Société Générale / Risk report 2021 - Pillar 3 2020

6 CREDIT RISK RISK MEASUREMENT AND INTERNAL RATINGS | SOCIETE GENERALE GROUP | PILLAR 3 - 2021 87 TABLE 32: COMPARISON OF RISK PARAMETERS: ESTIMATED AND ACTUAL LGD VALUES – WHOLESALE CLIENTS Basel portfolio 31.12.2020 A-IRB LGD (1) Estimated losses excluding margin of prudence Large corporates 38% (2) 33% Small- and medium-sized enterprises 39% 25% Senior unsecured LGD. (1) Adjustment of the LGD Large Corporate unsecured following the TRIM Large Corporate. (2) The method for calculating the “Observed EAD/A-IRB EAD” ratio is being revised. Basel portfolio 31.12.2019 A-IRB LGD (1) Estimated losses excluding margin of prudence Large corporates 34% 33% Small- and medium-sized enterprises 39% 27% Senior unsecured LGD. (1) Credit risk measurements of retail clients The Group has implemented the following system for the retail portfolio made up of individual customers, SCIs (real estate investment companies – Sociétés civiles immobilières ) and professional customers: RATING SYSTEM AND ASSOCIATED PROBABILITY OF DEFAULT 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 exposures using the AIRB method. The models incorporate data on the payment behaviour of counterparties. They are segmented by type of customer and distinguish between retail customers, professional customers, very small businesses and real estate investment companies ( Sociétés civiles immobilières ). The counterparties of each segment are classified automatically, using statistical models, into homogeneous risk pools, each of which is assigned a probability of default. 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 customers are specifically applied by business line portfolio and 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 using internal long-term historical recovery data for exposures that have defaulted. These estimates are adjusted by 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 accounts held by retail and professional customers.