Morningstar DBRS Confirms Société Générale's Issuer Ratings at A (high) With a Stable Trend, Discontinues Credit Ratings on Branches and Subsidiaries

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on Société Générale, S.A. (SocGen or the Group), including the Long-Term Issuer Rating of A (high) and the Short-Term Issuer Rating of R-1 (middle). At the same time, Morningstar DBRS discontinued its credit ratings on some branches and subsidiaries for business reasons. The trend on all credit ratings is Stable. Morningstar DBRS also maintained the Group's Intrinsic Assessment at A (high) and the Support Assessment at SA3. A full list of credit rating actions is included at the end of this press release.

KEY CREDIT RATING CONSIDERATIONS
Morningstar DBRS' confirmation of SocGen's credit ratings reflects the Group's well-established and diversified franchise as one of Europe's largest banking groups. The credit ratings also consider that SocGen's profitability is lower and less consistent compared with similarly rated peers. French retail banking in particular has underperformed in recent years because of the significant negative impact from a short-term macro hedge, the increase in deposit costs, and the reorganisation of French retail network. The Group's profits were also adversely affected by the integration of LeasePlan Corporation N.V. This comes after material cost-related risk reduction in the corporate and investment bank and the Group's exit from Russia in 2022. The outlook for 2025 is more positive as the hedge has expired, deposit costs are declining, and cost synergies are starting to materialise. However, there is significant downside related to the macroeconomic environment, especially U.S. trade policies. The credit ratings are underpinned by robust funding and liquidity metrics as well as SocGen's solid capital base, with adequate buffers over regulatory requirements. The credit ratings also reflect SocGen's overall sound asset quality metrics, supported by the Group's well diversified risk profile. While asset quality has not shown signs of deterioration so far, trade tensions could lead to a rise in defaults.

CREDIT RATING DRIVERS
A credit rating upgrade would require a significant and sustained improvement in core profitability metrics while maintaining solid capital ratios and a prudent risk profile.

Morningstar DBRS would downgrade the credit ratings in the case of a sustained decline in the Group's profitability or a significant deterioration in its capital ratios. A pronounced reduction on liquidity or outsized risks would also lead to a downgrade.

CREDIT RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: Very Strong/Strong
SocGen's credit ratings are underpinned by its well-established franchise as one of the largest banking groups in Europe with a strong market position in its home market of France. Reflecting a broad business mix and a significant international presence, albeit reducing, the Group serves its customers through three business divisions: French Retail, Private Banking and Insurance (FRPBI); Mobility, International Retail, & Financial Services (MIBS); and Global Banking and Investor Solutions (GBIS). The Group has undertaken steps to optimise its French retail banking franchise through the merger of its French retail networks, Société Générale France and Crédit du Nord, and has significantly grown its digital retail bank, BoursoBank. In MIBS, the Bank has divested subscale businesses, including foreign subsidiaries in noncore countries and most of its equipment finance operations. GBIS has focused on reducing risk-weighted assets (RWAs) through a rebalancing of its business mix, a lower risk appetite, and operating cost optimisation. The Bank also recently entered into partnerships with AllianceBernstein Holding L.P. to accelerate growth in cash equities and with Brookfield Asset Management Ltd. to create a EUR 10 billion private debt fund. Following the Russian invasion of Ukraine, SocGen disposed of all its Russian operations in 2022.

Earnings Combined Building Block (BB) Assessment: Moderate
SocGen's profitability metrics compare unfavourably to peers but are improving. The Bank reported a EUR 4.2 billion net income in 2024 compared with EUR 2.5 billion in 2023 as revenues increased by 6.7% year over year, while cost of risk increased by EUR 505 million and operating expenses were almost unchanged. Revenue growth was driven by strong fee revenues, notably in GBIS, but also by a lessening impact from a macro hedge that had an adverse effect on revenues and expired in June 2024. The return on tangible equity was 6.9% in 2024, above the Bank's minimum target of 6.0%, while the cost-income ratio was 69% (as calculated by SocGen), below the target of 71%. Going forward, revenue growth will be somewhat muted, as the full-year impact of the expired macro hedge and lower deposit costs will be partly offset by the loss off revenues from divestments. On the fee income side, Morningstar DBRS expects a mixed impact from the geopolitical turmoil, with some segments such as trading revenues benefiting from volatility, whereas tariffs, lower market valuations, and higher uncertainty are likely to suppress revenues in areas such as trade finance, debt and equity origination, or insurance revenues. The Group expects a small cost reduction in 2025 as business divestments, cost cutting and lower transformations costs will more than offset inflationary effects and business investments. The Group expects the cost of risk to remain broadly stable in the range of 25-30 basis points. However, given the potential repercussions from U.S. trade policies, there could be risk to the downside.

