverage ratio means both calibrating the amount of Tier 1 capital (the ratio’s numerator) and controlling the Group’s leverage exposure (the ratio’s denominator) to achieve the target ratio levels that the Group sets for itself. To do this, the “leverage” exposure of the different business lines is contained under the Finance Division’s control.

The Group aims to maintain a consolidated leverage ratio that is significantly higher than the 3% minimum in the Basel Committee’s recommendations. The leverage ratio is in an observation phase in order to set the minimum requirements. Once they have been set, the Group’s target will be adjusted as needed. At the end of 2015, sustained by the higher Common Equity Tier 1 capital and additional Tier 1 capital, and the control of the Group’s leverage exposure, Societe Generale’s leverage ratio was 4.0% vs. 3.8% at end-2014.

||TABLE 14 (LRSum): Summary reconciliation of accounting assets and leverage ratio exposures (31.12.2015) Applicable Amounts

(In EUR m)

Total assets as per published financial statements

Adjustment for entities which are consolidated for accounting purposes but are outside the scope of regulatory consolidation

Adjustment for fiduciary assets recognised on the balance sheet pursuant to the applicable accounting framework but excluded from the leverage ratio exposure measure in accordance with Article 429(13) of Regulation (EU) No 575/2013 «CRR»)

1,334,391 (105,909) 0

Adjustments for derivative financial instruments

(88,837)

Adjustments for securities financing transactions «SFTs»

(25,097)

Adjustment for off-balance sheet items (ie conversion to credit equivalent amounts of off-balance sheet exposures)

EU-6a

Adjustment for intragroup exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (7) of Regulation (EU) No 575/2013

EU-6b

Adjustment for exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (14) of Regulation (EU) No 575/2013

Other adjustments

Total leverage ratio exposure

34 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

90,374

(10,117) 1,194,805

ca pi ta l managemen t and adequacy I R i s k R e port I

||TABLE 15 (LRcom): Leverage ratio common disclosure (31.12.2015) (In EUR m)

CRR leverage ratio exposures

On-balance sheet exposures (excluding derivatives and SFTs) 1

On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but including collateral)

802,731

(Asset amounts deducted in determining Tier 1 capital)

(10,118)

Total on-balance sheet exposures (excluding derivatives, SFTs and fiduciary assets) (sum of lines 1 and 2)

792,613

Derivative exposures 4

Replacement cost associated with all derivatives transactions (ie net of eligible cash variation margin)

Add-on amounts for PFE associated with all derivatives transactions (mark-to-market method)

21,076

EU-5a

Exposure determined under Original Exposure Method

Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the applicable accounting framework

109,809

(Deductions of receivables assets for cash variation margin provided in derivatives transactions)

(18,650)

(Exempted CCP leg of client-cleared trade exposures)

(21,138)

Adjusted effective notional amount of written credit derivatives

(Adjusted effective notional offsets and add-on deductions for written credit derivatives)

338,446

Total derivative exposures (sum of lines 4 to 10)

(303,854) 125,689

Securities financing transaction exposures 12

Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions

254,343

(Netted amounts of cash payables and cash receivables of gross SFT assets)

(84,800)

Counterparty credit risk exposure for SFT assets

EU-14a

Derogation for SFTs: Counterparty credit risk exposure in accordance with Article 429b (4) and 222 of Regulation (EU) No 575/2013

Agent transaction exposures

EU-15a

(Exempted CCP leg of client-cleared SFT exposure)

Total securities financing transaction exposures (sum of lines 12 to 15a)

16,586

186,129

Other off-balance sheet exposures 17

Off-balance sheet exposures at gross notional amount

188,086

(Adjustments for conversion to credit equivalent amounts)

(97,712)

Other off-balance sheet exposures (sum of lines 17 to 18)

90,374

Exempted exposures in accordance with CRR Article 429 (7) and (14) (on and off balance sheet) EU-19a

(Exemption of intragroup exposures (solo basis) in accordance with Article 429 (7) of Regulation (EU) No 575/2013 (on and off balance sheet))

EU-19b

(Exposures exempted in accordance with Article 429 (14) of Regulation (EU) No 575/2013 (on and off balance sheet))

Capital and total exposures 20

Tier 1 capital

Total leverage ratio exposures (sum of lines 3, 11, 16, 19, EU-19a and EU-19b)

48,112 1,194,805

Leverage ratio 22

Leverage ratio

4.0%

Choice on transitional arrangements and amount of derecognised fiduciary items EU-23

Choice on transitional arrangements for the definition of the capital measure

EU-24

Amount of derecognised fiduciary items in accordance with Article 429 (11) of Regulation (EU) NO 575/2013

Fully phased in 0

SOCIETE GENERALE GROUP I 2016 - pillar 3 report I 35

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(LRSpl): Table LRSpl: Split-up of on balance sheet exposures ||TABLE 16 ||(excluding derivatives, SFTs and exempted exposures) (31.12.2015) CRR leverage ratio exposures

(In EUR m)

EU-1

Total on-balance sheet exposures (excluding derivatives, SFTs, and exempted exposures), of which:

802,731

EU-2

Trading book exposures

116,813

EU-3

Banking book exposures, of which:

685,918

EU-4

Covered bonds

EU-5

Exposures treated as sovereigns

EU-6

Exposures to regional governments, MDB, international organisations and PSE NOT treated as sovereigns

14,996

EU-7

Institutions

39,135

EU-8

Secured by mortgages of immovable properties

EU-9

Retail exposures

159,234

EU-10

Corporate

189,332

EU-11

Exposures in default

12,379

EU-12

Other exposures (eg equity, securitisations, and other non-credit obligation assets)

77,875

175,411

17,556

3.7. RATIO OF LARGE EXPOSURES The CRR incorporates the provisions regulating large exposures. As such, Societe Generale Group must not have any exposure where the total amount of net risks incurred on a single beneficiary exceeds 25% of the Group’s capital.

36 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

The eligible capital used to calculate the large exposure ratio is the total regulatory capital, with a limit on the amount of Tier 2 capital. Tier 2 capital cannot exceed one-third of Tier 1 capital.

ca p i tal m an ag e m en t an d ade q uac y ( appe n di x ) I R i s k R e port I

3.8. A PPENDIX: INFORMATION ON REGULATORY OWN FUNDS AND SOLVENCY RATIOS

||table 6a: EGULATORY OWN FUNDS AND CRR/CRD4 SOLVENCY RATIOS (DETAILS OF TABLE 6) 2014

(In EUR m) Common Equity Tier 1 capital (CET1): Instruments and reserves

Fully Loaded(1)

2015 Fully Loaded Phased-In

Cross Ref. Table 2, p. 24

Cross Ref. Table 6b p. 39

Cross Ref notes

47,282

49,965

50,534

19,974

19,979

5,578

4,921

18,855

21,473

of which minority interests (amounts allowed in consolidated CET1)

1,304

1,355

1,925

of which independtly reviewed interim profits net of any forseeable charge or dividend

1,572

2,237

(11,491)

(11,100)

(9,799)

(557)

(735)

(733)

of which intangible assests (net of related tax liabilities)

(6,550)

(5,975)

of which deferred tax assets that rely on future profitability excluding those arising from temporary differences

(2,641)

(2,318)

(294)

4 5

of which capital instruments and the related share premium accounts of which retained earnings of which accumulated other comprehensive income (and other reserve, to include unrealised gains and losses under the applicable accounting standards)

Common Equity Tier 1 capital (CET1): Regulatory adjustments of which additional value adjustments (negative amount)

of which fair value reserves related to gains or losses on cash flow hedges of which negative amounts resulting from the calculation of expected loss amounts of which gains or losses on liabilities valued at fair value resulting from changes in own credit standing of which defined-benefit pension fund assets (negative amount)

(23)

(150)

(150

(830)

(759)

880

199

(11)

(20)

(8)

(1,475)

(1,249)

(1,221)

of which exposure amount of the items which qualify for a risk weight of 1250% where the institution opts for the deduction alternative

(122)

(93)

20a

of which deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability where the condition in 38, paragraph 3 are met) (negative amount)

(162)

(766)

26a

35,792

38,865

40,735

8,885

9,384

9,357

of which capital instruments and the related share premium accounts

4706

6,282

of which amounts of qualifying amounts referred to in Article 484, paragraph 4 and the related share premium accounts subject to phase out from AT1

4129

3,057

(27)

(137)

(165)

(7)

(125)

(153)

(20)

(12)

of which direct and indirect holdings by an institution of own CET1 instruments (negative amount)

of which regulatory adjustments relating to unrealised gains and losses pursuant to Articles 467 and 468 Common Equity Tier 1 capital (CET1) Additionnal Tier 1 (AT1) capital: Instruments

of which qualifying Tier 1 capital included in consolidated AT1 (including minority interests not included in row 5) issued by subsidiaries and held by third parties Additionnal Tier 1 (AT1) capital: Regulatory adjustments of which direct and indirect holdings by an institution of own AT1 instruments (negative amount) of which direct and indirect and synthetic holdings of the AT1 instruments of financial sector entities where the institution does not have a significant investment in those entities (amount above the 10% threshold and net of eligible short positions) (negative amount)

37 1

Additionnal Tier 1 (AT1) capital

8,858

9,247

9,191

Tier 1 capital (T1 = CET1 + AT1)

44,650

48,112

49,926

5,864

10,022

9,993

6,425

10,778

335

366

Tier 2 capital (T2): Instruments and provisions of which capital instruments and the related share premium accounts of which amounts of qualifying amounts referred to in Article 484, paragraph 5) and the related share premium accounts subject to phase out from T2 of which qualifying own funds instruments included in consolidated T2 capital (including minority interests and AT1 instruments not included in rows 5 or 34) issued by subsidiaries and held by third parties

(1) Basel 3 pro forma. SOCIETE GENERALE GROUP I 2016 - pillar 3 report I 37

I Risk Repo rt I ca p ita l m a na g e m e n t an d ade q uac y ( appe n di x )

2014

(In EUR m)

Fully Loaded(1)

2015 Fully Loaded Phased-In

Cross Ref. Table 2, p. 24

Cross Ref. Table 6b p. 39

of which credit risk adjustments

348

380

of which direct and indirect holdings by an institution of own T2 instruments and subordinated loans (negative amount)

(11)

(150)

(1,326)

(1,400)

of which direct and indirect holdings of the T2 instruments and subordinated loans of financial sector entities where the institution does not have a significant investment in those entities (amount above the 10% threshold and net of eligible short positions) (negative amount) Tier 2 capital (T2)

Cross Ref notes

5,864

10,022

9,993

Total capital (TC= T1 + T2)

50,514

58,134

59,919

Total risk weighted assets

353,197

356,725

Ratio Common Equity Tier 1

10.13%

10.90%

11.42%

Ratio Tier 1

12.64%

13.49%

14.00%

Ratio Total capital

14.30%

16.30%

16.80%

(1) Basel 3 pro forma.

nn nn

Phased in amounts refer to transitional provisions resulting from the application of CRR articles 465-491. The regulatory own funds items are used as a starting point to describe differences between balance sheet items used to calculate own funds and regulatory own funds.

Notes I - COMMON EQUITY TIER 1 (CET1): INSTRUMENTS AND RESERVES: 1. Difference due to deduction for holdings of own CET1 instruments. 2. Difference linked to a limited recognition of minority interests. II - COMMON EQUITY TIER 1: REGULATORY ADJUSTMENTS 3. Other comprehensive income from changes in the fair value through equity of financial assets are not deducted from regulatory own funds, except gains and losses on derivatives held as cash flow hedges. 4. The differences between the amounts of the balance sheet under the prudential scope and under regulatory capital are related to taxes deferred on OCA and DVA. 5. Goodwill and other intangible assets net of related deferred tax liabilities are fully deducted from regulatory own funds. 6. Gains or losses on liabilities valued at fair value and recognised in the income statement resulting from changes in own credit spread (OCA) as well as gains or losses resulting from changes in credit spread on own liability derivatives (DVA) are deducted from Common Equity Tier 1 instruments. III - ADDITIONAL TIER 1 (AT1) CAPITAL: INSTRUMENTS 7. Differences between balance sheet items used to calculate own funds and regulatory own funds are referring to the translation differences associated with these instruments. 8. Minority interests recognised in Additional Tier 1 instruments receive the same accounting treatment as described in note 2. IV - ADDITIONAL TIER 1 (AT1) CAPITAL: REGULATORY ADJUSTMENTS 9. Discrepancy due to the exclusion of insurance subordinated loans in the consolidated balance sheet. V - TIER 2 (T2) CAPITAL: INSTRUMENTS AND PROVISIONS 10. Difference due to instruments ineligible to a classification as regulatory own funds. 11. Minority interests recognised in Tier 2 instruments receive the same accounting treatment as described in note 2.

38 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

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||table 6b : TRANSITIONAL OWN FUNDS DISCLOSURE TEMPLATE Amount at disclosure date

Ref

Transitional provisions

Common Equity Tier 1 (CET1) capital: instruments and reserves

Capital instruments and the related share premium accounts

Retained earnings

Accumulated other comprehensive income (and other reserves, to include unrealised gains and losses under the applicable accounting standards)

Funds for general banking risk

Amount of qualifying items referred to in Article 484, paragraph 3 and the related share premium accounts subject to phase out from CET1

Public sector capital injections grandfathered until 1st January 2018

19,979 4,921 21,473

Minority interests (amount allowed in consolidated CET1)

1,355

Independently reviewed interim profits net of any foreseeable charge or dividend

2,237

Common Equity Tier 1 (CET1) capital before regulatory adjustments

569

49,965

569

(735)

Common Equity Tier 1 (CET1) capital: regulatory adjustments

Additional value adjustments (negative amount)

Intangible assets (net of related tax liability) (negative amount)

Empty set in the EU

Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability where the conditions in Article 38, paragraph 3 are met) (negative amount)

Fair value reserves related to gains or losses on cash flow hedges

(150)

Negative amounts resulting from the calculation of expected loss amounts

(759)

Any increase in equity that results from securitised assets (negative amount)

Gains or losses on liabilities valued at fair value resulting from changes in own credit standing

199

Defined-benefit pension fund assets (negative amount)

(20)

Direct and indirect holdings by an institution of own CET1 instruments (negative amount)

(1,249)

Holdings of the CET1 instruments of financial sector entities where+ those entities have reciprocal cross holdings with the institutions designed to inflate artificially the own funds of the institution (negative amount)

Direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where the institution does not have a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount)

Direct, indirect and synthetic holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount)

Empty set in the EU

20a

Exposure amount of the following items which qualify for a RW of 1,250%, where the institution opts for the deduction alternative

20b

of which: qualifying holdings outside the financial sector (negative amount)

20c

of which: securitisation positions (negative amount)

20d

of which: free deliveries (negative amount)

Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability where the conditions in 38, paragraph 3 are met) (negative amount)

Amount exceeding the 15% threshold (negative amount)

of which: direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities

Empty set in the EU

of which: deferred tax assets arsing from temporary differences

25a

Losses for the current financial year (negative amount)

25b

Foreseeable tax charges relating to CET1 items (negative amount)

Regulatory adjustments applied to Common Equity Tier 1 in respect of amounts subject to pre-CRR treatment

(5,975)

(2,318)

2,024

(93) 0 (93)

0 852

5,370

(766)

SOCIETE GENERALE GROUP I 2016 - pillar 3 report I 39

I Risk Repo rt I ca p ita l m a na g e m e n t an d ade q uac y ( appe n di x )

Ref

26a

Regulatory adjustments relating to unrealised gains and losses pursuant to Articles 467 and 468

Amount at disclosure date

Transitional provisions

(766)

of which: … filter for unrealised loss 1 of which: … filter for unrealised loss 2 of which: … filter for unrealised gain 1

(168)

of which: … filter for unrealised gain 2

26b

Amount to be deducted from or added to Common Equity Tier 1 capital with regard to additional filters and deductions required pre CRR

Qualifying AT1 deductions that exceed the AT1 capital of the institution

Total regulatory adjustment to Common Equity Tier 1 (CET1)

Common Equity Tier 1 (CET1) capital

(598) 0 0 (11,100)

1,301

38,865

1,870

Additional Tier 1 (AT1) capital: instruments

Capital instruments and the related share premium accounts

6,282

of which: classified as equity under applicable accounting standards

6,282

of which: classified as liabilities under applicable accounting standards

Amount of qualifying items referred to in Article 484 (4) and the related share premium accounts subject to phase out from AT1 Public sector capital injections grandfathered until 1st January 2018

Qualifying Tier 1 capital included in consolidated AT1 capital (including minority interests not included in row 5) issued by subsidiaries and held by third parties

of which: instruments issued by subsidiaries subject to phase out

Additional Tier 1 (AT1) capital before regulatory adjustments

3,057

(27)

9,384

(27)

(125)

(28)

Additional Tier 1 (AT1) capital: regulatory adjustments

Direct and indirect holdings by an institution of own AT1 instruments (negative amount)

Holdings of the AT1 instruments of financial sector entities where those entities have reciprocal cross holdings with the institution designed to inflate artificially the own funds of the institution (negative amount)

Direct and indirect holdings of the AT1 instruments of financial sector entities where the institution does not have a significant investment in those entities (amount above the 10% threshold and net of eligible short positions) (negative amount)

Direct and indirect holdings by the institution of the AT1 instruments of financial sector entities where the institution has a significant in those entities (amount above the 10% threshold net of eligible short positions) (negative amount)

Regulatory adjustments applied to AT1 in respect of amounts subject to pre- CRR treatment and transitional treatments subject to phase out as prescribed in Regulation (EU) No 575/2013 (i.e. CRR residual amounts)

41a

Residual amounts deducted from AT1 capital with regard to deduction from Common Equity Tier 1 capital during the transitional period pursuant to article 472 of Regulation (EU) No 575/2013 Of which items to be detailed line by line, e.g. Material net interim losses, intangibles, shortfall of provisions to expected losses etc

41b

Residual amounts deducted from AT1 capital with regard to deduction from Tier 2 capital during the transitional period pursuant to article 475 of Regulation (EU) No 575/2013 Of which items to be detailed line by line, e.g. Reciprocal cross holdings in Tier 2 instruments, direct holdings of non-significant investments in the capital of other financial sector entities, etc

41c

Amount to be deducted from or added to AT1 capital with regard to additional filters and deductions required pre-CRR

(12)

of which: … filter for unrealised losses of which: … filter for unrealised gains

Qualifying T2 deductions that exceed the T2 capital of the institution (negative amount)

Total regulatory adjustments to Additional Tier 1 (AT1) capital

(137)

(28)

Additional Tier 1 (AT1) capital

9,247

(55)

Tier 1 capital (T1= CET1+AT1)

48,112

1,815

Tier 2 (T2) capital: instruments and provisions

Capital instruments and the related share premium accounts

Amount of qualifying items referred to in Article 484, paragraph 5 and the related share premium account subject to phase out from T2 Public sector capital injections grandfathered until 1st January 2018

40 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

10,778 366

ca p i tal m an ag e m en t an d ade q uac y ( appe n di x ) I R i s k R e port I

Ref

Qualifying own funds instruments included in consolidated T2 capital (including minority interests and AT1 instruments not included in rows 5 or 34) issued by subsidiaries and held by third parties

of which: instruments issued by subsidiaries subject to phase out

Credit risk adjustments

Tier 2 (T2) capital before regulatory adjustments

Amount at disclosure date

Transitional provisions

(29)

380 11,572

(29)

Tier 2 (T2) capital: regulatory adjustments

Direct and indirect holdings by an institution of own T2 instruments and subordinated loans (negative amount)

Holdings of the T2 instruments and subordinated loans of financial sector entities where those entities have reciprocal cross holdings with the institution designed to inflate artificially the own funds of the institution (negative amount)

Direct and indirect holdings of the T2 instruments and subordinated loans of financial sector entities where the institution does not have a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount)

54a

of which new holdings not subject to transitional arrangements

54b

of which holdings existing before 1st January 2013 and subject to transitional arrangements

Direct and indirect holdings by the institution of the T2 instruments and subordinated loans of financial sector entities where the institution has a significant investment in those entities (net of eligible short positions) (negative amount)

Regulatory adjustments applied to Tier 2 in respect of amounts subject to pre-CRR treatment and transitional treatments subject to phase out as prescribed in Regulation (EU) No 575/2013 (i.e. CRR residual amounts)

56a

Residual amounts deducted from Tier 2 capital with regard to deduction form Common Equity Tier 1 capital during the transitional period pursuant to article 472 of Regulation (EU) No 575/2013 Of which items to be detailed line by line, e.g. Material net interim losses, intangibles, shortfall of provisions to expected losses etc

56b

Residual amounts deducted from Tier 2 capital with regard to deduction from Additional Tier 1 capital during the transitional period pursuant to Article 475 of Regulation (EU) No 575/2013 Of which items to be detailed line by line, e.g. Reciprocal cross holdings in Tier 2 instruments, direct holdings of non-significant investments in the capital of other financial sector entities, etc

56c

Amount to be deducted from or added to Tier 2 capital with regard to additional filters and deductions required pre-CRR

(150)

(1,400)

of which: … filter for unrealised losses of which: … filter for unrealised gains

Total regulatory adjustments to Tier 2 (T2) capital

(1,550)

Tier 2 (T2) capital

10,022

(29)

Total capital (TC=T1+T2)

58,134

1,785

59a

Risk weighted assets in respect of amounts subject to pre-CRR treatment and transitional treatments subject to phase out as prescribed in Regulation (EU) No 575/2013 (i.e. CRR residual amounts)

of which: … items not deducted from CET1 (Regulation (EU) No 575/2013 residual amounts) (items to be detailed line by line, e.g. Deferred tax assets that rely on future profitability net of related tax liability, indirect holdings of own CET1, etc.)

of which: … items not deducted from AT1 (Regulation (EU) No 575/2013 residual amounts) (items to be detailed line by line, e.g. Reciprocal cross holdings in T2 instruments, direct holdings of non-significant investments in the capital of other financial sector entities, etc.)

