Governance

Risk management, a key point in a context of high global volatility

After a year of increasing uncertainty in 2022 – due in particular to geopolitics, inflation and the end of accommodating monetary policies – 2023 finally saw a soft landing for the economy, with falling inflation, a halt to monetary tightening and a certain resilience in growth in the West. This came despite the effects on sectors that are highly sensitive to interest rate hikes and major disparities between the two sides of the Atlantic. However, this context of global volatility persists in 2024.

The geopolitical context remains a major factor of uncertainty for 2024, due in particular to the strategic challenge posed by the war in Ukraine and the conflict in the Middle East, with its risks of expansion and potentially severe consequences, notably on world trade, supply chains and ultimately on prices.

Political issues also include the risks associated with a number of major elections during the year (Taiwan, Russia, India, Europe, the United States etc.), generating a climate of instability that will influence the strategies of all players (governments, corporates, markets).

Faced with the potentially significant effects of these events, the meticulous management of the Group’s risks (credit, financial and operational, particularly those linked to the environment) and the quality of its assets are a major advantage for its continuing role in financing the economy and supporting transitions.

See also “Working in a changing world”

“In a still very uncertain environment, the Risk department helps maintain control of the Crédit Agricole Group’s development in financing the economy by coordinating a prudent and consistent risk management policy across all its entities.ˮ

An integrated business line to manage the Group’s risks
The Risk department is constantly striving to strengthen its risk management system in a global context that remains uncertain, and to meet the growing expectations of supervisors and the public, including in the area of climate and environmental risk management. To achieve this, it relies on an integrated business line with more than 3,300 employees as at the end of 2023, all with a high level of experience and expertise in the Group’s various risks and activities.

  • Breakdown of gross outstanding loans to Crédit Agricole Group customers

    Crédit Agricole Group: €1,177bn1

    • Home loans: 46%
    • Corporates: 32%
    • Consumer finance: 9%
    • Professionals: 5%
    • Agriculture: 4%
    • Leasing: 3%
    • Private banking: 1%
    1Gross outstanding loans to customers excluding credit institutions as at 31 December 2023

  • Breakdown of the Crédit Agricole Group’s risk-weighted assets (RWA) at 31 December 2023

    • Credit risk: 88%
    • Operational risk: 10%
    • Market risk: 2%

    Detailed information on risks is available in Chapter 5 of the Universal Registration Document (for Crédit Agricole S.A.) and in Chapter 3 of its update A01 (Crédit Agricole Group). In particular:

    • Breakdown of risk-weighted assets (RWA) by type of risk;
    • Breakdown of credit risk exposure by geographic area and counterparty type;
    • Loan loss reserves for credit risk, including on performing loans;
    • VaR (Value at Risk) figures;
    • Amount of provisions for litigation;
    • Insurance sector risks.

    High coverage* ratios boosting the Group’s financial strength

    Crédit Agricole S.A. 70.8% +0.1 pp Q4-23/Q3-23
    Regional Banks 96.5% -1.1 pp Q4-23/Q3-23
    Crédit Agricole Group 82.6% -0.1 pp Q4-23/Q3-23

    * Provisions for performing loans and proven risks/loans and receivables due from customers in default

    Well-managed NPL ratio reflecting the quality of our assets and of our customers

    Crédit Agricole S.A. 2.6% -0.1 pp Q4-23/Q3-23
    Regional Banks 1.8% +0.1 pp Q4-23/Q3-23
    Crédit Agricole Group 2.1% -0.1 pp Q4-23/Q3-23

    A robust internal control system

    3 lines of defence

    • 1st line of defence: Operational business lines
    • 2nd line of defence: Risk Management and Compliance business lines
    • 3rd line of defence: Audit business lines

    A risk identification process/Specific committees

  • Every year, the major risks system is updated

    While the level of measured risk has gradually returned to normal following the low levels observed in the aftermath of the health crisis, the geopolitical context, persistently high inflation and the spread of the effects of more restrictive monetary policies are creating a climate of uncertainty:

    • The global geopolitical context (military conflicts in Ukraine and the Middle East, US/China rivalries, and so on) has increased the risks for all economic players in the short term.
    • As costs and interest rates rise, particularly energy and salary costs, the ability of some corporates and businesses to meet their high levels of debt could be called into question.
    • Persistently high (albeit slightly falling) inflation and the continuation of restrictive monetary policies pose the risk of a market correction and of long-term interest rates remaining high, which could weaken sovereign debt.

    Sectors such as commercial and office real estate, construction and public works, those involved in global supply chains (automotive, maritime transport), and retail trade impacted by changing consumer habits are particularly exposed to these risks.

    In addition, in 2023 the Crédit Agricole Group continued the sharp reduction in its exposure to Russia that began in 2022 following the outbreak of the conflict and the implementation of international sanctions (reduction of commitments by 75% in addition to the cessation of commercial activity).

    Major risks include strategic risks…

    Risks related to losses, revenue or income decreases due to decisions related to our strategic choices and/or competitive positioning, as well as the macroeconomic, political, regulatory and technological environment.

    … and climate and environmental risks

    Environmental risks result from the Group’s exposure to counterparties that may be adversely impacted by these factors; they are assessed as risk factors that influence other existing risk categories, including credit, market, operational, legal and reputational risks.
    Environmental risks include transition risks, related to the development of a low carbon and more sustainable economy, physical risks, whether intense or chronic and other risks, notably environmental damage, the depletion of natural resources or the loss of biodiversity.

    The Group has also implemented an ambitious climate strategy based on three complementary pillars:

    • carry out mass financing and investments in renewable energy, low-carbon infrastructure, clean technologies and energy efficiency projects;
    • support all customers in their transitions;
    • stop funding new fossil fuel extraction projects and adopt a selective approach to supporting energy companies involved in this transition.

    The Crédit Agricole Group has defined its economy-decarbonising ambitions based on science, in particular the International Energy Agency’s Sustainable Development Scenario (SDS). They are part of its commitment to the Net Zero Banking Alliance and cover ten business sectors accounting for around 60% of the Crédit Agricole Group’s exposure and more than 75% of financed greenhouse gas emissions.

    See also “Societal Commitment in action”

The Control and Audit department, the third line of defence for the internal control system

“In all the business lines and countries where Crédit Agricole operates, the Control and Audit department verifies that regulations are correctly applied, analyses the security of systems and operations, and assesses the Group’s risk management policies. From the inside, the Control and Audit department applies an external and independent perspective to verify that actions are in line with the Group’s strategic guidelines and to assess the security and effectiveness of operational systems. Where necessary, it calls for corrective action to reduce the areas of risk identified.
In 2023, the Crédit Agricole Group continued its development to serving its customers and society through new activities and geographical areas that strengthen its universal banking model. This is why the Control and Audit department has expanded its oversight, auditing newly acquired entities, for example, as well as activities linked to the economy of use, which are experiencing strong growth.
As a key player in securing the Crédit Agricole Group’s activities, thanks to the quality of its continuously trained teams, the Control and Audit department is constantly strengthening its capacity to audit the Group’s major strategic challenges. This includes mitigating the impact of global warming on activities, supporting the transition to a low-carbon economy, delivering services that respect the interests of each customer; strengthening the protection of personal data and preserving its sovereignty.”

Laurence Renoult
Crédit Agricole S.A. Head of Internal Audit