Risk Combined Building Block (BB) Assessment: Good
Morningstar DBRS views SocGen's risk profile as generally conservative, benefiting from strong diversification and with credit risk representing 76% of the Group's RWAs at YE2024. The Group is also exposed to market risk, mainly related to the capital markets activity under GBIS and operational risk stemming from the Group's diverse and complex operations. These risks have made SocGen vulnerable to earnings volatility in recent years. SocGen's asset quality profile has thus far been resilient against the uncertain economic backdrop, affected by the conflict in Ukraine, inflation, and higher rates. Given the geopolitical turmoil in 2025, as well as U.S. tariffs, Morningstar DBRS expects that SocGen's asset quality could deteriorate. However, Morningstar DBRS views SocGen's sound origination standards, relatively low nonperforming loan (NPL) base, and earnings generation capacity to be key mitigating factors, providing the Group with some flexibility to absorb potential deterioration in asset quality. At YE2024, the share of NPLs to gross loans outstandings, including exposures to financial institutions, was 2.8% as calculated by SocGen, slightly better than at YE2023. The Group's overall coverage (excluding collateral) ratio stood at 43% at YE2024 compared with 46% at YE2023.

Funding and Liquidity Combined Building Block (BB) Assessment: Strong
SocGen has a solid funding position, supported by well-established deposit franchises in SocGen's markets and good access to capital markets. The Group has a large customer base, which is its main source of funding, with consolidated customer deposits of EUR 532 billion at YE2024. The Group's loan-to-deposit ratio as calculated by Morningstar DBRS was 85.5%, improved from 89.6% at YE2023. Typical of universal banks with extensive capital markets businesses, SocGen's deposit base is accompanied by sizeable short-term wholesale funding, which at YE2024 stood at around EUR 61 billion, or 6.4% of total liabilities. The liquidity coverage ratio was a comfortable 156% at YE2024 and the net stable funding ratio was 117%.

Capitalisation Combined Building Block (BB) Assessment: Strong/Good
Morningstar DBRS views SocGen's capital as solid, with overall sound underlying earnings generation capacity and solid access to capital markets The Group's capital has remained fairly stable in recent years with a CET1 ratio of 13.3% and a total capital ratio of 18.9% at YE2024. This provides the Group with an adequate cushion of around 310 basis points over the Maximum Distributable Amount The leverage ratio was 4.34% at YE2024 compared with 4.25% at YE2023. SocGen has been actively building up its loss absorption capacity. At YE2024, the buffer of Senior Non-Preferred debt was equivalent to 10.8% of RWAs and the Group's Total Loss Absorbing Capital ratio was 29.7% (excluding Senior Preferred Debt), well above the 2024 requirements of 22.3%. The minimum requirement for own funds ratio of 34.2 % was also in excess of the 2024 requirements of 27.6% of RWAs.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/451948.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781

Notes:
All figures are in euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (4 June 2024) https://dbrs.morningstar.com/research/433881. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

The following methodology has also been applied:
Morningstar DBRS Global Corporate Criteria (3 February 2025)
https://dbrs.morningstar.com/research/447186

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The sources of information used for these credit ratings include Morningstar Inc. and company documents. Other sources include SocGen Q4 2024 Presentation, SocGen Q4 2024 Excel File, SocGen Q4 2024 Press Release, and SocGen 2025 Universal Registration Document. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, these are unsolicited credit ratings. These credit ratings were not initiated at the request of the issuer.

With Rated Entity or Related Third-Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: NO

Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS's trends and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://www.dbrsmorningstar.com/research/451947.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Sonja Forster, Senior Vice President
Rating Committee Chair: Vitaline Yeterian, Senior Vice President, Sector Lead
Initial Rating Date: 30 May 2013
Last Rating Date: 22 April 2024

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