Items not deducted from T2 items (Regulation (EU) No 575/2013 residual amounts) (items to be detailed line by line, e.g. Indirect holdings of own T2 instruments, indirect holdings of non-significant investments in the capital of other financial sector entities etc)

356,725

Total risk weighted assets

Capital ratios and buffers

Common Equity Tier 1 (as a percentage of risk exposure amount)

10.90%

11.42%

Tier 1 (as a percentage of risk exposure amount)

13.49%

14.00%

Total capital (as a percentage of risk exposure amount)

16.30%

16.80%

Institution specific buffer requirement (CET1 requirement in accordance with article 92, paragraph 1 point a plus capital conservation and countercyclical buffer requirements, plus systemic risk buffer, plus the systemically important institution buffer (G-SII or O-SII buffer), expressed as a percentage of risk exposure amount)

of which: capital conservation buffer requirement

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Amount at disclosure date

Ref

of which: countercyclical buffer requirement

of which: systemic risk buffer requirement

67a

of which: Global Systemically Important Institution (G-SII) or Other Systemically Important Institution (O-SII) buffer

Common Equity Tier 1 available to meet buffers (as a percentage of risk exposure amount)

[non relevant in the EU regulation]

Capital ratios and buffers

Direct and indirect holdings of the capital of financial sector entities where the institution does not have a significant investment in those entities (amount below 10% threshold and net of eligible short positions)

Direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities (amount below 10% threshold and net of eligible short positions)

Empty set in the EU

Deferred tax assets arising from temporary differences (amount below 10% threshold, net of related tax liability where the conditions in Article 38, paragraph 3 are met)

3,885

852

3,499

Applicable caps on the inclusion of provisions in Tier 2

Credit risk adjustments included in T2 in respect of exposures subject to standardised approach (prior to the application of the cap)

Cap on inclusion of credit risk adjustments in T2 under standardised approach

Credit risk adjustments included in T2 in respect of exposures subject to internal ratings-based approach (prior to the application of the gap)

Cap for inclusion of credit risk adjustments in T2 under internal rating-based approach

380 116,609 0 150,538

Capital instruments subject to phase-out arrangements (only applicable between 1st January 2014 and 1st January 2022)

Current cap on CET1 instruments subject to phase out arrangements

Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities)

Current cap on AT1 instruments subject to phase out arrangements

Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities)

Current cap on T2 instruments subject to phase out arrangements

Amount excluded from T2 due to cap (excess over cap after redemptions and maturities)

42 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

0 0 4,123 0 522 0

Transitional provisions

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SOCIETE GENERALE GROUP I 2016 - pillar 3 report I 43

I Risk Repo rt I CRE D I T RI S K S

in brief Credit and counterparty risks correspond to the risk of losses arising from the inability of the Group’s customers, issuers or other counterparties to meet their financial commitments. Credit risk includes counterparty risk linked to market transactions (replacement risk) and securitisation activities. In addition, credit risk may be further amplified by concentration risk, which arises from a large exposure to a given risk, to one or more counterparties, or to one or more omogeneous groups of counterparties. Country risk arises when an exposure (loan, security, guarantee or derivative) becomes liable to negative impact from changing political, economic, social and financial conditions in the country of exposure. This section describes the Group’s risk profile. It focuses on regulatory indicators, including Exposure at Default (EAD) and Risk Weighted Assets (RWA). The risk profile is analysed according to several approaches (countries, sectors, probabilty of default, residual maturities, etc.).

GEOGRAPHIC BREAKDOWN OF GROUP CREDIT RISK EXPOSURE (EAD) 7% Eastern Europe EU

13%

North America

Europe de l’est hors UE

Asia Pacific

24%

Western Europe excl. France

Africa and Middle East

43%

Latin America and Caribbean

France

Credit risk exposure (EAD) at end-2015: EUR 781 bn

Distribution of Credit risks RWA by pillar 34% French Retail Banking International Retail Banking and Financial Services

31%

Global Banking and Investor Solutions

Corporate Centre

31%

Credit risk RWA at end-2015

Credit risk RWA at end-2015: EUR 293 bn

EUR 293.5 bn (Credit risk RWA at end-2014: EUR 285.5 bn)

Distribution of EAD by portfolio

EAD calculated in IRB

79%

24%

40%

Retail

Corporate

Share of performing loans calculated under the IRB approach with an investment grade rating (excluding defaulted exposures)

> 75%

Securitisation

21%

13%

Sovereign

Institutions

Credit risk exposure (EAD) at end-2015: EUR 781 bn

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C R E DI T R I SKS I R i s k R e port I

4 . C r e d it r i s k s 4.1. Credit risk management: organisation and structure The Risk Division has defined a control and monitoring system, in conjunction with the business divisions and based on the credit risk policy, to provide a framework for the Group’s credit risk management. This framework is periodically reviewed and approved by the Board of director’s Risk Committee. Credit risk supervision is organised by business division (French Retail Banking Networks, International Retail Banking and Financial Services, Global Banking and Investor Solutions) and is supplemented by departments with a more cross-business approach (monitoring of country risk, risk linked to financial institutions, etc.). In addition, the definition of counterparty risk assessment methods is provided by the Market Risk Department. Within the Risk Division, each of these departments is responsible for:

setting global and individual credit limits by client, client category or transaction type

authorising transactions submitted by the sales departments

approving ratings or internal client rating criteria

monitoring and supervising large exposures and various specific credit portfolios approving specific and general provisioning policies.

In addition, a specific department performs comprehensive portfolio analyses and provides the associated reports, including those for the supervisory authorities. A monthly report on the Risk Division’s activity is presented to CORISQ and specific analyses are submitted to the General Management.

4.2. Credit policy Societe Generale’s credit policy is based on the principle that approval of any credit risk undertaking must be based on sound knowledge of the client and the client’s business, an understanding of the purpose and structure of the transaction, and the sources of repayment of the debt. Credit decisions must also ensure that the structure of the transaction will minimise the risk of loss in the event that the counterparty defaults. Furthermore, the credit approval process takes into consideration the overall commitment of the group to which the client belongs. Risk approval forms part of the Group’s risk management strategy in line with its risk appetite. The risk approval process is based on four core principles: nn

all transactions involving credit risk (debtor risk, settlement/ delivery risk, issuer risk and replacement risk) must be preauthorised

the dedicated primary customer relation unit and risk unit, which examine all authorisation requests relating to a specific client or client group, to ensure a consistent approach to risk management nn

the primary customer relation unit and the risk unit must be independent from each other credit decisions must be systematically based on internal risk ratings (obligor rating), as provided by the primary customer relation unit and approved by the Risk Division.

The Risk Division submits recommendations to CORISQ on the limits which it deems appropriate for certain countries, geographic regions, sectors, products or customer types, in order to reduce risks with strong correlations. The allocation of limits is subject to final approval by the Group’s General Management and is based on a process that involves the operating divisions exposed to risk and the Risk Division.

responsibility for analysing and approving transactions lies with

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I Risk Repo rt I CRE D IT RIS K S

4.3. Risk supervision and monitoring system Portfolio review and sector risk monitoring

Specific monitoring of hedge funds

Authorisation limits are set by counterparty and the credit approval process must comply with the overall authorisation limit for the group to which the counterparty belongs.

Hedge funds are important counterparties for the Group. Whether they are regulated or not, and regardless of the nature of the end investor, hedge funds pose specific risks: they are able to use significant leverage as well as investment strategies that involve illiquid financial instruments, which leads to a strong correlation between credit risk and market risk.

Individual large exposures are reviewed by the Large Exposures Committee chaired by the General Management. Concentrations are measured using an internal model and individual concentration limits are defined for larger exposures. Any concentration limit breach is managed over time by reducing exposures and/or hedging positions using credit derivatives.

Concentration targets are defined for the biggest counterparties at Concentration Committee meetings.

In addition, the Group regularly reviews its entire credit portfolio through analyses by type of counterparty or business sector. In addition to industry research and regular sector concentration analyses, sector research and more specific business portfolio analyses are carried out at the request of the bank’s General Management and/or Risk Division and/or business divisions.

Monitoring of Country Risk Country risk arises when an exposure (loan, security, guarantee or derivative) becomes liable to negative impact from changing political, economic, social and financial conditions in the country of exposure. It includes exposure to any kind of counterparty, including a sovereign state (sovereign risk is also controlled by the system of counterparty risk limits). Country risk breaks down into two major categories: nn

political and non-transfer risk covers the risk of non-payment resulting from either actions or measures taken by local government authorities (decision to prohibit the debtor from meeting its commitments, nationalisation, expropriation, nonconvertibility, etc.), domestic events (riots, civil war, etc.) or external events (war, terrorism, etc.) commercial risk occurs when the credit quality of all counterparties in a given country deteriorates due to a national economic or financial crisis, independently of each counterparty’s individual financial situation. This could be macroeconomic shock (sharp slowdown in activity, systemic banking crisis, etc.) or currency depreciation, or sovereign default on external debt possibly entailing other defaults.

Overall limits and strengthened monitoring of exposures have been established for countries based on their internal ratings and governance indicators. Supervision is not limited to emerging markets. Country limits are approved annually by General Management. They can also be revised downward at any time if the country’s situation deteriorates or is expected to deteriorate. All Group exposures (securities, derivatives, loans and guarantees) are taken into account by this monitoring. The Country Risk methodology determines an initial country of risk and a final country of risk (after the effects of any guarantees) within the country limits framework.

46 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

Activities carried out in the hedge fund sector are governed by a set of global limits established by the General Management: a Credit VaR limit which controls the maximum replacement risk that may be taken in this segment a stress test limit governing market risks and the risks associated with financing transactions guaranteed by shares in hedge funds.

Credit stress tests With the aim of identifying, monitoring and managing credit risk, the Risk Division works with the business divisions to conduct a set of specific stress tests relating to a country, subsidiary or activity. These specific stress tests combine both recurring stress tests, conducted on those portfolios identified as structurally carrying risk, and occasional stress tests, designed to recognise emerging risks. Some of these stress tests are presented to the Risk Committee and used to determine how to govern the activities concerned. Like global stress tests, specific stress tests draw on a core scenario and a stressed scenario that are defined by the Group’s sector experts and economists. The core scenario draws on an in-depth analysis of the situation surrounding the activity or the country concerned. The stressed scenario describes triggering events and assumptions about the sequence of a crisis, both in quantitative terms (changes in a country’s GDP, the unemployment rate, deterioration in a sector) and qualitative terms. Structured around the portfolio analysis function, the Risk Division teams translate these economic scenarios into impacts on risk parameters (default exposure, default rate, provisioning rate at entry into default, etc.). To this end, the leading methods are based in particular on the historical relationship between economic conditions and risk parameters. Like in global stress tests, in connection with the regulatory Pillar, stress tests routinely take into account the possible effect of counterparty performance for counterparties in which the Group is most highly concentrated in a stressed environment.

C R E DI T R I SK S I R i s k R e port I

Impairment Impairments include impairments on groups of hom*ogeneous assets, which cover performing loans, and specific impairments, which cover counterparties in default.

Impairment on groups of hom*ogeneous assets

These impairments are calculated on the basis of assumptions on default rates and loss rates after default. These assumptions are calibrated by hom*ogeneous group based on their specific characteristics, sensitivity to the economic environment and historical data. They are reviewed periodically by the Risk Division.

A counterparty is deemed to be in default when at least one of the following conditions is verified: nn

Impairments on groups of hom*ogeneous assets are collective impairments booked for portfolios that are hom*ogenous and have a deteriorated risk profile although no objective evidence of default can be observed at an individual level. These hom*ogeneous groups include sensitive counterparties, sectors or countries. They are identified through regular analyses of the portfolio by sector, country or counterparty type.

a significant decline in the counterparty’s financial position leads to a high probability of it being unable to fulfil its overall commitments (credit obligations), thereby generating a risk of loss to the bank whether or not the debt is restructured; and/or regardless of the type of loan (property or other), one or more receivables past due at least 90 days were recorded (with the exception of loans restructured on probation, which are considered in default at first missed payment, in accordance with the technical standard published in 2013 by the EBA relative to restructured loans) and/or

a recovery procedure is started; and/or

the debt was restructured less than one year previously; and/or

a legal proceeding such as a bankruptcy, legal settlement or compulsory liquidation is in progress.

The Group applies the default contagion principle to all a counterparty’s outstandings. When a debtor belongs to a group, all of the group’s outstandings are generally defaulted as well.

Specific impairment Decisions to book specific impairments on certain counterparties are taken where there is objective evidence of default. The amount of impairment depends on the probability of recovering the amounts due. The expected cash flows are based on the financial position of the counterparty, its economic prospects and the guarantees called up or that may be called up.

SOCIETE GENERALE GROUP I 2016 - pillar 3 report I 47

I Risk Repo rt I CRE D IT RIS K S

4.4. Replacement risk Counterparty risk associated with derivative transactions is a type of credit risk (potential loss in the event that the counterparty defaults) that is also called replacement risk. It represents the current cost to the Group of replacing transactions with a positive value should the counterparty default. Transactions giving rise to a replacement risk are, inter alia, security repurchase agreements, securities lending and borrowing, and derivative contracts such as swaps, options and futures traded over the counter or with central counterparty clearing houses (CCP).

Management of counterparty risk linked to market transactions Societe Generale places great emphasis on carefully monitoring its credit and counterparty risk exposure in order to minimise its losses in case of default. Counterparty limits are assigned to all counterparties (banks, other financial institutions, corporates, public institutions and CCP). In order to quantify the potential replacement risk, Societe Generale uses an internal model: the future fair value of trading transactions with counterparties is modelled, taking into account any netting and correlation effects. Estimates are derived from Monte-Carlo models developed by the Risk Division, based on a historical analysis of market risk factors, and take into account guarantees and collateral. Societe Generale uses two indicators to describe the subsequent distribution resulting from the Monte-Carlo simulations: nn

current average risk, particularly suited to analysing the risk exposure for a portfolio of customers credit VaR (or 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.

Societe Generale has also developed a series of stress test scenarios used to calculate the exposure linked to changes in the fair value of transactions with all of its counterparties in the event of an extreme shock to market parameters.

Setting individual counterparty limits The credit profile of counterparties is reviewed on a regular basis and limits are set both according to the type and maturity of the instruments concerned. The intrinsic creditworthiness of counterparties and the reliability of the associated legal documentation are two factors considered when setting these limits. Fundamental credit analysis is also supplemented by relevant peer comparisons and a market watch.

Information technology systems allow both traders and the Risk Division to ensure on a day-to-day basis that counterparty limits are not exceeded and that incremental authorisations are requested as needed. Any significant weakening in the bank’s counterparties also prompts urgent internal rating reviews. A specific supervision and approval process is put in place for more sensitive counterparties or more complex financial instruments.

Calculation of Exposure at Default(1) within the regulatory framework The Autorité de contrôle Prudentiel et de Résolution (ACPR - French Prudential and Resolution Supervisory Authority) approved the use of the internal model described above to determine the Effective Expected Positive Exposure (EEPE) indicator used in calculating counterparty risk-adjusted capital. This internal model is used for 96% of transactions. For other purposes, the Group uses the marked-to-market valuation method. In this method, the EAD relative to the bank’s counterparty risk is determined by aggregating the positive market values of all transactions (replacement cost) and increasing the sum with an addon. This add-on, which is calculated in line with the CRD (Capital Requirement Directive) guidelines, is a fixed percentage according to the type of transaction and the residual maturity, which is applied to the transaction’s nominal value. In both cases, the effects of netting agreements and collateral are factored in either by their simulation in the internal model, or by applying the netting rules as defined by the marked-to-market method and by subtracting guarantees or collateral. Regulatory capital requirements also depend on the internal rating of the debtor counterparty.

Credit valuation adjustment for counterparty risk Derivatives and security financing transactions are subject to a Credit Valuation Adjustment (CVA) to take into account counterparty risk. The Group includes in this adjustment all clients which are not subject to a daily margin call or for which the collateral only partially covers the exposure. This adjustment also reflects the netting agreements existing for each counterparty. CVA is determined on the basis of the Group entity’s positive expected exposure to the counterparty, the counterparty’s probability of default (conditional on the entity not defaulting), and the loss in the event of default. Furthermore, since 1st January 2014, financial institutions must determine capital requirements related to CVA, covering its variation over 10 days. The scope of counterparties is reduced to financial counterparties as defined in the EMIR (European Market Infrastructure Regulation) or certain corporates that would use derivatives beyond certain thresholds and for purposes other than hedging. Societe Generale has implemented an internal model to compute these

(1) Exposure at default (EAD) of a loan is equal to its nominal amount. The potential loss amount of a derivative product is its marked-to-market valuation when the counterparty defaults, which can be only statistically approximated. Therefore, two methods for the calculation of the EAD of derivative products are allowed, one using the marked-to-market valuation and one using the internal model approach (see above).

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C R E DI T R I SK S I R i s k R e port I

capital requirements, covering 65% of the scope. The method used is the same as the one used for the market VaR computation (refer to Chapter 4.5 of the Registration Document, p. 176: it consists in carrying out an historical simulation of the change in CVA due to the variations observed in the credit spreads of the counterparties, with a 99% confidence level. The computation is done on the credit spreads variation observed, on the one hand, over a one-year rolling period (VaR on CVA), and, on the other hand, over a fixed one-year historical window corresponding to a period of significant tension regarding credit spreads (Stressed VaR on CVA). The associated capital requirements are equal to the sum of these two computations multiplied by a factor set by the regulator, specific to each bank. For the remaining part determined according to the standard method, Societe Generale applies the rules defined by the Capital Requirement Regulation: weighting by a normative factor of the EAD multiplied by a recomputed maturity.

Wrong-way risk adjustment Wrong-way risk is the risk that occurs when Group exposure to a counterparty strongly increases whereas the probability that the counterparty defaults also increases. There are two cases of wrong-way risk: nn

specific wrong-way risk, where the amount of exposure is directly related to the credit quality of the counterparty general wrong-way risk, where there is a significant correlation between some market factors and the creditworthiness of the Group’s counterparty.

Wrong-way risk is subject to identification procedures, calculation of exposures as well as specific and regular monitoring of identified counterparties.

The management of this exposure and regulatory capital charge led the Group to buy protection (such as Credit Default Swaps) from major financial institutions. In addition to reducing the credit risk, it decreases their variability resulting from a change in the credit spreads of counterparties.

