Société Générale / Risk report 2021 - Pillar 3 2020

2 RISK FACTORS RISK FACTORS | SOCIETE GENERALE GROUP | PILLAR 3 - 2021 13 RISK FACTORS 2.2 This section identifies the main risk factors that the Group estimates could have a significant effect on its business, profitability, solvency or access to financing. The risks inherent to the Group’s activity are presented below under six main categories, in accordance with Article 16 of the “Prospectus 3” Regulation 2017/1129 of 14 June 2017 applicable to risk factors since 21 July 2019: risks related to the macroeconomic, market and regulatory p environments; credit and counterparty credit risks; p market and structural risks; p operational risks (including risk of inappropriate conduct) and p model risks; liquidity and funding risks; p risks related to insurance activities. p Risk factors are presented on the basis of an evaluation of their materiality, with the most material risks indicated first within each category. The risk exposure or measurement figures included in the risk factors provide information on the Group’s exposure level but are not necessarily representative of future evolution. RISKS RELATED TO THE MACROECONOMIC, MARKET 2.2.1 AND REGULATORY ENVIRONMENTS 2.2.1.1 The coronavirus pandemic (Covid-19) and its economic consequences could adversely affect the Group’s business, operations and financial position. In December 2019, a new strain of coronavirus (Covid-19) emerged in China. The virus has since spread to numerous countries around the world and the World Health Organisation declared the outbreak of a pandemic in March 2020. The propagation of the virus and the health measures taken in response to it (border closures, lockdown measures, restrictions on certain economic activities, etc.) have and may continue to have a significant impact, both direct and indirect, on the global economic situation and financial markets. The persistence of the Covid-19 pandemic and the emergence of new variants have led to new restrictive measures on mobility (introduction of new lockdown measures and local or national curfews), notably in France, while the economic rebound seen in the summer of 2020 is losing momentum in several countries. An ever-active virus could lead to the extension or repetition of restrictive measures for several months, and thus adversely affect the Group’s business, financial position and results. The deployment of vaccination programmes is encouraging, but risks remain regarding the overall effectiveness of these programmes. Logistical difficulties, delays in vaccine production, or doubts over their effectiveness (notably with regard to new variants) could prolong uncertainties and negatively affect economic activity and financial markets. The sharp recession experienced by the affected countries and the reduced world trade will continue to have a negative impact on the global economic environment as long as global production, investments, supply chains and consumer demand are affected, thereby impacting the Group’s business and that of its customers and counterparties. The different restrictive measures also led to a decline in the Group’s commercial activity and results due to the reduced opening of its retail network and lower demand from its customers. New phases of lockdown measures or curfews in the countries where the Group operates may have an even greater impact on the Group’s financial results. In many jurisdictions in which the Group operates, national governments and central banks have taken or announced exceptional measures to support the economy and its actors (government-guaranteed loan facilities programmes, tax deferrals, facilitated recourse to part-time working, compensation, etc.) or to improve liquidity in financial markets (asset purchases, etc.). The agreement reached on 21 July 2020 by the European Commission to provide the European Union with a EUR 750 billion recovery mechanism and the announcement by the French President of a new EUR 100 billion national recovery plan should encourage a more demand-driven recovery. Although the initial support measures adequately addressed the immediate effects of the crisis, the measures that are currently being implemented may not be sufficient to support the recovery. As these plans unfold, the ECB’s ability to conduct its quantitative easing policy will remain crucial for ensuring financial stability in the eurozone. As part of the French government-guaranteed loan ( Prêts garantis par l’État ) programme for a maximum amount of EUR 300 billion, the Group has adapted its loan approval processes to handle the massive flow of applications. The Group has taken exceptional measures to financially support its customers and help them address the effects of the Covid-19 pandemic on their activities and income. The Group also supports its clients abroad within the framework of public or private moratoria or government-guaranteed loans. These measures require the Group to reallocate resources and to adapt its granting and management processes. In the event that these support measures for both businesses and individuals were to be further strengthened (extension of moratoria, additional financing, strengthening of equity capital, etc.), the Group’s business and results may continue to be affected. The restrictive measures taken in several of the main countries where the Group operates (with Western Europe representing 69% of the Group’s EAD (Exposure at Default) at 31 December 2020, of which 47% was in France) are significantly reducing economic activity and are leading many countries to face economic recessions. The risk of new lockdown periods (especially in the event of new pandemic waves) as well as a slow recovery of demand could increase the scale and duration of these recessions. This, combined with a high level of public and corporate indebtedness, could constitute a brake on the recovery and lead to significant adverse repercussions on the quality of the Group’s counterparties and the level of non-performing loans for both businesses and individuals.