Société Générale / Risk report 2021 - Pillar 3 2020

6 CREDIT RISK CREDIT RISK MONITORING AND SURVEILLANCE SYSTEM | SOCIETE GENERALE GROUP | PILLAR 3 - 2021 77 The procedure for placing a country on a watch list is triggered when there is a deterioration in country risk, or such a deterioration can be anticipated. During 2020, several countries were put under alert list due to difficulties encountered. Sector monitoring The Group regularly reviews its entire credit portfolio through analyses by business sector. To do this, it relies on industrial studies (including a one-year anticipation of sectoral risk) and on sectoral concentration analyses. In addition, the Group periodically reviews its exposures to the portfolio segments presenting a specific risk profile, within the framework of CORISQs at Group or Business Unit level. These identified sectors or sub-portfolios are, where appropriate, subject to specific supervision through portfolio limits and specific granting criteria. The limits are monitored either at the General Management level or at the level of the Business Unit Management depending on the materiality and the level of risk of the portfolios. As a complement, more targeted sector-based research and business portfolio analyses, may be conducted by General Management, the Risk Division or bank divisions, depending on current issues. Portfolios specifically monitored by the Group CORISQ are among others: individual and professional credit portfolio (retail) in metropolitan p France on the first hand and in International Retail Banking in Europe on the other hand. Other retail perimeters are covered by the Business Unit CORISQ. The Group defines in particular a risk appetite target concerning the minimum share covered by Credit Logement guarantee for real estate loans granted to individuals; oil and gas scope, on which the Group has defined a credit policy p adapted to the different types of activity of sector players. This policy distinguishes financing guaranteed by oil reserves, project financing, short-term trade finance transactions, and takes into regional characteristics; commercial real estate scope, on which the Group has defined a p framework for origination and monitoring of exposures and limits according to the different types of financing, geographical areas and/or activities; leveraged finance, on which the Group applies the ECB definition of p perimeter and management approach (“Guidance on Leveraged Transactions”). The Group continues to pay a particular attention to the Leveraged Buy-Out (LBO) sub-portfolio; exposures on hedge funds is subject to a specific attention. The p Group incurs risk on hedge funds through derivative transactions and its financing activity guaranteed by shares in funds. Risks related to hedge funds are governed by individual limits and global limits on market risks and wrong way risks; exposures on shadow banking are managed and monitored in p accordance with the EBA guidelines published in 2015 which specifies expectations regarding the internal framework for identifying, controlling and managing identified risks. CORISQ has set a global exposure threshold for shadow banking. Credit stress tests With the aim of identifying, monitoring and managing credit risk, the Risk Division works with the businesses 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 ad hoc stress tests, designed to recognise emerging risks. Some of these stress tests are presented to the Risk Committee and used to determine how to frame the corresponding the activities concerned. Credit risk stress tests complement the global analysis with a more granular approach and allow fine-tuning of the identification, assessment and operational management of risk, including concentration. They project expected credit losses both on defaulted exposures and on non-defaulted exposures consistently with IFRS 9 methodology. The perimeter covered may include counterparty credit risk on market activities when relevant.