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4.5. Hedging of credit risk Guarantees and collateral The Group uses credit risk mitigation techniques both for market and commercial banking activities. These techniques provide partial or full protection against the risk of debtor insolvency. There are two main categories: nn

personal guarantees are commitments made by a third party to replace the primary debtor in the event of the latter’s default. These guarantees encompass the protection commitments and mechanisms provided by banks and similar credit institutions, specialised institutions such as mortgage guarantors (e.g. Crédit Logement in France), monoline or multiline insurers, export credit agencies, etc. By extension, credit insurance and credit derivatives (purchase of protection) also belong to this category collateral can consist of physical assets in the form of property, commodities or precious metals, as well as financial instruments such as cash, high-quality investments and securities, and also insurance policies.

Appropriate haircuts are applied to the value of collateral, reflecting its quality and liquidity.

Use of credit derivatives to manage corporate concentration risk Within Corporate and Investment Banking, the Credit Portfolio Management (CPM) team is responsible for working in close cooperation with the Risk Division and the businesses to reduce excessive portfolio concentrations and react quickly to any deterioration in the creditworthiness of a particular counterparty. CPM has now been merged with the department responsible for managing scarce resources for the credit and loan portfolio. The Group uses credit derivatives in the management of its Corporate credit portfolio, primarily to reduce individual, sector and geographic concentration and to implement a proactive risk and capital management approach. Individual protection is essentially purchased under the over-concentration management policy. For example, the ten most hedged names account for 90% of the total amount of individual protections purchased. The notional value of Corporate credit derivatives (Credit Default Swaps, CDS) purchased for this purpose is booked in off-balance sheet commitments under guarantee commitments received.

The Group proactively manages its risks by diversifying guarantees: physical collateral, personal guarantees and others (including CDS).

Total outstanding purchases of protection through Corporate credit derivatives decreased to EUR 0.7 billion at end-December 2015 (compared to EUR 1.2 billion at end-December 2014).

During the credit approval process, an assessment is performed on the value of guarantees and collateral, their legal enforceability and the guarantor’s ability to meet its obligations. This process also ensures that the collateral or guarantee successfully meets the criteria set forth in the Capital Requirements Directive (CRD).

In 2015, the Credit Default Swap (CDS) spreads from European investment-grade issuances (iTraxx index) slightly widened, increasing the individual sensitivity of covered entities to the increase of spreads. The decline in outstandings mitigated this effect, with the portfolio’s overall sensitivity remaining virtually unchanged.

Guarantor ratings are reviewed internally at least once a year and collateral is subject to revaluation at least once a year.

Almost all protection was purchased from bank counterparties (from now on mainly through clearing houses) with ratings of A- or above, the average being A+. The Group is also careful to avoid an excessive concentration of risks with respect to any particular counterparty.

The Risk function is responsible for approving the operating procedures established by the business divisions for the regular valuation of guarantees and collateral, either automatically or based on an expert opinion, both during the approval phase for a new loan or upon the annual renewal of the credit application. The amount of guarantees and collateral is capped at the amount of outstanding loans, i.e. EUR 248.59 billion at 31stDecember 2015, of which EUR 128.74 billion for retail customers and EUR 119.85 billion for non-retail customers (versus EUR 111.5 billion and EUR 109.5 billion, respectively, at 31stDecember 2014). Guarantees and collateral received for outstanding loans not individually impaired amounted to EUR 2.11 billion at 31st December 2015 (of which EUR 1.24 billion for retail customers and EUR 0.87 billion for nonretail customers). Guarantees and collateral received for individually impaired loans amounted to EUR 6.69 billion at 31stDecember 2015 (of which EUR 3.13 billion for retail customers and EUR 3.56 billion for non-retail customers). These amounts are capped at the amount of outstanding individually impaired loans.

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Mitigation of counterparty risk linked to market transactions Societe Generale uses different techniques to reduce this risk. With regard to trading counterparties, it seeks to implement master agreements with a termination-clearing clause wherever it can. In the event of default, they allow netting of all due and payable amounts. The contracts usually call for the revaluation of the required collateral at regular intervals (often on a daily basis) and for the payment of the corresponding margin calls. Collateral is largely composed of cash and high-quality liquid assets, such as government bonds with a good rating. Other tradable assets are also accepted, provided that the appropriate haircuts are made to reflect the lower quality and/or liquidity of the asset. At 31st December 2015, most over-the-counter (OTC) transactions were secured: by amount(1), 64% of transactions with positive mark to market (collateral received by Societe Generale) and 68% of transactions with negative mark to market (collateral posted by Societe Generale).

C R E DI T R I SK S I R i s k R e port I

Management of OTC collateral is monitored on an ongoing basis in order to minimize operational risk: nn

the exposure value of each collateralised transaction is certified on a daily basis specific controls are conducted to make sure the process goes smoothly (settlement of collateral, cash or securities; monitoring of suspended transactions, etc.)

Credit insurance In addition to using export credit agencies (for example Coface and Exim) and multilateral organisations (for example the EBRD), Societe Generale has been developing relationships with private insurers over the last several years in order to hedge some of its loans against commercial and political non-payment risks.

all outstanding secured transactions are reconciled with those of the counterparty according to a frequency set by the regulator (mainly on a daily basis) in order to prevent and/or resolve any disputes on margin calls

This activity is performed within a risk framework and monitoring system approved by the Group’s General Management. The system is based on an overall limit for the activity, along with sub-limits by maturity, and individual limits for each insurance counterparty which must meet strict eligibility criteria.

any legal disputes are monitored daily and reviewed by a committee.

The implementation of such a policy contributes overall to a sound risk reduction.

Moreover, the European Market Infrastructure Regulation (EMIR) published in 2012 places new measures on derivatives market participants in order to improve the stability and transparency of this market. Specifically, the EMIR requires the use of central counterparties for products deemed sufficiently liquid and standardised, the reporting of all derivative products transactions to a trade repository, and the implementation of risk mitigation procedures (e.g. exchange of collateral, timely confirmation, portfolio compression(2)) for OTC derivatives not cleared by central counterparties. Some of these measures are already in effect (portfolio reconciliation, dispute resolution, first clearing obligation), while others are expected to come into force only gradually. As of the end of December 2015, 15% of the OTC transactions (amounting to 43% of the nominal) are cleared through clearing houses.

(1) Excluding OTC deals cleared in clearing houses. (2) Process which consists in i) the identification of the deals whose risks can be offset and ii) their replacement by a lower number of transactions, while keeping the same residual exposure.

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4.6. IFRS 9 organisation General concepts of IFRS 9 debts instruments provisioning

Definitions

A loss allowance shall be recognized for expected credit losses on debts instruments that will be classified at amortised cost or Fair value through OCI under IFRS 9 new, financing lease, loan commitments and financial guarantees as of 1st January 2018.

Degradation significative

The loss allowance will be measured at an amount equal to 12-month expected losses and shall be increased to an amount equal to a lifetime expected credit losses as soon as the credit risk has been significantly deteriorated since inception.

The significant increase in credit risk will be assessed on an instrument-by-instrument basis, but it will also be possible to assess it on the basis of consistent portfolios of similar assets, where individual assessment is not relevant. A counterparty-based approach (applying the default contagion principle to all of the counterparty’s outstanding loans) will also be possible if it gives similar results.

Therefore the main change is the recognition of a loss allowance on both loans and debt securities at inception notwithstanding the quality of the credit risk.

New approach Debts instruments will be allocated to three categories according to the gradual deterioration of their credit risk since their initial recognition and impairment will be booked to each of these categories as follows: stage 1 nn

All financial assets in question are initially recognised in this category. A loss allowance will be recorded at an amount equal to 12-month expected credit losses.

stage 2 nn

If the credit risk on a financial asset has significantly increased since its initial recognition, the asset will be transferred to this category. The loss allowance for the financial asset will then be increased to the level of its lifetime expected credit losses. Interest income will be recognised in the income statement using the effective interest rate method applied to the gross carrying amount of the asset before impairment.

The Group will have to take into account all available past due and forward-looking information as well as the potential consequences of a change in macro-economic factors at a portfolio level, so that any significant increase in the credit risk on a financial asset may be assessed as early as possible. Particular attention should be paid to the potential impact of macroeconomic factors in the assessment of this degradation. There will be a rebuttable presumption that the credit risk on a financial asset has increased significantly where the contractual payments on the asset are more than 30 days past due. However, this is an ultimate indicator, as the Group may have determined through advanced indicators such as behavioral scores, loans to value as well as all reasonable and supportable forward looking information that there have been significant increases in credit risk before contractual payments are more than 30 days past due. The application of IFRS 9 will not alter the definition of default currently used to determine whether or not there is objective evidence of impairment of a financial asset. An asset will notably be classified in default if one or more contractual payments ar more than 90 days past due. One year EL

Financial assets identified as being credit-impaired will be transferred to this category.

The one year horizon measurement takes into account all available past due and reasonable and supportable forward-looking information as well as the potential consequences of a change in macro-economic factors. As these expected losses will not be calculated through the credit cycle, the result may become more procyclical than it currently is.

The loss allowance for credit risk will continue to be measured at an amount equal to the lifetime expected credit losses and its will be adjusted if necessary to take into account any additional deterioration in credit risk.

While relying on the Basel framework, the IFRS 9 credit expected losses are different from the regulatory credit expected losses (i.e, lack of conservative bias, forward looking perspective included in IFRS 9).

Interest income will be then recognised in the income statement using the effective interest rate method applied to the net carrying amount of the asset after impairment.

Lifetime EL

stage 3 nn

The significant increase in credit risk is key in measuring the expected credit losses because it automatically implies a transfer between the stage one and the stage 2 and an increase in provisions.

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The expected losses calculation takes into account historical data, current conditions and reasonable and supportable forward looking information as well as relevant macro economic factors until the contract maturity.

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IFRS 9 provisioning description Financial assets definition: the assessment and measurement of provisioning for amortised cost and available for sale assets are detailed on page 322 and 323 of the Registration document. Default definition: The application of IFRS 9 will not alter the definition of default describe on page 47 of the Registration document. Collective provisions, as defined on page 47 of the registration document, will be replaced by the one year horizon and lifetime provisions. At a general level, nn

Financial assets where the credit risk has significantly been deteriorated since origination without any objective credit losses evidence be individually identified will probably be included into the stage 2.

Implementation strategy Governance A joint program between the risk and the finance division was launched in 2013 to be able to assess the future accounting requirement and put it in place, relying on pillars and entities organization. Risk and Finance division as well as each pillars divisions have settled a specific program team to monitor the needed work plan to ensure the compliance with the IFRS 9.2 standard, in respect with the framework defined by the group program team.

Program milestones The group program is responsible for the credit risk provision calculation, compliant with the new accounting standard for 1st January 2018, including the regulatory and accounting reporting requirements as well as the management monitoring. Several tasks have been achieved at the end of 2015 and in particular the methodological framework and the IT and business framework.

The work plan for 2016 is to develop the IT system both at the central and the entities level in order to calculate the provisions and to collect all the new added data. The Group aims to finalise the main part of the programme by the end of the third quarter of 2017 in order to commence a general rehearsal.

Project organisation The achievements of 2015 are splitted into two main streams, a banking stream and an IT and process stream. The two streams did not start simultaneously, in order to let the banking stream define the calculation concepts and thereby support the IT and process stream. The main task of the banking stream in 2015 was to define the methodological framework including: nn

The rules for assessing the credit risk deterioration: –– Use of the internal credit risk system, already used in the Basel calculation;

Financial assets on counterparties linked to economic sectors considered as being in crisis further to the occurrence of loss events or on geographical sectors or countries in which a deterioration of credit risk has been assessed will be classified either on stage 1 or stage 2 depending on their individual credit risk.

This framework will be completed by a systematic loss allowances for financial assets classified in stage 1. The regular credit risk assessment on assets, economic and geographic sectors and, countries will be improved to transfer prospectively financial assets from stage 1 to stage 2.

–– Defintion of normative rules to transfer all the contracts of a counterparty to stage 2; –– Use and improvement of the watchlist system; –– Creation of a direct link between provisionning and watchlist; nn

Determination of one year and lifetime probabilities of default, including macro economic forecasts to take into account the economic cycle; Loss rates using either the existing Basel system or loss rates of defaulted financial assets.

The first calibration and validation work on this framework will take place in 2016 in order to become properly acquainted with the new IFRS 9 provisioning models. These works require the simulation of various management and calibration rules (as consistent as possible with those implemented under the Basel regulation) in order to determine the conjunctions that best meet the normative and business criteria. The organisation, the process and the IT system articulated between the group level (Risk division for the calculation and Finance division for the consolidated accounts) and the local entities put in place as of 1st January 2018 should: nn

nn nn

permettre un processus aussi fluide que possible pour le calcul de la provision pour risque de crédit et pour la comptabilisation des provisions ainsi constituées; Allow a calculation and an accounting process as fluid as possible; Meet the disclosure requirements that are far more demanding than the current requirements (qualitative and quantitative information).

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4.7. Risk measurement and internal ratings In 2007, Societe Generale obtained authorisation from its supervisory authorities to apply the Internal Ratings-Based (IRB) approach to most of its exposures – this is the most advanced method for calculating capital requirements in respect of credit risk.

||table 17: BREAKDOWN OF EAD

(1)

Since the initial authorisation was given, the transition from the standard approach to the IRB approach for some of its activities and exposures has been selective and marginal.

BY THE BASEL METHOD 31st December 2015

31st December 2014

IRB

79%

Standard

21%

22%

100%

Total

78%

(1) Excluding equity investments, fixed assets, and all accruals.

||table 18: SCOPE OF APPLICATION OF THE IRB AND STANDARD APPROACHES FOR THE GROUP IRB Approach

Standard Approach

French Retail Banking

Majority of portfolios

Some retail customer portfolios including those of the SOGELEASE subsidiary

International Retail Banking and Financial Services

The subsidiaries Komercni Banka (Czech Republic), CGI, Fiditalia, GEFA and SG Finans,

The other subsidiaries

SG leasing SPA, Fraer Leasing SPA Majority of Corporate and nvestment Banking portfolios Global Banking and Investor Solutions

As for Private Banking, Securities Services and Brokerage, mainly the Retail portfolios of the following subsidiaries:

As for Private Banking, Securities Services and Brokerage, the exposures granted to banks and companies

SG Hambros, SGBT Luxembourg, SGBT Monaco, SG Private Banking Suisse Corporate Centre

Majority of portfolios

General framework of the internal approach To calculate its capital requirements under the IRB method, Societe Generale estimates the Risk Weighted Asset (RWA) and the Expected Loss (EL), a loss that may be incurred due to the nature of the transaction, the quality of the counterparty and all measures taken to mitigate risk.

the Exposure at Default (EAD) value is defined as the Group’s exposure in the event the counterparty should default. The EAD includes exposures recorded on the balance sheet (loans, receivables, income receivables, market transactions, etc.), and a proportion of off -balance sheet exposures calculated using internal or regulatory Credit Conversion Factors (CCF); the Probability of Default (PD): the probability that a counterparty of the bank will default within one year;

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the Loss Given Default (LGD): the ratio between the loss incurred on an exposure in the event a counterparty defaults and the amount of the exposure at the time of the default.

The Societe Generale Group also takes into account: nn

To calculate its RWA, Societe Generale uses its own Basel parameters, which are estimated using its internal risk measurement system: nn

the impact of guarantees and credit derivatives with the substitution of the PD, the LGD and the risk weighting calculation of the guarantor with those of the obligor (the exposure is considered to be a direct exposure to the guarantor) in the event that the guarantor’s risk weighting is more favourable than that of the obligor; collaterals used as guarantees (physical or financial). This impact is factored either at the level of the LGD models in the pools concerned or on a line-by-line basis.

C R E DI T R I SK S I R i s k R e port I

The Group has also received authorisation from the regulator to use the IAA (Internal Assessment Approach) method to calculate the regulatory capital requirement for ABCP (Asset-Backed Commercial Paper) securitisation. Besides the capital requirement calculation objectives under the IRBA method, the Group’s credit risk measurement models contribute to the management of the Group’s operational activities. They also constitute tools to structure, price and approve transactions and participate in the setting of approval limits granted to business lines and the Risk Department.

Credit risk measurement for wholesale clients The Group’s credit risk measurement system, which estimates internal Basel parameters, uses a quantitative evaluation mechanism coupled with an expert judgement. For Corporate, Banking and Sovereign portfolios, the measurement system is based on three key pillars: nn

a system that automatically assigns Loss Given Default (LGD) and Credit Conversion Factor (CCF) parameters according to the characteristics of each transaction; a collection of procedures also sets out the rules relating to ratings (application field, revision frequency, rating approval procedure, etc.), as well as for the supervision, backtesting and validation of models. These procedures help among others to facilitate the human judgement that casts an indispensable critical eye on the models for these portfolios

RATING SYSTEM The rating system consists in assigning a rating to each counterparty according to an internal scale, for which each grade corresponds to a probability of default determined using historical series observed by Standard & Poor’s over more than 20 years. The following table presents Societe Generale’s internal rating scale and the corresponding scales of the main external credit assessment institutions, as well as the corresponding mean estimated probability of default.

a counterparty rating system;

||table 19: SOCIETE GENERALE’S INTERNAL RATING SCALE AND CORRESPONDING SCALES OF RATING AGENCIES Counterparty internal rating

DBRS

FitchRatings

Moody’s

S&P

1 year probability

AAA

Aaa

AAA

0.01%

AA high to AA low

AA+ to AA-

Aa1 to Aa3

AA+ to AA-

0.02%

A high to A low

A+ to A-

A1 to A3

A+ to A-

0.04%

BBB high to BBB low

BBB+ to BBB-

Baa1 to Baa3

BBB+ to BBB-

0.30%

BB high to BB low

BB+ to BB-

Ba1 to Ba3

BB+ to BB-

2.16%

B high to B low

B+ to B-

B1 to B3

B+ to B-

7.93%

CCC high to CCC low

CCC+ to CCC-

Caa1 to Caa3

CCC+ to CCC-

20.67%

CC and below

Ca and below

CC and below

100.00%

8, 9 and 10

The rating assigned to a counterparty is generally proposed by a model and then adjusted and approved by experts in the Risk Department following the individual analysis of each counterparty. The counterparty rating models are structured in particular according to the type of counterparty (companies, financial institutions, public entities, etc.), the country, geographical region and size of the company (usually assessed through its annual turnover). The company rating models are underpinned by statistical models (regression methods) of client default. They combine quantitative parameters derived from financial data that evaluate the sustainability and solvency of counterparties and qualitative parameters that evaluate economic and strategic dimensions.

LGD MODELS The loss given default (LGD) is an economic loss that is measured by taking into account all parameters pertaining to the transaction, as well as the fees incurred for recovering the receivable in the event of a counterparty default. The models used to estimate the loss given default (LGD) excluding retail clients are applied by regulatory sub-portfolios, type of asset, size and geographical location of the transaction or of the counterparty, depending on the existence or not of collateral and its nature. This makes it possible to define hom*ogenous risk pools, notably in terms of recovery, procedures and the legal environment.

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These estimates are built on a statistical basis when the number of loans in default is sufficient. They are based in this case on the observation of recovery data over a long period. When the number of defaults is insufficient, the estimate is revised or determined by an expert.

THE CCF MODELS (CREDIT CONVERSION FACTOR) For its off-balance sheet exposures, Societe Generale is authorised to use the internal approach for “term loan with drawing period” products and revolving credit lines.

||table 20: WHOLESALE CLIENTS - MODELS AND PRINCIPAL CHARACTERISTICS OF MODELS Modelled Parameter

Portfolio/Category of Basel assets

Number of models

Model and methodology Number of years default/loss

PORTFOLIO / CATEGORY OF BASEL ASSETS Sovereigns

Expert rating

Expert-type model, use of the external ratings of agencies.

Public sector entities

4 models according to the geographical regions (FR-US-Czech Rep.- Other).

Statistical-type models (regression) for the rating process, based on the combination of financial ratios and a qualitative questionnaire. Low default portfolio

Financial institutions

5 models according to the type of counterparty: Banks Insurances, Funds, Financial intermediaries, Funds of Funds

Expert-type models based on a qualitative questionnaire. Low default portfolio.

Specialised financing

5 models according to the type of transaction

Expert-type models based on a qualitative questionnaire.

Large corporates

9 models according to the geographical regions

Statistical-type models (regression) for the rating process, based on the combination of financial ratios and a qualitative questionnaire. Defaults observed over a period of 8 to 10 years.

Small and mediumsized companies

12 models according to the size of companies and the geographical region

Statistical-type models (regression) for the rating process, based on the combination of financial ratios and a qualitative questionnaire. Defaults observed over a period of 8 to 10 years.

Public sector entities - Sovereigns

4 models – According to the type of counterparty

Calibration based on historical data and expert judgments. Losses observed over a period of more than 10 years.

Large corporates Flat-rate Approach

>20 models Flat-rate approach according to the type of collateral

Calibration based on historical data adjusted by the expert judgments. Losses observed over a period of more than 10 years.

Large corporates Discount Approach

12 models Discount approach according to the type of recoverable collateral

Calibration based on historical market data adjusted by the expert judgments. Losses observed over a period of more than 10 years.

Small and mediumsized companies

13 models Flat-rate approach according to the type of collateral or unsecured.

Calibration based on historical data adjusted by the expert judgments. Losses observed over a period of more than 10 years.

Project financing

10 models Flat-rate approach according to the project type.

Calibration based on historical data adjusted by the expert judgments. Losses observed over a period of more than 10 years.

Financial institutions

7 models Flat-rate approach according to Calibration based on historical data adjusted the type of counterparty: banks, insurances, by the expert judgments. Losses observed funds, etc. and the nature of the collateral. over a period of more than 10 years.

Other specific portfolios

6models: factoring, leasing with option to purchase and other specific cases.

Calibration based on historical data adjusted by the expert judgments. Losses observed over a period of more than 10 years.

Credit conversion factor (CCF)

Large corporates

3 models: Term loans with drawing period, revolving credits, Czech Corporates

Models calibrated by segment. Defaults observed over a period of more than 10 years.

Expected Loss [EL]

Real estate transaction

1 model by slotting

Statistical model based on expert opinion and a qualitative questionnaire. Low default portfolio.

Probability of default (PD)

Loss given default (LGD)

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C R E DI T R I SK S I R i s k R e port I

Backtests The performance level of the entire wholesale client credit system is measured by regular backtests that compare estimates with actual results by PD, LGD, CCF and portfolios. The compliance of this system is based on the consistency between the parameters used and the long-term trends analysed, with safety margins that take into account areas of uncertainty (cyclicity, volatility, quality of data, etc.).

The safety margins applied are regularly estimated, checked and revised if necessary. The results of backtests can justify the implementation of remedial plans or the application of add-ons if the system is deemed to be insufficiently prudent. The results of backtests, remedial plans and add-ons are presented to the Committee of Experts for discussion and approval (see Governance of the modelling of risks, p. 60).

||table 21: COMPARISON OF RISK PARAMETERS: ESTIMATED AND ACTUAL PD, LGD AND EAD VALUES – WHOLESALE CLIENTS Estimated probability of default

Actual default rate (long-term average)

Estimated LGD*

Actual LGD excluding safety margin

Actual EAD**/Estimated EAD

Sovereigns

0.7%

0.3%

Banks

1.4%

0.8%

Other financial institutions

0.7%

0.2%

Large corporates

2.1%

1.1%

34%

24%

95.4%

Small and medium sized companies

3.9%

41%

37%

Basel Portfolio

* LGD senior unsecured. ** Modelled CCF (revolving, term loans), only for defaults.

Credit risks measurement of retail clients PROBABILITY OF DEFAULT MODELS The modelling of the probability of default of retail client counterparties is carried out specifically by each of the Group’s business lines recording its assets using the IRBA method. The models incorporate data on the payment behaviour of counterparties. They are segmented by type of client and distinguish between retail clients, professional clients, very small businesses and real estate investment companies (SCI, Sociétés Civiles Immobilières). The counterparties of each segment are classified automatically using statistical models in hom*ogenous risk pools, each of which is assigned probabilities of default. Once the counterparties are classified in statistically distinct hom*ogenous risk pools, the probability of default parameters are estimated by observing the average long-term default rates for each product. These estimates are adjusted by a safety margin to estimate as best as possible a complete default cycle using a Through the Cycle (TTC) approach.

LGD MODELS The models for estimating the loss given default (LGD) of retail clients are specifically applied by business line portfolio. LGD values are estimated by product, according to the existence or not of collateral. Consistent with operational recovery processes, estimate methods are generally based on a two-step modelling process that initially estimates the proportion of defaulted loans in loan termination, followed by the loss incurred in case of loan termination. The expected losses are estimated with internal long-term historical recovery data for exposures that have defaulted. These estimates are adjusted with safety margins in order to reflect the possible impact of a downturn.

CCF MODELS For its off-balance sheet exposures, Societe Generale applies its estimates for revolving loans and overdrafts on current account held by retail and professional clients.

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||table 22: RETAIL CLIENTS - MODELS AND PRINCIPAL CHARACTERISTICS OF MODELS Modelled Parameter

Portfolio/Category of Basel assets

Number of models

Residential real estate

12 models according to the entity, the type of guarantee (security, mortgage), the type of counterparty: individuals or professionals / VSB, Real estate investment company (SCI).

Statistical-type model (regression), behavioural score. Defaults observed over a period from 5 to 8 years.

Other retail credits

> 20 models according to the entity, the nature and the object of the loan: personal loan, consumer loan, automobile, etc.

Statistical-type model (regression), behavioural score Defaults observed over a period from 5 to 8 years.

Renewable exposures

13 models according to the entity, the nature of the loan: overdraft on current account, revolving credit or consumer loan.

Statistical-type model (regression), behavioural score. Defaults observed over a period from 5 to 8 years.

Professionals and very small businesses

14models according to the entity, the nature of the loan: medium and long-term investment Statistical-type model (regression or segmentation), behavioural score. credits, short-term credit, automobile, the type of counterparty (individual or Real Defaults observed over a period from 5 to 8 years estate investment company (SCI)).

Residential real estate

12 models according to the entity, the type of guarantee (security, mortgage), the type of counterparty: individuals or professional / VSB, Real estate investment company (SCI).

Statistical model of expected recoverable flows based on the current flows. Model adjusted by expert opinions if necessary. Losses and recoverable flows observed over a period of more than 10 years.

Other retail credits

> 20 models according to the entity, the nature and the object of the loan: personal loan, consumer loan, automobile, etc.

Statistical model of expected recoverable flows based on the current flows. Model adjusted by expert opinions if necessary. Losses and recoverable flows observed over a period of more than 10 years.

Renewable exposures

13 models according to the entity, the nature of the loan: overdraft on current account, revolving credit or consumer loan

Statistical model of expected recoverable flows based on the current flows. Model adjusted by expert opinions if necessary. Losses and recoverable flows observed over a period of more than 10 years/

Professionals and very small businesses

13 models according to the entity, the nature of the loan: medium and long-term investment credits, short-term credit, automobile, the type of counterparty (individual or Real estate investment company (SCI)).

Statistical model of expected recoverable flows based on the current flows. Model adjusted by expert opinions if necessary. Losses and recoverable flows observed over a period of more than 10 years.

Credit Conversion Factor [CCF]

Renewable exposures

10 calibrations by entities for revolving products and personal overdrafts

Models calibrated by segments over a period of observation of defaults from 5 to 8 years.

Expected Loss [EL]

Private Banking exposures PD and LGD derived from loss observations.

Model and methodology Number of years default/loss RETAIL CLIENTS

Probability of default (PD)

Loss given default (LGD)

Models restructured into a PD/LGD based approach. Pending authorisation for use by supervision authorities.

Backtests TThe performance level of the whole retail client credit system is measured by regular backtests, which check the performance of PD, LGD and CCF models and compare estimated figures with actual figures. Each year, the average long-term default rates observed by hom*ogenous risk pools are compared with the probabilities of default. If necessary, the calibrations of probabilities of default are adjusted to preserve a satisfactory safety margin. The discrimination level of the models and changes in the portfolio’s composition are also measured. Regarding the LGD, the backtest consists in comparing the last estimation of the LGD obtained by computing the average level of payments observed and the value used to calculate regulatory capital.

58 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

The difference should in this case reflect a sufficient safety margin to take into account a potential economic slowdown, uncertainties about estimation, and changes in the performance of recovery processes. The appropriateness of this safety margin is assessed by a Committee of experts. Likewise for the CCF, the level of conservatism of estimates is assessed annually by comparing estimated drawdowns and observed drawdowns on the undrawn part. The results presented below for the PD cover all the portfolios of the Group entities with the exception of Private Banking, where the restructured models are currently awaiting authorisation for use by the supervision authorities.

C R E DI T R I SK S I R i s k R e port I

The exposures to retail customers of subsidiaries specialised in Equipment Financing are integrated into the retail customer portfolio under the “VSB and professionals” sub-portfolio (exposures of GEFA, SGEF Italy, SG Finans). The real estate exposures guaranteed by Crédit Logement are subject to special processing to calculate the capital requirements. The estimated risk parameters do not reflect the actual level of risk given the possible exercise of the guarantee. Accordingly, only the

mean observed default rate is provided for information purposes. The figures below aggregate French, Czech, German, Scandinavian and Italian exposures. For all the Basel portfolios of retail clients, the actual default rate over a long period is lower than the estimated probability of default, which confirms the overall conservatism of the rating system.

||table 23: COMPARISON OF RISK PARAMETERS: ESTIMATED PD, LGD, EAD AND ACTUAL VALUES– RETAIL CLIENTS 31st December 2015 Estimated probability of defaul

Actual default rate (long-term average)

Estimated LGD*

Actual LGD excluding safety margin

Actual EAD**/ Estimated EAD

2.4%

2.1%

17%

14%

1.0%

Renewable exposures

5.8%

5.4%

44%

41%

70.0%

Other retail credits

3.4%

3.2%

25%

23%

VSB and professionals

5.2%

4.2%

26%

21%

65.2%

Total Group Retail Client*

3.6%

3.2%

24%

21%

66.8%

Basel Portfolio Real estate loans (excluding guaranteed exposures) Real estate loans (guaranteed exposures)

31st December 2014 Estimated probability of defaul

Actual default rate (long-term average)

Estimated LGD*

Actual LGD excluding safety margin

Actual EAD**/ Estimated EAD

2.2%

2.0%

19%

14%

0.9%

Renewable exposures

6.2%

5.4%

44%

39%

Other retail credits

3.9%

3.2%

25%

22%

VSB and professionals

5.3%

5.2%

29%

25%

Total Group Retail Client*

3.4%

2.9%

24%

20%

Basel Portfolio Real estate loans (excluding guaranteed exposures) Real estate loans (guaranteed exposures)

* Excluding guaranteed exposures. ** Revolving credits and current accounts of individual and professional clients.

SOCIETE GENERALE GROUP I 2016 - pillar 3 report I 59

I Risk Repo rt I CRE D IT RIS K S

Governance of the modelling of risks Governance consists in developing, validating and monitoring decisions on changes with respect to internal credit risk measurement models. An independent and dedicated validation department within the Risk Division is more specifically responsible for validating the credit models and parameters used for the IRB method and monitoring the use of the rating system. The internal model validation team draws up an annual audit plan specifying the nature and extent of work that needs to be carried out, notably according to regulatory constraints, model risks, issues covered by the model and the strategic priorities of the business lines. It is careful to coordinate its work with the Internal Audit Division to ensure a simultaneous overall review (modelling and banking aspects) of the business scopes requiring such a review. The model validation team is included within the scope subject to inspections by the Internal Audit Division. The internal validation protocol for new models and annual backtesting is broken down into three stages: nn

a preparation stage during which the validation team takes control of the model and the environment in which it is built and/or backtested, ensures that the expected deliverables are complete, and draws up a working plan; an investigation stage intended to collect all statistical and banking data required to assess the quality of the models. For subjects with statistical components, a review is performed by the independent model control entity, whose conclusions are formally presented to the modelling entities within the framework of a committee (Models Committee); a validation stage that is structured around a Committee of experts whose purpose is to validate the consistency of the Basel parameters of an internal model from a banking perspective. The Committee of experts is a body reporting to the Group Chief Risk Officer and to the Management of the business lines concerned.

60 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

The Committee of experts is also responsible for defining the review guidelines and for revising models at the proposal of the Models Committee. These guidelines take into account the regulatory requirements and economic and financial issues of the business lines. In accordance with the delegated regulation (EU) No.259/2014 of 20th May 2014 regarding the monitoring of internal models used to calculate capital requirements, changes to the Group’s credit risk measurement system are subject to three types of notification to the competent supervisor according to the significant nature of the change, evaluated according to this rule: nn

significant changes are subject to a request for authorisation prior to their implementation; changes which are not significant according to the criteria defined by the regulation are notified to the supervisor. Barring a negative response within a two-month period, these may be implemented; other changes are notified to the competent authorities after their implementation at least once annually in a specific report.

C R E DI T R I SK S I R i s k R e port I

4.8. Credit risk: quantitative information The measurement used for credit exposures in this section is EAD – Exposure At Default (on- and off-balance sheet), excluding fixed assets, equity investments, and all accruals. Under the Standard Approach, EAD is calculated net of collateral and provisions. Exposures are broken down by portfolios, sectors and obligor ratings, before taking into account the substitution effect.

Credit risk exposure At 31st December 2015, the Group’s Exposure at Default (EAD) amounted to EUR 781 billion (of which 615 billion on-balance sheet). RISK EXPOSURE BY EXPOSURE ||CREDIT CLASS (EAD) AT 31 DECEMBER 2015) ||

CREDIT RISK EXPOSURE BY EXPOSURE ||RETAIL CLASS (EAD) AT 31 DECEMBER 2015 ||

On- and off-balance sheet exposures (EUR 781 billion in EAD).

On- and off-balance sheet exposures (EUR 190 billion in EAD).

Securitisation

21%

14%

21%

14%

Sovereign

Securitisation

Sovereign

13%

Institutions(1)

24%

13%

Retail

Institutions(1)

24%

Very small enterprises and self-employed

25%

57%

Other credit to individuals

Residential mortgages

25%

Retail

57%

Other credit to individuals

40%

Corporate Corporate

RISK EXPOSURE BY EXPOSURE ||CREDIT ||CLASS (EAD) AT 31 DECEMBER 2014

Securitisation

Revolving credits

On- and off-balance sheet exposures (EUR 722 billion in EAD). Securitisation

Revolving credits

CREDIT RISK EXPOSURE BY ||rETAIL ||EXPOSURE CLASS (EAD) AT 31 DECEMBER 2014

Residential mortgages

On- and off-balance sheet (EUR 179 billion in EAD). 20%

14%

20%

14%

Sovereign

Very small enterprises and self-employed Very small enterprises and self-employed

11%

Institutions(1)

25% Retail

11%

Institutions(1)

25%

27%

Other credit to individuals

27%

Other credit to individuals

Retail

42%

Corporate Corporate

54%

Residential mortgages

54%

Residential mortgages

Revolving credits Revolving credits

(1) Institutions: Basel classification banks and public sector entities.

SOCIETE GENERALE GROUP I 2016 - pillar 3 report I 61

I Risk Repo rt I CRE D IT RIS K S

BREAKDOWN OF GROUP CORPORATE ||SECTOR ||CLASS (EAD) AT 31 DECEMBER 2015

BREAKDOWN OF GROUP CORPORATE ||SECTOR ||EXPOSURE AT 31 DECEMBER 2015

(Basel corporate portfolio, EUR 313 billion in EAD).

(Basel corporate portfolio, EUR 313 billion in EAD). 6.8%

2.7%

Telecoms

Transport & logistics

17.5%

0.1%

Finance & insurance

Personnel & domestic services

7.3%

8.5%

Collective services

8.8%

Food & agriculture

2.1%

Consumer goods

4.1%

Metals. minerals

1.0%

1.7%

Chemicals. rubber. plastics

4.5%

Media

Retail trade

0.4%

Forestry. papers

8.3%

Wholesale trade

3.4%

Machinery and equipment

1.2%

Transport equip. manuf.

3.6%

2.5%

Construction

Automobiles

1.7%

Hotels & Catering

20 10

4.4%

Oil and gas

25 15

1.0%

7.6%

0.3%

Public administration

0.4%

Education. associations

The Group’s Corporate portfolio (Large Corporates, SMEs and Specialised Financing) is highly diversified in terms of sectors. As of 31st December 2015, the Corporate portfolio amounted to EUR 313 billion (on- and off-balance sheet exposures measured in EAD). Only the Finance and Insurance sector accounts for more than 10% of the portfolio.The Group’s exposure to its 10 largest corporate counterparties accounts for 4% of this portfolio.

As % of EAD*

Real Estate

Business services

Health. social services

5 0

AAA

A BBB BB S&P equivalent of internal rating

10 years

Total

Sovereign

98,638

25,502

37,161

11,865

173,165

Institutions

22,093

16,058

5,367

12,231

55,749

Corporates

93,760

169,865

28,823

24,466

316,913

Securitisation Total

12,573

2,492

143

2,055

17,263

227,064

213,917

71,493

50,617

563,091

31st December 2014 Maturity analysis (In EUR m)

< 1 year

1 to 5 years

5 to 10 years

> 10 years

Total

Sovereign

63,263

37,619

39,642

10,202

150,726

Institutions

20,515

21,970

5,166

13,225

60,875

Corporates

84,577

152,423

23,048

22,551

282,599

Securitisation

10,757

1,182

270

3,140

15,348

179,113

213,193

68,126

49,117

509,549

Total

76 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

C R E DI T R I SKS I R i s k R e port I

Global credit risk by rating The breakdown by rating of the Societe Generale Group’s Corporates exposure demonstrates the sound quality of the portfolio. At 31st December 2015, more than 75% of EAD (excluding defaulted exposure) under the IRB method had an investment grade rating. Transactions with noninvestment grade counterparties are often backed by guarantees and collateral in order to mitigate the risk incurred. 37: UNDER THE IRB APPROACH: CREDIT RISK EXPOSURE BY EXPOSURE CLASS AND INTERNAL RATING ||table ||(EXCLUDING DEFAULTED EXPOSURE) 31st December 2015

(In EUR m)

Sovereign

Internal obligor rating

Average LGD

Average Average PD RW(1)

Expected Loss

63,009

3,301

71%

65,203

0.00%

72,688

4,529

74%

75,887

401

0.00%

13,773

11,044

2,728

70%

13,032

547

19%

0.03%

13,229

11,899

1,330

49%

12,545

3,275

20%

0.19%

26%

1,950

1,915

99%

1,950

994

19%

1.63%

51%

601

503

50%

551

574

16%

7.46%

104%

76%

35%

18.81%

233%

69% 169,188

173,100

161,072

12,028

5,841

0.06%

100%

0.03%

21,073

16,306

4,767

80%

19,770

926

10%

0.03%

19,674

9,980

9,694

85%

17,591

1,682

21%

0.04%

10%

10,762

6,498

4,264

82%

10,002

4,215

28%

0.29%

42%

3,572

1,747

1,825

76%

3,132

2,900

31%

1.68%

93%

458

256

202

64%

385

537

30%

8.30%

140%

154

119

67%

116

232

34%

17.31%

201%

55,697

34,827

20,870

82%

50,999

10,493

19%

0.29%

21%

1,274

856

419

67%

1,135

146

85%

0.03%

13%

26,302

8,432

17,870

66%

19,547

2,758

36%

0.03%

14%

71,975

25,611

46,364

53%

49,668

8,554

39%

0.05%

17%

114,078

42,144

71,935

53%

79,353

30,041

30%

0.31%

38%

112

70,398

42,180

28,219

55%

57,676

41,778

28%

2.03%

72%

323

20,923

13,235

7,688

56%

17,547

17,281

27%

6.66%

98%

322

63%

2,957

4,185

29%

20.27%

142%

172

55% 227,883 104,743

32%

1.41%

46%

940

3,180

2,573

607

308,132

135,030

173,102

2,250

1,801

449

100%

2,250

231

100%

0.03%

10%

2,387

2,149

238

100%

2,386

224

100%

0.03%

36,420

35,130

1,290

94%

36,423

3,392

21%

0.04%

48,677

46,200

2,478

74%

48,035

3,677

17%

0.18%

34,647

31,201

3,446

83%

34,045

10,580

22%

1.73%

31%

137

9,798

9,187

612

116%

9,991

5,369

29%

6.91%

54%

196

64%

4,020

3,920

4,139

3,224

27%

24.77%

78%

280

138,199

129,589

8,611

85% 137,269

26,698

23%

1.75%

19%

640

1,426

311

1,115

33%

681

423

62%

Corporate in IRB slotting CR IRB: “alternative treatment: secured by real estate” Total

RWA

66,310

Sub-total

EAD

77,217

Retail

Average CCF (Offbalance sheet)

Sub-total Corporates

Offbalancesheet exposure

Sub-total Institutions

Gross exposure

Onbalancesheet exposure

676,555

460,829

215,726

60% 586,019 148,197

21%

1.00%

25%

1,658

(1) With consideration of the floor of PD. SOCIETE GENERALE GROUP I 2016 - pillar 3 report I 77

I Risk Repo rt I CRE D IT RIS K S

31st December 2014

Gross exposure

Onbalancesheet exposure

Offbalancesheet exposure

Average CCF (Offbalance sheet)

EAD

RWA

Average LGD

61,616

59,015

2,600

65%

60,717

0.00%

66,889

61,944

4,946

78%

65,814

400

0.00%

10,809

8,570

2,239

65%

10,017

908

19%

0.05%

9,609

9,111

498

59%

9,405

2,548

22%

0.27%

27%

1,126

1,037

93%

1,119

753

32%

2.43%

67%

544

472

43%

503

357

19%

7.60%

71%

94%

213

47%

20.11%

281%

71% 147,652

5,187

0.08%

13%

0.03%

(In EUR m)

Internal obligor rating

Sovereign

150,671

140,183

10,489

105

96%

103

20,043

16,424

3,619

83%

19,448

852

11%

0.03%

24,547

12,436

12,112

74%

21,059

1,850

22%

0.04%

11,071

6,725

4,346

86%

10,209

4,157

32%

0.27%

41%

4,440

2,068

2,372

75%

3,856

2,873

29%

1.63%

75%

341

116

224

70%

267

433

40%

6.88%

162%

7 Sub-total Corporates

169

61%

217

554

43%

18.02%

255%

22,892

78%

55,159

10,724

20%

0.29%

19%

1,890

1,424

467

71%

1,756

212

87%

0.03%

12%

26,881

12,042

14,839

74%

22,790

3,472

40%

0.03%

15%

63,077

21,197

41,880

55%

43,936

7,466

37%

0.05%

17%

93,724

31,840

61,884

56%

66,065

24,587

30%

0.31%

37%

63,238

36,817

26,420

53%

50,279

37,102

29%

2.03%

75%

285

21,148

12,522

8,626

61%

17,487

16,675

27%

6.68%

95%

302

62%

3,056

4,605

30%

20.48%

151%

188

57% 205,369

94,120

33%

1.48%

46%

848

241

100%

0.03%

10%

3,364

2,550

814

273,322

118,393

154,929

2,324

1,930

394

97%

2,314

2,640

2,385

255

99%

2,638

259

100%

0.03%

10%

46,372

45,204

1,168

99%

46,428

2,660

17%

0.04%

32,283

29,981

2,303

60%

31,380

3,392

19%

0.33%

11%

28,338

25,189

3,150

79%

27,691

9,623

23%

1.93%

35%

118

9,070

8,489

581

114%

9,358

4,826

28%

7.32%

52%

185

4,191

4,101

56%

4,404

3,533

28%

25.70%

80%

307

125,219

117,278

7,940

80% 124,214

24,535

23%

1.99%

20%

636

1,738

358

1,380

32%

803

501

62%

395

197

50%

612,173

414,542

197,631

25%

1,573

Corporate in IRB slotting CR IRB: “alternative treatment: secured by real estate” Total

113 37,936

Sub-total

282 60,828

Sub-total Retail

Expected Loss

Sub-total Institutions

Average Average PD RW(1)

(1) With consideration of the floor of PD.

78 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

61% 533,592 135,264

21%

1.09%

C R E DI T R I SKS I R i s k R e port I

38: UNDER THE IRB APPROACH FOR RETAIL CUSTOMERS: CREDIT RISK EXPOSURE BY EXPOSURE CLASS ||table ||AND INTERNAL RATING (EXCLUDING DEFAULTED EXPOSURE) 31st December 2015

(In EUR m)

Residential Mortgage

Internal obligor rating

Gross exposure

RWA

Average LGD

Average Average PD RW(1)

Expected Loss

362

354

100%

362

100%

0.03%

2,104

99%

2,175

202

100%

0.03%

33,851

33,062

790

99%

33,845

2,707

15%

0.04%

37,159

36,485

674

91%

37,096

2,060

14%

0.12%

13,657

13,204

453

68%

13,514

4,689

17%

1.59%

35%

1,688

1,663

78%

1,682

1,198

16%

7.89%

71%

1,117

1,100

98%

1,117

945

16%

19.32%

85%

90,011

87,972

2,039

89%

89,792

11,834

17%

0.69%

13%

106

0.00%

121

101

100%

207

51%

0.07%

13%

1,350

154

1,195

47%

713

45%

0.44%

2,534

574

1,960

74%

2,029

584

44%

1.88%

29%

1,224

919

305

131%

1,318

815

41%

6.42%

62%

465

427

563

645

42%

26.20%

115%

5,693

2,094

3,599

70%

4,830

2,136

43%

5.66%

44%

110

1,888

1,447

440

100%

1,888

198

100%

0.03%

10%

1 2

211

165

100%

211

100%

0.03%

10%

2,440

2,042

399

83%

2,363

483

99%

0.03%

20%

8,284

7,780

503

111%

8,338

1,230

24%

0.32%

15%

10,213

9,517

696

108%

10,269

3,636

26%

1.87%

35%

3,254

3,136

118

109%

3,243

1,640

31%

6.40%

51%

1,217

1,203

120%

1,218

888

29%

30.38%

73%

27,506

25,170

2,336

102%

27,530

8,097

38%

2.90%

29%

224

0.00%

100%

0.03%

19%

1,884

1,780

104

103%

1,893

497

31%

0.46%

26%

8,243

7,906

337

97%

8,233

1,671

21%

1.77%

20%

3,633

3,469

164

100%

3,748

1,716

28%

7.08%

46%

1,221

1,191

100%

1,241

746

30%

23.52%

60%

99%

15,117

4,631

25%

4.71%

31%

200

85% 137,269

26,698

23%

1.75%

19%

640

Sub-total Total

EAD

2,176

Sub-total Very small business or self-employed

Average CCF (Offbalance sheet)

Sub-total Other credit to individuals

Offbalancesheet exposure

Sub-total Revolving credit

Onbalancesheet exposure

14,988

14,353

636

138,199

129,589

8,611

(1) With consideration of the floor of PD.

SOCIETE GENERALE GROUP I 2016 - pillar 3 report I 79

I Risk Repo rt I CRE D IT RIS K S

31st December 2014

(In EUR m)

Residential Mortgage

Internal obligor rating

Gross exposure

RWA

Average LGD

Average Average PD RW(1)

Expected Loss

267

260

100%

267

100%

0.03%

10%

2,340

98%

2,422

237

100%

0.03%

10%

42,325

41,607

718

100%

42,325

2,362

13%

0.04%

22,104

21,817

286

87%

22,066

1,849

15%

0.29%

11,041

10,735

307

70%

10,949

4,432

17%

1.90%

40%

1,788

1,765

85%

1,784

1,293

17%

8.08%

72%

1,263

1,248

97%

1,263

1,180

16%

19.32%

93%

81,212

79,772

1,440

91%

81,076

11,378

17%

0.84%

14%

108

0.00%

120

100

100%

190

51%

0.06%

1,705

160

1,545

39%

765

44%

0.39%

2,585

591

1,995

70%

1,985

577

43%

2.06%

29%

1,288

955

333

119%

1,351

826

41%

6.97%

61%

551

507

638

698

40%

29.06%

109%

6,250

2,233

4,016

62%

4,931

2,172

43%

6.56%

44%

117

2,057

1,671

387

97%

2,047

215

100%

0.03%

10%

1 2

216

172

100%

216

100%

0.03%

10%

3,923

3,574

349

96%

3,909

294

54%

0.04%

5,788

5,430

359

115%

5,857

1,055

26%

0.41%

18%

8,279

7,692

587

106%

8,315

2,980

26%

1.93%

36%

2,713

2,636

127%

2,733

1,380

31%

6.68%

50%

1,159

1,148

137%

1,163

764

27%

33.80%

66%

24,136

22,195

1,941

105%

24,239

6,709

38%

3.14%

28%

203

0.00%

100%

16%

0.04%

2,687

2,573

113

105%

2,692

422

26%

0.42%

16%

6,432

6,171

261

104%

6,443

1,634

22%

1.92%

25%

3,280

3,134

147

100%

3,490

1,327

27%

7.57%

38%

1,218

1,197

100%

1,340

892

33%

23.08%

67%

108

103%

13,968

4,275

25%

5.06%

31%

209

80% 124,214

24,535

23%

1.99%

20%

636

Sub-total Total

EAD

2,424

Sub-total Very small business or self-employed

Average CCF (Offbalance sheet)

Sub-total Other credit to individuals

Offbalancesheet exposure

Sub-total Revolving credit

Onbalancesheet exposure

13,620

13,078

542

125,219

117,278

7,940

(1) With consideration of the floor of PD.

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C R E DI T R I SKS I R i s k R e port I

||table 39: UNDER THE STANDARD APPROACH: CREDIT RISK EXPOSURE BY EXPOSURE CLASS and EXTERNAL RATING 31st December 2015 (In EUR m)

External Rating

Gross exposure

EAD

RWA

Sovereign

AAA to AA-

2,940

A+ to A-

BBB+ to BBB-

BB+ to B-

1,072

1,071

< 60

40 > < 50

30 > < 40

20 > < 30

10 > < 20

0 > < 10

- 10 > < 0

< - 10

5 YRS

Total

75,786

636

1,319

824

78,565

Financial assets at fair value through profit or loss, excluding derivatives

Note 3.4

328,013

2,991

Available-for-sale financial assets

Note 3.4

123,718

5,983

4,486

134,187

Due from banks

Note 3.5

57,178

5,578

7,969

957

71,682

Customer loans

Note 3.5

79,183

52,527

144,103

102,234

378,047

Lease financing and similar agreements

Note 3.5

2,506

5,460

14,153

5,085

27,204

331,004

It should be noted that, due to the nature of its activities, Societe Generale holds derivative products and securities whose residual contractual maturities are not representative of its activities or risks. By convention, the following residual maturities were used for the classification of financial assets: 1. Assets measured at fair value through profit or loss, excluding derivatives (customer-related trading assets)

2. Available-for-sale assets (insurance company assets and Group liquidity reserve assets in particular)

–– Positions measured using prices quoted on active markets (L1 accounting classification): maturity of less than 3 months.

–– Available-for-sale assets measured using prices quoted on active markets: maturity of less than 3 months.

–– Positions measured using observable data other than quoted prices (L2 accounting classification): maturity of less than 3 months.

–– Bonds measured using observable data other than quoted prices (L2): maturity of 3 months to 1 year.

–– Positions measured mainly using unobservable market data (L3): maturity of 3 months to 1 year.

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–– Finally, other securities (shares held long-term in particular): maturity of more than five years.

liquidity risk I Risk Report I

As regards the other lines comprising the balance sheet, other assets and liabilities and their associated conventions can be broken down as follows:

OTHER LIABILITIES 31st December 2015

(In EUR m)

Note to the consolidated financial statements

Revaluation difference on portfolios hedged against interest rate risk Tax liabilities Other liabilities

Not scheduled

0-3 M

3M-1YR

1-5 YRS

> 5 YRS

Total

463

1,571

8,055

Note 6

1,108

Note 4.4

83,083

Non-current liabilities held for sale

526

Underwriting reserves of insurance companies

Note 4.3

Provisions

Note 8.5

Shareholders’ equity

11,199

526

7,710

29,195

59,153

107,257

5,218

59,037

OTHER ASSETS 31st December 2015

(In EUR m)

Note to the consolidated financial statements

Revaluation difference on portfolios hedged against interest rate risk Held-to-maturity financial assets Tax assets Other assets

Not scheduled

0-3 M

3M-1YR

1-5 YRS

> 5 YRS

2,723

Note 3.9 Note 6

4,044 7,367

Note 4.4

Non-current assets held for sale

Total

4,044 7,367

69,398

104

Investments in subsidiaries and affiliates accounted for by the equity method

170 1,352

1,352

Tangible and intangible fixed assets

Note 8.2

19,421

Goodwill

Note 2.2

4,358

1. Revaluation differences on portfolios hedged against interest rate risk are not scheduled, as they comprise transactions backed by the portfolios in question. Similarly, the schedule of tax assets whose schedule would result in the early disclosure of income flows is not made public. 2. Held-to-maturity financial assets have a residual maturity of more than five years. 3. Other assets and Other liabilities (guarantee deposits and settlement accounts, miscellaneous receivables) are considered as current assets and liabilities. 4. The notional maturities of commitments in derivative instruments are presented in Note 3.13 to the Group’s consolidated financial statements. The net balance of transactions in derivatives measured at fair value through profit or loss on the balance sheet is EUR -1,899 million (according to the rules set above, it would be classified as a trading liability < 3 months, see Note 3.4 to the consolidated financial statements). 5. Non-current assets held for sale have a maturity of less than 1 year, as do the associated liabilities. 6. Investments in subsidiaries and affiliates accounted for by the equity method and tangible and intangible fixed assets have a maturity of more than 5 years. 7. Provisions and shareholders’ equity are not scheduled.

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Ris k Report I COMPLIANCE, REPUTATIONAL AND LEGAL RISKS

in brief Non-compliance risk (including legal and tax risks) corresponds to the risk of legal, administrative or disciplinary sanction, or of material financial losses, arising from failure to comply with the provisions governing the Group’s activities. This section describes the compliance system and provides information regarding ongoing legal disputes.

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COMPLIANCE, REPUTATIONAL AND LEGAL RISKS I R i s k R ep ort I

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1 0 . COMPL I ANCE , REPU TAT I ONAL AND LEGAL R I SKS 10.1. Compliance Compliance means acting in accordance with applicable banking and financial rules, whether laws or regulations, as well as professional, ethical and internal principles and standards. Fair treatment of customers (and, more generally, the integrity of banking and financial practices) contributes decisively to the reputation of our institution. By ensuring that these rules are observed, the Group works to protect its customers and, in general, all of its counterparties, employees, and the various regulatory authorities to which it reports.

Compliance System Independent compliance structures have been set up within the Group’s different business lines around the world to identify and prevent any risks of non-compliance.

The departments responsible for business line compliance cover: nn

Retail Banking and Financial Services networks in France and abroad;

Global Banking and Investor Solutions;

Private Banking.

The Insurance Compliance Officer reports functionally to the Compliance Department. Its main tasks are to define, in accordance with legal and regulatory requirements, the policies, principles and procedures applicable to compliance and financial security, and to manage their implementation and monitor their application to: nn

ensure compliance with professional and financial market regulations;

The Group’s Corporate Secretary is the Chief Compliance Officer. He is assisted in his duties by the Compliance Department and a compliance function consisting of a coordinated network of Compliance Officers operating in all Group entities.

prevent and manage conflicts of interest;

propose the ethical rules to be followed by all Group employees;

COMPLIANCE DEPARTMENT

The Compliance Department verifies that all compliance laws, regulations and principles applicable to the Group’s banking and investment services business are observed, and that all staff respect codes of good conduct and individual compliance. It also monitors the prevention of reputational risk. It provides expertise for the Group, performs controls at the highest level and assists the Corporate Secretary with the day-to-day operation of the Compliance Department. It is organised into three cross-business departments and three departments dedicated to the Group’s businesses.

The cross-business functions are responsible for: nn

the Group’s financial security (prevention of money laundering and terrorism financing; know-your-customer obligations; embargoes and financial sanctions);

ensure the effectiveness of the compliance officers within the various businesses and entities by setting out their prerogatives, ensuring that they have the necessary resources, tools and normative framework to accomplish their duties, while monitoring their proper implementation; build and implement steering and organisational tools for the function: Compliance and Reputational Risk dashboards, forums to share best practices, meetings of functional compliance officers; generally monitor subjects likely to be harmful to the Group’s reputation.

The Compliance Department relies on two Group-level committees. nn

developing and updating consistent standards for the function, promoting a compliance culture, coordinating employee training and managing Group regulatory projects; coordinating a compliance control mechanism within the Group (second-level controls), overseeing a normalised Compliance process, oversight of personnel operations and, finally, managing large IT projects for the function.

train and advise employees and raise their awareness of compliance issues;

The Compliance Committee of The Executive Committee (COMCO): this committee, which was created during the third quarter of 2015, brings all members of the Group’s Executive Committee and the Deputy Compliance Director together on a quarterly basis. It determines the Group’s major compliance focuses and supervises implementation of the risk and control monitoring mechanism. The Group Compliance Committee (CCG): the Group Compliance Committee meets once a month and is chaired by the Group’s Corporate Secretary, with the participation of functional compliance officers, the Finance and Development Department, the Resource Department, the Head of Internal Control Coordination, the Chief Legal Officer, the Chief Operational Risk Officer, as well as a General Inspection representative.

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The Committee reviews the most significant incidents that occurred over the period across the entire Group and decides on the actions to be taken. It examines key compliance events and initiatives conducted across and within the different business lines, and considers current compliance-related topics. The major legal and regulatory oversight items are also presented by the Chief Legal Officer within this governance body.

GROUP FINANCIAL SECURITY SYSTEM (prevention of money laundering, terrorism financing, know-yourcustomer obligations, embargoes and financial sanctions). The financial security system rests on two pillars: nn

–– defining the standards and policies applied at the Group level, in cooperation with the Legal Department, monitoring its implementation and circulating new regulatory provisions, while providing guidelines for operational departments, primarily through a dedicated Intranet compliance portal,

In addition, two dashboards are presented each quarter to the Compliance Committee of the Group Executive Committee (COM-CO) and each half year to the Audit and Internal Control Committee (CACI): nn

the reputational risk dashboard, which has been distributed since 2012, integrates key internal and external indicators;

–– organising and managing the Group financial security system and further raising the business lines’ awareness of these particularly complex and rapidly changing issues,

the compliance dashboard, distributed since 2014, which shows the key events of the quarter, with a focus on four compliance themes (financial security, customer protection, regulatory relationships, and market abuse), and key indicators.

–– reporting suspicious activity to TRACFIN for all of the Group’s French entities (with the exception of Crédit du Nord and Boursorama Banque, which report directly), as well as submitting reports on asset freezes and authorisation requests to the French Treasury for Societe Generale SA.

THE COMPLIANCE FUNCTION Compliance function duties are carried out in the business lines and corporate divisions by dedicated teams operating under the Compliance Officer’s authority. The Compliance Department supervises the function. The compliance control system for the business lines is structured around dedicated departments: International Retail Banking & Financial Services, Banking Customers, Private Banking, Global Banking and Investor Solutions, and Insurance. The corporate teams report directly to the the Head of the Compliance Department, with the exception of the Insurance business line, which retains functional reporting. Subsidiary compliance officers in France and abroad have a strong functional link with the Compliance Department. Compliance Officers develop and implement the governance and principles defined at Group level within their remit. They contribute to the identification and prevention of compliance and reputational risks, the validation of new products, the analysis and reporting of compliance anomalies, the implementation of corrective measures, remediation plans, staff training and the promotion of compliance values throughout the Group. In particular, they rely on a pyramid structure of business-line, entity and subsidiary compliance officers under their hierarchical or operational authority. The organisation of the function is designed to achieve multiple objectives: nn

centralise the Group’s compliance specialists to develop expertise in this area; set up cross-business functions aimed at promoting and harmonising compliance values throughout the Group, covering all the Group’s businesses and corporate divisions; establish a clear separation between advisory functions and those inherent in control; simplify the compliance system to improve information flow and shorten the decision-making cycle.

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the Group Financial Security Department is responsible for:

–– For entities and subsidiaries located outside France, the AntiMoney Laundering Officers (AMLOs) report suspicious activity to local authorities. –– It should be emphasised that monitoring financial security processes using quantitative indicators began in 2015 within the various Group businesses. The primary goal of this new approach, which is being deployed, is to better control risk. nn

the business line compliance officers and a structured network of AMLO agents at the entity level are responsible for ensuring that the financial security system is properly implemented within each of the entities in their business division.

NORMATIVE DOCUMENTATION AND INFORMATION SHARING To complete its assignments, the Societe Generale Compliance function relies on normative documents (directives, instructions and procedures) which are regularly updated. In addition, a collaborative information sharing tool was implemented in 2015 to encourage exchanges and best practices among various departments within the function.

COMPLIANCE ENFORCEMENT APPLICATIONS Three types of IT applications ensure compliance with regulations and detect breaches or situations requiring special attention:

COMPLIANCE, REPUTATIONAL AND LEGAL RISKS I R i s k R ep ort I

profiling/scenario management tools that trigger alerts when unusual account flows or transactions are detected, especially for Retail Banking. More specifically, they are used to prevent terrorism financing and money laundering, and to detect market abuse, price manipulation and insider trading; tools used to filter data based on pre-defined lists (internal lists, external databases, etc.) that trigger alerts when certain people, countries or activities targeted by sanctions and embargoes are detected; risk reporting/evaluation tools that provide reports/statements on specific characteristics of an entity, core business, business line or customer to notify the relevant authorities (management, senior management, regulators, etc.). There is also a tool for mapping and assessing compliance risks, a reporting tool for personal transactions, a set of tools to manage lists of insiders and possible conflicts of interests.

These tools are regularly updated to incorporate regulatory and technological changes and improve their operational efficiency.

Compliance Culture and the Code of Conduct Compliance with ethical rules which meet the highest professional standards is part of the fundamental values of the Societe Generale Group. They are not simply followed by some, but are part of the culture which applies to everyone. The Group has established protection of the company’s reputation as a strategic goal and ensures that each employee acts with integrity on a daily basis. Numerous culture and conduct workshops have been conducted since 2011. The Group has a set of strict good conduct doctrines and rules. The Group’s Code of Conduct was covered in a directive which went into effect in January 2013. The individual and group behaviour principles and rules promulgated go beyond the strict application of current laws and regulations, in particular when the ethical standards in certain countries are not consistent with the values and commitments the Group applies. This directive applies to all employees, regardless of their responsibility level, as well as to Group managers, and also specifies alert procedures when a special situation justifies it. For a bank, compliance culture means: nn

not working with a customer or counterparty for which it is not possible to gather satisfactory information to know that person;

understanding how to assess the economic reality of a transaction;

being able to justify each decision under any circ*mstance.

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As a result, the Group: nn

may not complete transactions in countries or enter into relationships with natural persons or legal entities whose activity would violate the laws or principles that guide a banker’s behaviour; will not work with customers or counterparties in transactions for which it cannot assess the economic reality, or where there is an absence of transparency which could lead to the conclusion that they violate accounting or ethical principles; provides correct, clear and non-misleading information regarding the products and services offered and ensures that they meet customer expectations.

The Societe Generale Group implements the recommendations of the G30 International Consultative Group on economic and monetary issues in its report entitled “Calls for fully comprehensive cultural and conduct reforms at major global banks”. These recommendations are organised around five major themes: a fundamental shift in the overall mindset on culture; senior accountability and governance; performance management and incentives; staff development and promotion and three effective lines of defence including, inter alia, strengthening the role and positioning of the compliance function.

The Compliance Function’s Transformation Programme The Societe Generale Group launched a programme covering the period from 2015 to 2018 to transform and improve the operational efficiency of the Compliance function, in particular to raise our monitoring standards and better fulfil the increasing requirements of regulatory authorities. Among other things, this programme strengthens governance and increases the resources made available to the function, both by recruiting additional resources and by investing in streamlining the Compliance function’s existing IT applications and strengthening alert controls and management. It targets the continued enhancement of priority functions, the central tools for monitoring regulatory application (including training, harmonisation, and regulatory oversight), financial security, constant oversight, customer protection, market integrity (including preventing conflicts of interest), and reporting quality. The Societe Generale Group Compliance function significantly increased its workforce in 2015. This increase affected all function departments. This growth in employees also included numerous training sessions, many of which were mandatory.

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Implementation of compliance policies

FIGHTING CORRUPTION

PREVENTION OF MONEY LAUNDERING AND TERRORISM FINANCING

The fight against corruption has become global. Many countries have strengthened their anti-corruption laws and increased the corresponding penalties.

The main events in 2015 were: nn

Reworking the Group instruction governing the prevention of money laundering and terrorism financing; strengthening the mechanism to prevent terrorism financing and to monitor Group employees; continuing the COSI (systematic information communication) project with TRACFIN, which includes cash deposit/withdrawal transactions and international wire transfers; the launch of a Group IT application implementation project to optimise operational dossier processing and to facilitate information sharing among various business lines.

KNOW YOUR CUSTOMER As part of “Know Your Customer”, periodic dossier review received special attention within the Group in 2015. We also note: nn

the publication of an instruction covering banking relationship management; the launch of a project on best practices to filter politically exposed persons; the continuation of actions to distribute and share KYC data.

EMBARGOS AND FINANCIAL PENALTIES With respect to embargos, the international context in 2015 continued to be very complex for the banking sector. Compliance function employees, in particular the corporate department advance team, were trained on this topic. nn

the major rules governing international sectoral penalties against Russia were updated in 2015 based on additional information received from authorities (European Commission, Office of Foreign Assets Control, etc.). The Financial Security Department of the Societe Generale Group issued specific instructions on preventing financing of Islamic State (Daech) for the Iraq, Syria and Libya region, as well as to manage accounts to freeze credits. Filtering tools were strengthened in 2015, in particular aimed at controlling the re-issue of Swift payment messages (e.g. antistripping control). In 2015, the Financial Security Department continued to raise awareness among management and employees. In addition, it should be emphasised that mandatory training for all global Group employees on the risks of international penalties was conducted in mid-2015. By the end of 2015, most Group employees had already completed this training in French and English. The training will continue in 2016 in local languages mainly for the subsidiaries of International Retail Banking & Financial Services.

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In 2000, Societe Generale made certain commitments as part of the Wolfsberg Group and, in 2003, under the Global Compact. The anti-money laundering mechanism includes monitoring the use of the banking system by third parties to identify cases of corruption. To fight corruption, Societe Generale applies strict principles which form part of its Code of Conduct and comply with the strictest regulations in this regard, including the UK Bribery Act. Their implementation is strictly monitored. Mandatory instructions and controls which are applicable throughout the Group have been distributed since 2001. To enhance vigilance, a training module designed to increase Societe Generale Group employee awareness of fighting corruption was deployed in 2015 and is mandatory.

EMPLOYEE ETHICS Compliance with ethical policies is a constant obligation under Societe Generale’s rules of conduct. Procedures and their proper application are closely examined, including those related to the supervision of outside personnel (employees of service providers, temporary employees and trainees).

CROSSING OWNERSHIP THRESHOLDS The cross-business tool for monitoring share ownership and voting rights in listed issuers ensures worldwide compliance (103 countries) with regulations regarding the crossing of share ownership thresholds (legal, statutory, or during public offer periods). It monitors all shares and derivatives with underlying equity securities held by the Societe Generale Group. These holdings are calculated in accordance with the specific rules in each country.

CONFLICTS OF INTEREST The Group has an instruction on the prevention and management of conflicts of interest which specifies the principles and mechanisms to be implemented by their appropriate management. This instruction was updated in 2015 to take into consideration the regulatory changes in the field. The policy addresses potential conflicts of interest liable to involve the Group, its customers or employees. It also maps out potential conflicts of interest which could arise when providing investment or related services.

MARKET ABUSE To adapt to technological change (development of new trading platforms) and the growing risk of pricing manipulation (particularly indices), and to incorporate regulatory developments already known to the Group, special efforts are made to raise employee awareness, including the staff of the Retail Banking arm, of ad hoc procedures and their application in all businesses, and of ongoing developments in detection and analytical tools.

COMPLIANCE, REPUTATIONAL AND LEGAL RISKS I R i s k R ep ort I

As part of the entry into force on 3rd July 2016 of the reform of the Market Abuse System (the “Market Abuse” Regulation of 12th June 2014 and the “Market Abuse 2” Directive), the Group launched a dedicated project managed by the Compliance Department in 2015.

CUSTOMER PROTECTION Customer protection is central to the Group. It is a prerequisite to high-quality customer relationships. Among the actions taken, the following are particularly important: nn

the Compliance function’s contribution to developing products through its participation in the New Product Committee, where it establishes pre-requisites, if needed; the response to the Customer Protection questionnaire of the French Prudential Supervisory Authority (l’Autorité de contrôle prudentiel et de résolution); the distribution of an instruction governing the relationship of Societe Generale Group entities with financial sector intermediaries and introducing agents (apporteurs d’affaires) (in France, the rules applicable to banking intermediaries and “IOBSP” payment departments, “CIF” financial investment advisors, “ALPSI” investment service agents, and “IAS” insurance intermediaries).

Finally, the Group is preparing to implement the new customer protection requirements in the MIF 2 Regulation, which will apply from 2017.

CLAIMS AND MEDIATION A claim is treated foremost as a commercial action which contributes to customer satisfaction. The Compliance function carefully monitors customer claims to identify inappropriate procedures or offers. Each of the Group’s core businesses has governance, an organisation, procedures and resources tailored to its business to process and monitor claims.

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Group instructions include an escalation process for claims handling, as well as the possible use of an internal or external mediator (a mediator independent from the Societe Generale Group jointly with the Crédit du Nord Group, the French Financial Markets Authority (AMF), and the French Banking Federation). International entities and subsidiaries can also use local mediators (if regulation so requires) or local mediation bodies approved by professional organisations.

REGULATORY PROJECTS Finally, in 2015, in cooperation with the business lines, the Compliance function continued development and compliance workshops covering numerous important regulations, in particular: the French banking law of 26th July 2013, the Volcker reforms, the DFA (“DoddFrank Act”), EMIR (“European Market Infrastructure Regulation”), MIF 2, FATCA (“Foreign Account Tax Compliance Act”), Common Reporting Standards (“CRS”) and Market Abuse Directive/ Market Abuse Regulation (“MAD II/MAR”).

Looking Ahead to 2016 2016 will see an acceleration in the transformational actions under the “Compliance Engagement” programme with further recruitments, an improvement in the operational effectiveness of the Compliance function and control mechanisms, as well as an optimisation of the various IT systems included in the mid-term strategic plan. These actions will allow the Societe Generale Group to better frame its business both in France and abroad given the significant transaction volumes, data and alerts which have to be handled. Further, they will reduce the implementation time for various regulatory requirements. This programme will also contribute to the “Culture and Conduct” strategic action plan led by senior management which is designed, among other things, to develop training and enhance employee and management awareness.

Significant efforts to train and enhance the awareness of employees were conducted within the Group, in particular in French Retail Banking (Societe Generale, Boursorama Banque and Crédit du Nord) and within the Insurance business line (ISO 9001 quality requirement), which significantly contributed to process optimisation (recording, quality and customer response times). In addition, customer information was improved.

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10.2. Risks and litigation The Group reviews in detail every quarter the disputes presenting a significant risk. nn

Societe Generale, along with numerous other banks, financial institutions, and brokers, is subject to investigations in the US by the Internal Revenue Service, the Securities and Exchange Commission, the Antitrust Division of the Department of Justice, and the attorneys general of several states for alleged noncompliance with various laws and regulations relating to their conduct in the provision to governmental entities of Guaranteed Investment Contracts (“GICs”) and related products in connection with the issuance of tax-exempt municipal bonds. Societe Generale is cooperating with the investigating authorities. Societe Generale resolved the investigations of the attorneys general of several states, as announced on 24th February 2016, without admitting or denying allegations of misconduct. The settlement amount was fully provisioned. Several lawsuits were initiated in US courts in 2008 against Societe Generale and numerous other banks, financial institutions, and brokers, alleging violation of US antitrust laws in connection with the bidding and sale of GICs and derivatives to municipalities. These lawsuits were consolidated in the US District Court in Manhattan. Some of these lawsuits are proceeding under a consolidated class action complaint. In April 2009, the court granted the defendants’ joint motion to dismiss the consolidated class action complaint against Societe Generale and all the other defendants except three. A second consolidated and amended class action complaint was filed in June 2009. Societe Generale’s motion to dismiss the second consolidated and amended class action complaint was denied and the proceeding is continuing as to Societe Generale and numerous other providers and brokers. The class plaintiffs filed a third amended class action complaint in March 2013. Societe Generale reached a settlement with the class plaintiffs, and on 24th February 2016, the class plaintiffs filed a motion with the court seeking preliminary approval of the settlement. The settlement amount was fully provisioned. In addition, there are other actions that are proceeding separately from the consolidated class action complaint, including another purported class action under the US antitrust laws and California state law as well as lawsuits brought by individual local governmental agencies. Motions to dismiss the complaints in these related proceedings have been denied in their entirety or in part, and discovery is proceeding.

On 24th October 2012, the Court of Appeal of Paris confirmed the first judgment delivered on 5th October 2010, finding J. Kerviel guilty of breach of trust, fraudulent insertion of data into a computer system, forgery and use of forged documents. J. Kerviel was sentenced to serve a prison sentence of five years, two years of which are suspended, and was ordered to pay EUR 4.9 billion as damages to the bank. On 19th March 2014, the Supreme Court confirmed the criminal liability of J. Kerviel. This decision puts an end to the criminal proceedings. On the civil front, the Supreme Court has departed from its traditional line of case law regarding the compensation of victims of criminal offences against property. The amount of damages will be heard by the Versailles Court of Appeal before which the case was remanded.

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Since 2003, Societe Generale had set up “gold consignment” lines with the Turkish group Goldas. In February 2008, Societe Generale was alerted to a risk of fraud and embezzlement of gold reserves held at Goldas. These suspicions were rapidly confirmed following the failed payment (EUR 466.4 million) of gold purchased. In order to recover the sums owed by the Goldas Group and to protect its interests, Societe Generale brought civil proceedings in Turkey against its insurance carriers and Goldas Group entities. Goldas, for its part, has recently launched various proceedings in Turkey against Societe Generale. Societe Generale also brought proceedings against its insurers in the United Kingdom, which were discontinued by consent, without any admission of liability by any party. Proceedings in France against its insurers are still underway. Societe Generale Algeria (“SGA”) and several of its branch managers are prosecuted for breach of Algerian laws on exchange rates and capital transfers with other countries. The defendants are accused of having failed to make complete or accurate statements to the Bank of Algeria on capital transfers in connection with exports or imports made by clients of SGA. The events were discovered during investigations by the Bank of Algeria, which subsequently filed civil claims before the criminal Court. Sentences were delivered by the court of appeal against SGA and its employees in some proceedings, while charges were dropped in other ones. All proceedings were referred to the Supreme Court. To date, twelve cases have been terminated in favour of SGA and seven remain pending. In the early 2000s, the French banking industry decided to transition to a new digital system in order to streamline cheque clearing. To support this reform (known as EIC – Echange d’Images Chèques), which has contributed to the improvement of cheque payments security and to the fight against fraud, the banks established several interbank fees (including the CEIC which was abolished in 2007). These fees were implemented under the aegis of the banking sector supervisory authorities, and to the knowledge of the public authorities. On 20th September 2010, after several years of investigation, the French competition authority considered that the joint implementation and the setting of the amount of the CEIC and of two additional fees for related services were in breach of competition law. The authority fined all the participants to the agreement (including the Banque de France) a total of approximately EUR 385 million. Societe Generale was ordered to pay a fine of EUR 53.5 million and Crédit du Nord, its subsidiary, a fine of EUR 7 million. However, in its 23rd February 2012 order, the French Court of Appeal, to which the matter was referred by all the banks involved except Banque de France, upheld the absence of any competition law infringement, allowing the banks to recoup the fines paid. On 14th April 2015, the Supreme Court quashed and annulled the Court of Appeal decision on the ground that the latter did not examine the arguments of two third-parties who voluntarily intervened in the proceedings. The case will be heard again by the Court of Appeal before which the case was remanded.

COMPLIANCE, REPUTATIONAL AND LEGAL RISKS I R i s k R ep ort I

Societe Generale Private Banking (Suisse), along with several other financial institutions, has been named as a defendant in a putative class action that is pending in the US District Court for the Northern District of Texas. The plaintiffs seek to represent a class of individuals who were customers of Stanford International Bank Ltd. (“SIBL”), with money on deposit at SIBL and/or holding Certificates of Deposit issued by SIBL as of 16th February 2009. The plaintiffs allege that they suffered losses as a result of fraudulent activity at SIBL and the Stanford Financial Group or related entities, and that the defendants bear some responsibility for those alleged losses. The plaintiffs further seek to recoup payments made through or to the defendants on behalf of SIBL or related entities on the basis that they are alleged to have been fraudulent transfers. The Official Stanford Investors Committee (“OSIC”) was permitted to intervene and filed a complaint against Societe Generale Private Banking (Suisse) and the other defendants seeking similar relief. The motion by Societe Generale Private Banking (Suisse) to dismiss these claims on grounds of lack of jurisdiction was denied by the court by order filed 5th June 2014. Societe Generale Private Banking (Suisse) sought reconsideration of the Court’s jurisdictional ruling, which the Court ultimately denied. On 21st April 2015, the Court permitted the substantial majority of the claims brought by the plaintiffs and the OSIC to proceed. In May 2015, the plaintiffs filed a motion for class certification, which Societe Generale Private Banking (Suisse) and the other defendants have opposed. The motion is now pending for decision. On 22nd December 2015, the OSIC filed a motion for partial summary judgment seeking return of a transfer of USD 95 million to Societe Generale Private Banking (Suisse) made in December 2008 (prior to the Stanford insolvency) on the grounds that it is voidable under Texas state law as a fraudulent transfer. Briefing on this motion is ongoing. Connected with the allegations in this class action, Societe Generale Private Banking (Suisse) and Societe Generale have also received requests for documents and other information from the US Department of Justice. Societe Generale Private Bank (Suisse) and Societe Generale are cooperating with the US authorities.

Societe Generale, along with other financial institutions, has received formal requests for information from several authorities in Europe, the US and Asia, in connection with investigations regarding submissions to the British Bankers Association for setting certain London Interbank Offered Rates (“Libor”) and submissions to the European Banking Federation (now the EBFFBE) for setting the Euro Interbank Offered Rate (“Euribor”), as well as trading in derivatives indexed to various benchmark rates. Societe Generale is cooperating with the investigating authorities

I 10

court dismissed the claims against Societe Generale in putative class actions brought by purchasers of certain over-the-counter derivative contracts and purchasers of certain exchange-based derivative contracts. On 5th March 2015, Societe Generale was voluntarily dismissed from a third putative class action brought by purchasers of adjustable rate mortgages tied to Libor. The two other putative class actions are effectively stayed pending resolution of the appeal described below. On 20th October 2015, the court dismissed the claims against Societe Generale in an individual action brought by the liquidating agent of several failed credit unions. On 4th August 2015, the court dismissed several claims asserted by individual plaintiffs, but permitted some state law claims to proceed against defendants in limited circ*mstances. The parties are still litigating the impact of this decision on the claims against Societe Generale and the other defendants. The plaintiffs in most of the class and individual actions have appealed the court’s dismissal of their antitrust claims against all defendants to the US Court of Appeals for the Second Circuit. Societe Generale, along with other financial institutions, also has been named as a defendant in two putative class actions in the US District Court in Manhattan brought by purchasers or sellers of Euroyen derivative contracts on the Chicago Mercantile Exchange (“CME”), and purchasers of over-the-counter derivative contracts, respectively, who allege that their instruments were traded or transacted at artificial levels due to alleged manipulation of Yen LIBOR and Euroyen TIBOR rates. These actions allege violations of, among other laws, the US antitrust laws, the CEA, the civil provisions of the Racketeer Influenced Corrupt Organization (“RICO”) Act, and state laws. On 28th March 2014, the court dismissed the exchange-based plaintiffs’ antitrust claims, among others, but permitted certain CEA claims to proceed. On 31st March 2015, the court denied the exchange-based plaintiffs’ motion for leave to add a RICO claim and additional class representatives, who sought to assert CEA, RICO and state law claims. Motions to dismiss the over-the-counter plaintiffs’ claims are due shortly. Societe Generale, along with other financial institutions, also has been named as a defendant in a putative class action in the US District Court in Manhattan brought on behalf of purchasers or sellers of Euribor-linked futures contracts on the LIFFE exchange, Euro currency futures contracts on the CME, Euro interest rate swaps, or Euro foreign exchange forwards, who allege that their instruments traded or that they transacted at artificial levels due to alleged manipulation of Euribor rates. The action alleges violations of, among other laws, US antitrust laws, the CEA, RICO and state laws. Motions to dismiss have been filed.

Societe Generale, along with other financial institutions, was named as a defendant in five putative class actions and several individual (non-class) actions in connection with its involvement in the setting of US Dollar Libor rates and trading in derivatives indexed to Libor. The actions were brought by purchasers of certain exchange-based derivatives contracts, over-the-counter derivatives contracts, bonds, equity securities and mortgages, and are pending before a single judge in the US District Court in Manhattan. The actions variously allege violations of, among other laws, US antitrust laws, the US Commodity Exchange Act (“CEA”), and numerous state laws. On 23rd June 2014, the

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Societe Generale, along with other financial institutions, also has been named as a defendant in litigation in Argentina brought by a consumer association on behalf of Argentine consumers who held government bonds or other instruments that paid interest tied to US Dollar Libor. The allegations concern violations of Argentine consumer protection law in connection with an alleged manipulation of the US Dollar Libor rate. Societe Generale has not yet been served with the complaint in this matter. On 4th December 2013, the European Commission issued a decision further to its investigation into the EURIBOR rate, that provides for the payment by Societe Generale of an amount of EUR 445.9 million in relation to events that occurred between March 2006 and May 2008. Societe Generale has filed an appeal with the Luxembourg Court regarding the method used to determine the value of the sales that served as a basis for the calculation of the fine. nn

On 10 December 2012, the Council of State (French Conseil d’État) made two rulings on the lawfulness of withholding tax (précompte), a tax which has now been abolished. It concluded that this tax violated EC law and defined the conditions pursuant to which the amounts levied towards the withholding tax should be restituted to companies. The conditions for restitution defined by the Council of State significantly reduce the amount of restitution. In 2005, two companies (Rhodia and Suez) assigned their rights to restitution to Societe Generale with a limited right of recourse against the assignors. One of the Council of State’s rulings concerns Rhodia. Societe Generale defended its rights in the various proceedings against the French tax authorities before French administrative courts in France – the last decision having been handed down by the Paris Administrative Court of Appeal on 12th December 2014 in the Suez matter – which continue to implement the conditions of restitution of withholding tax defined by the Council of State in its decision of 10th December 2012.

Seized by several French companies, the European Commission considered that the decisions handed down by the Council of State on 10th December 2012, following the decision handed down by the European Court of Justice C-310/09 on 15th September 2011, breach several European law principles. The European Commission informed the plaintiffs, including Societe Generale, that it initiated an infringement procedure against the French Republic by sending a letter of formal notice on 26 th November 2014. nn

Societe Generale has engaged in discussions with the US Office of Foreign Assets Control, the US Department of Justice, the office of the District Attorney of New York County, the Board of Governors of the Federal reserve System in Washington, the Federal Reserve Bank of New York, and the New York State Department of Financial Services in relation to US dollar transfers made by Societe Generale on behalf of entities based in countries that are the subject of economic sanctions ordered by the US authorities. In connection with these discussions, Societe Generale is conducting an internal review and is cooperating with the US authorities. Vladimir Golubkov, CEO of Rosbank at the time of the events, and an employee of the bank are under criminal investigation in the Russian Federation for actions that would amount to corruption. According to the press, the case against Vladimir Golubkov was dismissed in December 2015.

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On 22nd May 2013, the ACPR (French Prudential Supervisory and Resolution Authority) launched disciplinary proceedings against Societe Generale in relation to the resources and procedures deployed by it pursuant to the legal requirements relating to the “right to a bank account” (“Droit au compte”). On 11th April 2014, the ACPR sanctions commission imposed the following sanctions on Societe Generale: a fine of EUR 2 million, a reprimand, and the publication of the decision. In May 2014, Societe Generale referred this decision to the Council of State. By a judgment handed down on 14th October 2015, the Council of State cancelled the ACPR’s penalty of 11th April 2014. By a letter dated 9th November 2015, the ACPR informed Societe Generale that it will resume the proceedings before the sanctions commission. The college representative filed its brief on 18th December 2015. Societe Generale must file its response on 1st February 2016. On 7th March 2014, the Libyan Investment Authority (“LIA”) brought proceedings against Societe Generale before the High Court of England regarding the conditions pursuant to which LIA entered into certain investments with the Societe Generale Group. LIA alleges that Societe Generale and other parties who participated in the conclusion of the investments notably committed acts amounting to corruption. Societe Generale firmly refutes such allegations and any claim tending to question the lawfulness of these investments. The English Court decided that the trial hearing will take place in January 2017. Also, on 8th April 2014, the US Department of Justice served Societe Generale with a subpoena requesting the production of documents relating to transactions with Libyan entities and individuals, including the LIA. Societe Generale is cooperating with US authorities. Societe Generale, along with other financial institutions, has been named as a defendant in a putative class action alleging violations of US antitrust laws and the CEA in connection with its involvement in the London Gold Market Fixing. The action is brought on behalf of persons or entities that sold physical gold, sold gold futures contracts traded on the CME, sold shares in gold ETFs, sold gold call options traded on CME, bought gold put options traded on CME, sold over-the-counter gold spot or forward contracts or gold call options, or bought over-the-counter gold put options. The action is pending in the US District Court in Manhattan. Motions to dismiss the action have been filed and are pending for decision. Societe Generale and certain subsidiaries, along with other financial institutions, have also been named as defendants in putative class action in Canada (Ontario Superior Court in Toronto) involving similar claims. On 30th January 2015, the US Commodity Futures Trading Commission served Societe Generale with a subpoena requesting the production of information and documents concerning trading in precious metals done since 1st January 2009. Societe Generale is cooperating with the authorities. Societe Generale Americas Securities, LLC (“SGAS”), along with other financial institutions, has been named as a defendant in several putative class actions alleging violations of US antitrust laws and the CEA in connection with its activities as a US Primary Dealer, buying and selling US Treasury securities. The cases have been consolidated in the US District Court in Manhattan. SGAS’s time to respond to the complaints has not yet been set.

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Societe Generale, along with several other financial institutions, has been named as a defendant in a putative class action alleging violations of US antitrust laws and the Commodity Exchange Act in connection with foreign exchange spot and derivatives trading. The action is brought by persons or entities that transacted in certain over-the-counter and exchange-traded foreign exchange instruments. The litigation is pending in the US District Court in Manhattan. Motions to dismiss the action have been filed. Societe Generale and certain subsidiaries, along with other financial institutions, have also been named as defendants in two putative class actions in Canada (in Ontario Superior Court in Toronto and Quebec Superior Court in Quebec City) involving similar claims.

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Ris k Report I other risks

in brief This section describes equity risks and other risks not described in previous chapters.

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1 1 . o th e r r i s k s 11.1. EQUITY RISKS Investment strategies and purpose Societe Generale Group’s exposure to its non-trading equity portfolio relates to several of the bank’s activities and strategies. It includes equities and equity instruments, mutual fund units invested in equities, and holdings in the Group’s subsidiaries and affiliates which are not deducted from shareholders’ equity for the purpose of calculating solvency ratios. Generally speaking, due to their unfavourable treatment under regulatory capital, the Group’s future policy is to limit these investments. nn

First, the Group has a portfolio of industrial holdings which mainly reflect its historical or strategic relations with these companies. It also has some minority holdings in certain banks for strategic purposes, with a view to developing its cooperation with these establishments. In addition, the equities that are not part of the trading book include Group shares in small subsidiaries which operate in France and abroad, and which are not included in its consolidation scope. This includes various investments and holdings that are ancillary to the Group’s main banking activities, particularly in French Retail Banking, Corporate and Investment Banking, and Securities Services (private equity activities in France, closely linked with banking networks, stock market bodies, brokerages, etc.). Lastly, Societe Generale and some of its subsidiaries may hold equity investments related to their asset management activities (particularly seed capital for mutual funds promoted by Societe Generale), in France and abroad.

The holdings that are ancillary to the Group’s banking activity are monitored on a quarterly basis by the Group’s Finance Division and, where necessary, value adjustments are recognised quarterly in accordance with the Group’s provisioning policy. Private equity activities in France are subject to dedicated governance and monitoring, within the budgets periodically reviewed by the Group’s Executive Committee. Investment or disposal decisions take the financial aspects and the contribution to the Group’s activities into consideration (supporting clients in their development, cross-selling with flow activities, Corporate and Investment Banking, Private Banking, etc.).

Valuation of banking book equities From an accounting perspective, Societe Generale’s exposure to equities that are not part of its trading book is classified under shares held for sale insofar as the equities may be held for an indefinite period or they may be sold at any time. Societe Generale Group’s exposure to equities that are not part of the trading book is equal to their book value net of impairments. The following table presents these exposures at end-December 2015 and 2014, for both the accounting scope and the regulatory scope. Regulatory data cannot be reconciled with data from consolidated financial statements, specifically because the regulatory scope excludes equity investments held on behalf of clients by the Group’s insurance subsidiaries.

Monitoring of banking book equity investments and holdings The portfolio of industrial holdings has been significantly reduced in recent years, further to the disposal of non-strategic lines. It now includes only a limited number of investments. It is monitored on a monthly basis by the Group’s Finance Division, and where necessary value adjustments are recognised quarterly in accordance with the Group’s provisioning policy.

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||TABLE 67: BANKING BOOK EQUITY INVESTMENTS AND HOLDINGS (In EUR m)

Banking book equity investments and holdings - Accounting scope Of which equities and other equity instruments (AFS) Note 3.3 Of which AFS equities held over the long term Banking book equity investments and holdings - Prudential scope (EAD) Of which listed shares Of which unlisted shares

31.12.2015

31.12.2014

14,720

15,201

12,091

13,181

2,629

2,020

7,081

10,799

717

466

6,364

10,333

AFS: Available For Sale. EAD: Exposure At Default.

With regard to the regulatory scope, the exposure to equities and holdings that are not included in the trading book, and calculated as EAD, amounted to EUR 7.1 billion at the end of 2015, versus EUR

10.8 billion at the end of 2014. This change is due primarily to the sale of liquidity instruments.

Changes in fair value are recognised in shareholders’ equity under “Unrealised or deferred capital gains and losses”. In the event of a sale or durable impairment, changes in the fair value of these assets are recorded in the income statement under “Net gains and losses on available-for-sale financial assets”. Dividends received on equity investments are recognised in the income statement under “Dividend income”.

the category of financial instrument and one of the following methods:

For listed shares, the fair value is estimated based on the closing share price. For unlisted shares, the fair value is estimated based on

nn nn

the share of net assets owned; the valuation based on recent transactions involving the company’s shares (acquisition of shares by third parties, expert valuations, etc.); the valuation based on recent transactions involving companies in the same sector (earnings or NAV multiples, etc.).

||TABLE 68: NET GAINS AND LOSSES ON BANKING BOOK EQUITIES AND HOLDINGS 31.12.2015

31.12.2014

Gains and losses on the sale of shares

374

163

Impairment of assets in the equity portofolio

(28)

(En M EUR)

In proportion to the net income on the equities portofolio Net gains/losses on banking book equities and holdings Unrealised gains/losses on holdings Share included in Tier 1 and Tier 2 capital*

402

198

1,058

1,587

1,057

467

* Amounts pro forma Basel 3.

Provisioning policy

Regulatory capital requirements

The impairment of an available-for-sale financial asset is described in Note 3.8 of the financial statements in Chapter 6 of this Registration Document (p. 322 and next).

To calculate the risk-weighted assets under Basel 3, the Group applies the simple risk weight method as defined in the Internal Ratings Based approach for the majority of its non-trading equity portfolio.

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other risks I R i s k R ep ort I

At 31st December 2015, the Group’s risk-weighted assets related to its non-trading equity portfolio, and its capital requirements were as follows:

||TABLE 69: CAPITAL REQUIREMENTS RELATED TO BANKING BOOK EQUITIES AND HOLDINGS

(1)

31.12.2015

(In EUR m)

Approach

Weighting

I 11

Furthermore, if they are not deducted from own funds, material investments in the capital of finance companies are assigned a weighting coefficient of 250%.

Shares in private equity companies are assigned a risk-weighting coefficient of 190%, shares in listed companies a coefficient of 290%, and shares in unlisted companies, including the holdings in our insurance subsidiaries, a coefficient of 370%. Note that private equity shares acquired before January 2008 can be weighted at 150%.

Equities & holdings

Exposure at default

Risk weighted assets

31.12.2014

Capital requirements

Exposure at default

Risk weighted assets

Capital requirements

Private equity

Standard

150%

114

171

123

185

Private equity

Simple approach

190%

121

229

171

325

Financial securities

Simple approach

250%

807

2,016

161

1,404

3,511

281

Listed shares

Simple approach

290%

283

821

403

1,169

Unlisted shares and insurances

Simple approach

370%

4,706

17,412

1,393

4,387

16,231

1,299

6,030

20,650

1,652

6,488

21,421

1,714

Total (1) Excluding cash investments.

11.2. STRATEGIC RISKS Strategic risks are defined as the risks inherent in the choice of a given business strategy or resulting from the Group’s inability to execute its strategy. They are monitored by the Board of Directors, which approves the Group’s strategic direction and reviews them at least once every year. Moreover, the Board of Directors approves strategic investments and any transaction, particularly disposals and acquisitions, that could significantly affect the Group’s results, the structure of its balance sheet or its risk profile.

Strategic steering is carried out by the Executive Committee under the authority of the General Management, with the assistance of the Group Management Committee. The Executive Committee meets once a week, barring exceptions. The makeup of these different bodies is laid out in the Corporate Governance chapter of this Registration Document (p. 64). The Internal Rules of the Board of Directors define the procedures for convening meetings as described in Chapter 7 of this Registration Document (p. 471).

11.3. ACTIVITY RISK Activity risk is the risk of taking a loss if expenses incurred are higher than revenues generated. They are managed by the Finance Division through monthly revenue committees. During these meetings, which are chaired by a member of the General Management, the Group’s

business lines present their results and comment on the state of business, and also present an analysis of their consumption of their budget and scarce resources (especially capital and liquidity).

11.4. RISKS RELATING TO INSURANCE ACTIVITIES Through its insurance subsidiaries, the Group is also exposed to a variety of risks inherent to this business. These include ALM risk management (risks related to interest rates, valuations, counterparties and exchange rates) as well as premium pricing risk, mortality risk and structural risk related to life and non-life insurance activities, including

pandemics, accidents and catastrophes (such as earthquakes, hurricanes, industrial disasters, terrorist attacks or military conflicts). The risk monitoring structure related to these risks and related issues are described in Note 4.3 of the consolidated financial statements and in Chapter 6 of this Registration Document (p. 338).

11.5. ENVIRONMENTAL AND SOCIAL RISKS Information on environmental and social risks appears in Chapter 5 of this Registration Document, (p. 209).

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12.1. Cross reference table of Risk and Pillar 3 report

CRD4/CRR article

Theme

Risk and Pillar 3 report reference (except reference to the Registration Document)

90 (CRD4)

Return on assets

1. Key risks indicators

435 (CRR)

0. Risk management objectives and policies

3.1 Corporate governance structure and main bodies

1. Scope of application

3 Capital management and adequacy

436 (a)(b) (CRR)

Page in Risk Page in the Report Registration Pillar 3 Document 2

2 Governance and risk management organisation

64 5 24-25

Note 8.4 to the consolidated financial statement

367

436 (c)(d)(e) (CRR)

1. Scope of application

Information not published for confidentiality reasons

437 (CRR)

2. Own funds

3 Capital management and adequacy (and (and SG website - Capital instruments)

438 (CRR)

3. Capital requirements

3 Capital management and adequacy

439 (CRR)

4. Exposure to counterparty credit risk

4 Credit risks

440 (CRR)

5. Capital buffers

3 Capital management and adequacy

441 (CRR)

6. Indicators of global systemic importance

SG website - Informations and publications section/

442 (CRR)

7. Credit risk adjustments

4 Credit risks

443 (CRR)

8. Unencumbered assets

9 Liquidity risk

130

444 (CRR)

9. Use of ECAIs

5 Securitisation

445 (CRR)

10. Exposure to market risk

6 Market risks

103

446 (CRR)

11. Operational risk

7 Operational risks

113

447 (CRR)

12. Exposures in equities not included in the trading book

11 Equity risk

147

448 (CRR)

13. Exposure to interest rate risk on 8 Structural interest rate and exchange rate risks positions not included in the trading book

449 (CRR)

14. Exposure to securitisation positions

5 Securitisation

450 (CRR)

15. Remuneration policy

First update of the Registration Document (planned)

451 (CRR)

16. Leverage

3 Capital management and adequacy

452 (CRR)

17. Use of the IRB Approach to credit risk 4 Credit risks

453 (CRR)

18. Use of credit risk mitigation techniques

4 Credit risks

454 (CRR)

19. Use of the Advanced Measurement Approaches to operational risk

7 Operational risks

113

455 (CRR)

20. Use of Internal Market Risk Models

6 Market risks

103

121 89

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12.2. C ross reference table with the recommendations made by the Enhanced Disclosure Task Force - EDTF

N°

Recommandation

Present all related risk information together in any particular report

Definition of the principal terms and metrics used

Definition and classification of risks and risk outlook

Definition of regulatory changes and new key ratios

Risk governance

Risk culture

Key figures for the businesses, risk appetite, risk management

Stress test system

Capital requirements

Information on the composition of regulatory capital Reconciliation of accounting and regulatory data

Changes in regulatory capital

Regulatory capital targets

Distribution of risk-weighted assets by business Table of RWA by calculation method

Detail

Page in Risk Page in the Report- Registration Pillar 3 Document

hapter 1 (description of the Group, strategy, C presentation of the businesses) Chapter 2 (management report, balance sheet structure, recent developments and outlook) Chapter 4 (risks, capital adequacy, Pillar 3) 5 and following Availability of a glossary of the principal terms used 156 Definitions as necessary in the chapters concerned - credit risks 45 - market risks 103 - operational risks 113 General concepts of IFRS 9 52 Key figures 2-3 Types of risks 6 Risk factors 13 Recent developments and outlook Description of the inpairments in IFRS 9 53 Fully-loaded Basel 3 capital ratio 29 Phase-in stages 29 Additional GSIB buffer 23 Leverage ratio 34 LCR 133 NSFR 133 Group governance principles (summary diagram) Chairman’s report on corporate governance Chairman’s report on internal control and risk management Risk management principles (summary diagram) 5-21 Credit risks 45 Market risks 103 Operational risks 113 Implementation strategy of IFRS 9 53 Organisation and governance of the risk management system 5 “Enterprise Risk Management” programme 10 Key Group figure Description of the businesses Key risk figures 2-3 Risk appetite 7 Governance of risk management 5-12 General description 7-8 Credit stress tests 46 Market risk stress tests 107 Capital requirements by type of risks 31 Complementary buffers GSIB 23 29 Composition of regulatory capital 37 Details of regulatory capital 24 Reconciliation of the accounting balance sheet and the regulatory balance sheet Reconciliation of accounting capital and regulatory capital 29 Capital reconciliation chart Regulatory capital flow statement 30 Qualitative comment 33 Information on ratio targets and constraints (CET 1) Regulatory information 23, 29 Additional information in the analyses by risk type (credit, market, 31-32 operational, etc.) Group risk-weighted assets 31

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6 and following. 21 and following.

7 ; 59

64 76 115 124-128

6 10

appendix I R i s k R ep ort I

N°

Recommandation

Detail

Market risks 15

Table of credit risks by Basel portfolio

Details provided in the Credit Risk section of Chapter 4

Analysis of movements in RWA and capital requirements

Back testing

Liquidity reserve

Encumbered assets

Balance sheet by contractual maturities

Refinancing strategy

Credit risk table (summary) Market risk table (summary) Market risk table (VAR by risk type and changes in capital requirements) Credit risks Market risks Qualitative and quantitative comment Liquidity reserve (amount and composition) Encumbered assets Market financing (schedule of securitised issues) Liabilities and off-balance sheet: Note 30 to the consolidated financial statements Balance sheet Group’s debt situation, debt policy Refinancing strategy Information not communicated

Reconciliation of risk-weighted assets and accounting items for exposures sensitive to market risks Structural risk factors (sensitivity of structural positions to market factors)

Market risk modelling principle

Market risk measurement methods

Loan portfolio structure

Impairment policy Loan provisions and impairment

28 29

30 31

Movements in provisions and impairment Counterparty risks on market transactions

Information relating to collateral and measures to reduce counterparty risk Other risks

Analysis of losses related to operational risk, including litigation and compliance

I 12

Page in Risk Page in the Report- Registration Pillar 3 Document

Credit risks

tructural interest rate and exchange rate risks section S Note 5.3 of the consolidated financial statements (employee benefits) VAR analysis Organisation and governance Methods for measuring market risk and defining limits Governance Methods for measuring market risk and defining limits VAR and control of VAR Stress tests, scenarii and results Key figures Portfolio structure Quantitative data Note 1 to the consolidated financial statements Credit policy Quantitative data Consolidated financial statements, Note 3.8 Doubtful loans coverage ratio By exposure category and geographic region Note 3.2 «Financial derivatives» of the consolidated financial statements Exhibitions concerning central counterparties (CCP) Hedging of credit risk: guarantees and collateral, credit derivatives, risk mitigation measures, credit insurance Description: types of risks Management (summary) Operational risks Structural interest rate and exchange rate risks Compliance, reputational and legal risks Equity risk Strategic risks Business risks Risks related to insurance activities Environmental and social risk Quantitative Risks and litigation

45 and following 103 and following 45 and following 31-32 31-32 105 ; 109-110 57-59 104 132 132 130 129 334-335 134-135 55 129

121 351 104-106 103 104 109 104 104-106 107-109 44 61-63 61-86 276 45-47 63-66; 83-85 323 65 82 301-305 86 50-51 6 5 113 121 137 147 149 149 149 149 117 142

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12.3. R isk and Pillar 3 report tables index

Table number Pilar 3

Table number Registration Title Document

Page in Risk ReportPillar 3

Page in the Registration Document

Difference between accounting scope and prudential reporting scope

149

Reconciliation of the consolidated balance sheet and the accounting balance sheet

149

Subsidiaries outside the prudential reporting scope

151

4 5

6a 6b 7

Total amount of debt instruments eligible for Tier 1 capital

Changes in debt instruments eligible for the solvency capital requirements

152

Regulatory capital and CRR/CRD4 solvency ratios – fully loaded

153

Regulatory own fund and CRR/CRD4 solvency ratios (details of table 6)

Transitional own funds disclosure template

Fully loaded deductions and regulatory adjustments under CRR/CRD4

Flux des fonds propres prudentiels non phasés

153

Group capital requirements and risk-weighted assets

154

RWA by pillar and risk type

155

Change in credit RWAs

155

Change in market risk RWAs

155

Key subsidiaries’ contribution to the group’s risk-weighted assets

13 14 15

11 (synthesis)

16 17

(LRSum): Summary reconciliation of accounting assets and leverage ratio exposures

(LRcom): Leverage ratio common disclosure

157

(LRSpl): Tabl e LRSpl: Split-up of on balance sheet exposures

Breakdown of EAD by the Basel method

163 163

Scope of application of the IRB and standard approaches for the group

Societe Generale’s internal rating scale and corresponding scales of rating agencies

164

Wholesale clients - models and principal characteristics of models

165

Comparison of risk parameters: estimated and actual PD, LGD and EAD values – wholesale clients

166

Retail clients - models and principal characteristics of models

167

Comparison of risk parameters: estimated PD, LGD, EAD and actual values– retail clients

168

Doubtful loans coverage ratio

173

Restructured debt

174

Loans and advances past due but not individually impaired

174

Exposure class

Credit risk exposure, exposure at default (EAD) and risk-weighted assets (RWA) by approach and exposure class

Retail credit risk exposure, exposure at default (EAD) and riskweighted assets (RWA) by approach and exposure class

Credit and counterparty risk exposure by approach and exposure class

Credit and counterparty exposure at default (EAD) by approach and exposure class

On and off-balance sheet personal guarantees (including credit derivatives) and collateral by exposure class

Corporate credit exposure at default (EAD) by industry sector

Exposure at default (EAD) by geographic region and main countries and by exposure class

Retail exposure at default (EAD) by geographic region and main countries

154 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

appendix I R i s k R ep ort I

Table number Pilar 3

Page in Risk ReportPillar 3

Table number Registration Title Document

Under the IRB approach for non-retail customers: credit risk exposure by residual maturity and exposure class

Under the IRB approach: credit risk exposure by exposure class and internal rating (excluding defaulted exposure)

Under the IRB approach for retail customers: credit risk exposure by exposure class and internal rating (excluding defaulted exposure)

Under the standard approach: credit risk exposure by exposure class and external rating

Counterparty risk exposure by exposure class

Counterparty risk exposure at default (EAD) by geographic region and main countries (which exposure is above EUR 1 bn)

Under the IRB approach: counterparty risk exposure at default (EAD) by internal rating

Impaired on-balance sheet exposures and impairments by exposure class and cost of risk

Impaired on-balance sheet exposures and impairments by approach and by geographic region and main countries

Impaired on-balance sheet exposures by industry sector

Under the IRB approach: expected losses (EL) on a one-year horizon by exposure class (excluding defaulted exposures)

Exposures to central counterparties

Aggregate amounts of securitised exposures by exposure class

Amounts past due or impaired within the exposures securitised by exposure type

Assets awaiting securitisation

Aggregate amounts of securised exposures retained or purchased in the banking book

I 12

Page in the Registration Document

Aggregate amounts of securised exposures retained or purchased in the trading book

Aggregate amounts of securised exposures by region

Quality of securitisation positions retained or purchased

Aggregate amounts of securitised exposures retained or purchased in the banking book by approach and by weighting band

Aggregate amounts of securitised exposures retained or purchased in the trading book by risk weight band

100

Regulatory capital requirements for securitisations held or acquired in the trading book

100

Securitisation exposures deducted from capital by exposure category

101

Capital requirements by risk factor (market risk)

109

181

Capital requirements by type of market risk

110

181

Internal model values for trading portfolios

110

61 62

Operational risk capital requirements

119

187

Measurement of the entities’ sensitivity to a 1% interest rate shift, indicated by maturity

123

190

Interest rate gaps by maturity at 31st December 2015

123

190

Sensitivity of the group’s interest margin

123

190

SOCIETE GENERALE GROUP I 2016 - pillar 3 report I 155

12 I

I Risk Repo rt I appendix

12.4. Glossary of main technical terms

||ACRONYM TABLE Acronym

Definition

Glossary

ABS

Asset-backed-securities

See: Securitisation

CDS

Credit Default Swap

See: Securitisation See: Securitisation

CDO

Collaterallised Debt Obligation

CLO

Collateralised Loan Obligation

See: Securitisation

CMBS

Commercial Mortgage Backed Securities

See: Securitisation

CRD

Capital Requirement Directive

CRD

CVaR

Credit Value at Risk

Credit Value at Risk (CVaR)

EAD

Exposure at default

Exposure at default (EAD)

Expected Loss

Expected Loss (EL)

GSIB

Global Systemically Important Banks (see: SIFI)

SIFI

LCR

Liquidity Coverage Ratio

Liquidity Coverage Ratio (LCR)

LGD

Loss Given Defalut

Loss Given Defalut (LGD)

NSFR

Net Stable Funding Ratio

Net Stable Funding Ratio (NSFR)

Probability of default

Probability of default (PD)

RMBS

Residential Mortgage backed securities

RMBS

RWA

Risk Weighted Assets

Risk Weighted Assets (RWA)

SVaR

Stressed Value at Risk

Stressed Value at Risk (SVaR)

VaR

Value at Risk

Value at Risk (VaR)

Asset Backed Securities (ABS): see securitisation. Basel 1 (Accords): prudential framework established in 1988 by the Basel Committee to ensure solvency and stability in the international banking system by setting an international minimum and standardised limit on banks’ capital bases. It notably establishes a minimum capital ratio—a proportion of the total risks taken on by banks—which must be greater than 8%. (Source: Bank of France Glossary - Documents et Débats - No. 4 - May 2012). Basel 2 (Accords): prudential framework used to better assess and limit banks’ risks. It is focused on banks’ credit, market and operational risks. (Source: Bank of France Glossary - Documents et Débats - No. 4 - May 2012). Basel 3 (Accords): further changes to prudential standards which included lessons from the 2007-2008 financial crisis. They supplement the Basel 2 accords by improving the quality and quantity of banks’ required capital. They also implement minimum requirements in terms of liquidity risk management (quantitative ratios), define measures to limit the financial system’s procyclicality (capital buffers that vary according to the economic cycle) and even strengthen requirements related to systemically significant banks. (Source: Bank of France Glossary - Documents et Débats - No. 4 - May 2012). The Basel 3 accords are defined in Europe in Directive 2013/36/EU (“CRD4”) and Regulation 575/2013 (“CRR”) that have been in force since 1st January 2014. 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).

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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 allocated 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: 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). 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

appendix I R i s k R ep ort I

the highest risk obtained after eliminating the 0.1% most unfavourable incidents. Core Tier 1 ratio: ratio between Core Tier 1 capital and risk-weighted assets, according to Basel 2 rules and their changes known as Basel 2.5. 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. 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 outstandings 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. Credit and counterparty risk: risk of losses arising from the inability of the Group’s customers, issuers or other counterparties to meet their financial commitments. Credit risk also includes the counterparty risk linked to market transactions, as well as that stemming from securitisation activities. 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).

I 12

Exposure at default (EAD): Group exposure to default by 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 outstandings: ratio between doubtful outstandings and gross book loan outstandings (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): capital cost incurred due to rating migration risk and risk of issuers’ default within a one-year horizon for trading book debt instruments (bonds and CDS). The IRC is a 99.9% risk factor, meaning the highest risk obtained after eliminating the 0.1% most unfavourable incidents. Insurance risk: beyond asset/liability risk management (interest-rate, valuation, counterparty and currency risk), these include underwriting risk, mortality risk and structural risk of life and non-life insurance activities, including pandemics, accidents and catastrophic events (such as earthquakes, hurricanes, industrial disasters, or acts of terrorism or war).

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.

Internal Capital Adequacy Assessment Process (ICAAP): process outlined in Pillar 2 of the Basel Accord, by which the Group verifies its capital adequacy with regard to all risks incurred.

CRD3: European Directive on capital requirements, incorporating the provisions known as Basel 2 and 2.5, notably in respect of market risk: improvement in the incorporation of the risk of default or rating migration for assets in the trading book (tranched and untranched assets), and reduction in the procyclicality of Value at Risk (see definition).

Investment grade: long-term rating provided by an external ratings agency, ranging from AAA/Aaa to BBB-/Baa3 for a counterparty or underlying issue. A rating of BB+/Ba1 or lower indicates a NonInvestment Grade instrument.

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, agricultural commodities, etc.). Depending on the circ*mstances, this change may be accompanied by a leverage effect. Derivatives can take the form of securities (warrants, certificates, structured EMTNs, etc.) or in the form of contracts (forwards, options, swaps, etc.). Doubtful loan coverage rate: ratio between portfolio provision and depreciation and doubtful outstandings (customer loans and receivables, loans and receivables with credit institutions, finance leases and basic leases). 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.

Leverage ratio: The leverage ratio intends to be a simple ratio that aims to limit the size of banks’ balance sheets. The leverage ratio compares the Tier One prudential capital with the accounting balance sheet/off-balance sheet, after restatements of certain items. A new definition of the leverage ratio has been implemented in accordance with the application of the CRR regulation. Liquidity: for a bank, the capacity to cover its short-term maturities. For an asset, this term indicates the potential to purchase or sell it quickly on the market, with a limited discount. (Source: Bank of France Glossary - Documents et Débats - No. 4 - May 2012). Liquidity Coverage Ratio (LCR): this ratio is intended to promote short-term resilience of a bank’s liquidity risk profile. The LCR requires banks to hold risk-free assets that may be easily liquidated on markets in order to meet required payments for outflows net of inflows during a thirty-day crisis period without central bank support (source: December 2010 Basel document). Loss Given Default (LGD): ratio between the loss incurred from exposure to default by a counterparty and the amount of the exposure at the time of default.

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12 I

I Risk Repo rt I appendix

Market risk: risk of impairment of financial instruments arising from changing market parameters, as well as their volatility and the correlations between them. In particular, these parameters are foreign exchange rates, interest rates, as well as the prices of securities (equities and bonds), commodities, derivatives and all other assets, such as real estate assets. Market stress tests: to assess market risks, alongside the internal VaR and SVaR model, the Group monitors its exposure using market stress test simulations to take into account exceptional market occurrences, based on 26 historical scenarii and eight hypothetical scenarios. Mezzanine: form of financing between equity and debt. In terms of ranking, mezzanine debt is subordinate to senior debt, but it is still above equity. Monoline insurer: insurance company participating in a credit enhancement transaction and which guarantees bond issues (for example, a securitisation transaction), in order to improve the issue’s credit rating. Net earnings per share: net earnings of the company (adjusted for hybrid securities recorded under equity instruments) divided by the weighted average number of shares outstanding. Net Stable Funding Ratio (NSFR): this ratio aims to promote resilience over a longer time horizon by creating additional incentives for banks to fund their activities with more stable sources of funding. This structural ratio has a time horizon of one year and has been developed to provide a sustainable maturity structure of assets and liabilities (source: December 2010 Basel document). Netting agreement: a contract in which two parties to a forward financial instrument, securities lending or resale contract agree to offset reciprocal claims arising from these contracts, with the settlement of these claims based only on the net balance, especially in the event of default or termination. A master netting agreement enables this mechanism to be extended to different kinds of transactions, subject to various framework agreements under a master agreement. Operational risks (including accounting and environmental risks): risk of losses or sanctions, notably due to failures in procedures and internal systems, human error or external events, etc. Own shares: shares held by the company, especially as part of the Share Buyback programme. Own shares are excluded from voting rights and are not included in the calculation of earnings per share, with the exception of shares held as part of a liquidity contract. Personal commitment: represented by a deposit, autonomous guarantee or letter of intent. Whoever makes themselves guarantor for an obligation binds themselves to the creditor to honour that obligation, if the debtor does not honour it themselves. An independent guarantee is an undertaking by which the guarantor binds themself, in consideration of a debt subscribed by a third party, to pay a sum either on first demand or subject to terms agreed upon. A letter of intent is an undertaking to do or not to do, the purpose of which is the support provided to a debtor in honouring their obligation Physical collateral : guarantees consisting of assets including tangible and intangible property and securities, including commodities, precious metals, cash, financial instruments and insurance contracts. Prime Brokerage: all specific services designed for hedge funds to allow them to better conduct their business. In addition to standard intermediation transactions on financial markets (purchase and sale on behalf of clients), prime brokers offer securities borrowing and lending services and financial services specifically tailored for hedge funds.

158 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

Probability of Default (PD): likelihood that a counterparty of the bank will default within one year. Rating: assessment by a ratings agency (Moody’s, Fitch Ratings, Standard & Poor’s, etc.) of an issuer’s financial solvency risk (company, government or other public institution) or of a given transaction (bond loan, securitisation, covered bond). The rating has a direct impact on the cost of raising capital. (Source: Bank of France Glossary Documents et Débats - No. 4 - May 2012). Resecuritisation: securitisation of an already securitised exposure where the risk associated with underlyings is divided into tranches and, therefore, at least one of the underlying exposures is a securitised exposure. Residential mortgage securitisation.

backed

securities

(RMBS):

see

Return On Equity (ROE): ratio between the net income restated for interest on hybrid securities recorded under equity instruments and restated book equity (especially hybrid securities), which enables return on capital to be measured. Risk appetite: level of risk by type and by business line, which the Group is prepared to take on with regard to its strategic objectives. Risk appetite is derived using both quantitative and qualitative criteria. Exercising risk appetite is one of the strategic steering tools available to the Group’s decision-making bodies. Risk weight: percentage of weighting of exposures which are applied to a particular exposure in order to determine the related riskweighted asset. RWA – Risk-Weighted Assets: risk-weighted outstanding balances or risk-weighted assets; exposure multiplied by its risk weighting. Securitisation: transaction that transfers a credit risk (loan outstandings) to an organisation that issues, for this purpose, tradable securities to which investors subscribe. This transaction may involve a transfer of outstandings (physical securitisation) or a transfer of risk only (credit derivatives). Securitisation transactions may, if applicable, enable securities subordination (tranches). The following products are considered securitisations: ABS: Asset Backed Securities CDO: Collateralised Debt Obligation, a debt security backed by an asset portfolio (bank loans (residential) or corporate bonds). Interest and principal payment may be subordinated (tranche creation); CLO: Collateralised Loan Obligation, a CDO backed by an asset portfolio of bank loans; CMBS: Commercial Mortgage Backed Securities, a debt security backed by an asset portfolio of corporate real estate loans leading to a mortgage; Share: equity stake issued by a company in the form of shares, representing a share of ownership and granting its holder (shareholder) the right to a proportional share in any distribution of profits or net assets as well as a right to vote in a General Meeting of Shareholders. RMBS: Residential Mortgage Backed Securities, a debt security backed by an asset portfolio of residential mortgage loans.

appendix I R i s k R ep ort I

SIFI (Systemically Important Financial Institution): the Financial Stability Board (FSB) coordinates all of the measures to reduce moral hazard and risks to the global financial system posed by systematically important institutions Globally Systemically Important Financial Institutions (G-SIFI). These banks meet criteria defined in the Basel Committee rules included in the document titled “Global systemically important banks: Assessment methodology and the additional loss absorbency requirement” and published as a list in November 2011. This list is updated by the FSB each November (29 banks to date). Stressed Value at Risk (SVaR): Identical to the VaR approach, the calculation method consists of a “historical simulation” with “oneday” shocks and a 99% confidence interval. Unlike the VaR, which uses 260 scenarios of daily variation year-on-year, the stressed VaR uses a fixed one-year window that corresponds to a historical period of significant financial tensions. Structural interest rate and currency risk: risk of loss or of writedowns in the Group’s assets arising from variations in interest or exchange rates. Structural interest rate and exchange rate risks are incurred in commercial activities and proprietary transactions. Structured issue or structured product: a financial instrument combining a bond product and an instrument (an option for example) providing exposure to all types of asset (equities, currencies, interest rates, commodities). Instruments can include a total or partial guarantee in respect of the invested capital. The term “structured product” or “structured issue” also refers to securities resulting from securitisation transactions, where holders are subject to a ranking hierarchy.

I 12

Tier 1 ratio: ratio between Tier 1 capital and risk-weighted assets. Tier 2 capital: supplementary capital consisting mainly of subordinated notes less prudential deductions. Total capital ratio: ratio between total (Tier 1 and Tier 2) capital and risk-weighted assets. Transformation risk: appears as soon as assets are financed through resources with a different maturity. Due to their traditional activity of transforming resources with a short maturity into longer-term maturities, banks are naturally faced with transformation risk which itself leads to liquidity and interest-rate risk. Transformation occurs when assets have a longer maturity than liabilities; anti-transformation occurs when assets are financed through longer-maturity resources. Treasury shares: shares held by a company in its own equity through one or several intermediary companies in which it holds a controlling share either directly or indirectly. Treasury shares are excluded from voting rights and are not included in the calculation of earnings per share. Value at Risk (VaR): composite indicator used to monitor the Group’s daily market risk exposure, notably for its trading activities (99% VaR in accordance with the internal regulatory model). It corresponds to the greatest risk calculated after eliminating the top 1% of most unfavourable occurrences observed over a one-year period. Within the framework described above, it corresponds to the average of the second and third largest losses computed.

Tier 1 capital: comprises Common Equity Tier 1 capital and Additional Tier 1 capital. The latter corresponds to perpetual debt instruments, with no incentive to redeem, less prudential deductions.

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I Risk Repo rt I appendix

160 I 2016 - pillar 3 report I SOCIETE GENERALE GROUP

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