Groupe Renault - 2020 Universal Registration Document

112 GROUPE RENAULT I UNIVERSAL REGISTRATION DOCUMENT 2020 Find out more at group.renault.com 01 INTERNAL CONTROL AND RISK MANAGEMENT GROUPE RENAULT Risk management The implementation and monitoring of the Automotive segment foreign exchange risk management policy (excluding AVTOVAZ) are ensured by the Financing and Treasury department. Any exceptional hedging of foreign exchange risk in the operating margin and working capital requirement must be subject to prior analysis by the Finance and Treasury department and then formally authorized by the Finance department or Senior Management, and the results are then reported monthly to the Chief Financial Officer. Whenever possible, foreign exchange transactions are carried out by the Group’s trading room (Renault Finance) for currencies traded on international markets. In 2020, in order to limit the exposure of its operating margin and working capital to foreign exchange risk, the Automotive segment (excluding AVTOVAZ) set up currency hedges on the pound sterling, the Argentinian peso and the Turkish lira. In addition, to avoid any distortion of the financial result linked to foreign exchange fluctuations, the exchange rate risk linked to financing and cash management flows in foreign currencies is systematically minimized. Cash surpluses recorded in countries that are not part of the parent company’s centralized cash management are generally invested in local currency, under the supervision of the Financing and Treasury department. Financing transactions are carried out in the accounting currency of each entity, or when carried out in foreign currencies, are hedged in the same currency under the supervision of the Financing and Treasury department. Residual exposures (including those resulting from Renault Finance operations) are subject to derogations and are reported monthly to the Chief Financial Officer. Equity investments in currencies other than the euro are not usually hedged. This may lead to translation adjustments, which the Group recognizes in shareholders’ equity. However, given the size of the investment in Nissan, Renault’s share in Nissan’s net worth has been partially covered by a specific foreign exchange hedge (see note 12-G to the consolidated financial statements). To limit liquidity risks in yen, the Group has set itself the rule of not hedging the net investment above an amount equal to its best estimate of the next three years’ dividends in yen to be received from Nissan. AVTOVAZ manages exchange rate risk in a very similar way to the Automotive segment excluding AVTOVAZ. The process is overseen by AVTOVAZ's Finance department. It identifies, assesses and manages the exchange risk by analyzing the net position in each currency. No exchange rate risk hedging operations were carried out in 2020. AVTOVAZ's surplus cash and bank financings at December 31, 2020 were almost entirely denominated in Russian rubles. RCI Banque 's sales financing subsidiaries are required to refinance in their local currencies and therefore have no foreign exchange exposure. No foreign currency exposure is allowed in respect of RCI Banque refinancing, the trading room being used to ensure that all flows are hedged. RCI Banque’s residual exposure for other assets and liabilities ( e.g. accrued interest not yet due on foreign currency borrowings) is kept at a marginal level. Equity and annual earnings for RCI Banque subsidiaries outside the euro zone are themselves subject to foreign exchange movements and are not specifically hedged. At December 31, 2020, the RCI Banque group’s consolidated foreign exchange position amounted to €5.8 million. For further details on the management of foreign exchange risk, see note 25-B2 to the consolidated financial statements. Customer and network credit risk - medium risk The Group’s sales financing activity is exposed to customer and dealer network credit risk if its risk management techniques are insufficient to protect it from the default of its counterparties. Credit risk relates to the risk of losses due to the incapacity of RCI Banque customers to fulfill the terms of a contract signed with the company. Credit risk is closely linked to macroeconomic factors that include, among others, the unemployment rate, business failures, debt service charges, income growth, disposable household income, dealer profitability and used vehicle prices. It has a significant impact on its business. The level of credit risk of RCI Banque’s customers is affected by the overall macroeconomic situation, which may affect the ability of some of its customers to meet their repayments. The level of credit risk on the dealer networks is impacted, among other things, by their financial strength, the quality of their guarantees and overall vehicle demand. An increase in credit risk would increase the cost of risk and provisions for credit losses, and would have a direct impact on RCI Banque’s financial results and potentially its internal capital. The cost of risk on customer activity (individuals and company financing) rose in 2020. It is impacted by the lock-down policies negative consequences on several sectors of the economy, namely : an increase of the provision booked for corporate customers on an individual basis, an adjustment of the respective weight of the macro-economic scenarios resulting in an increase of the provision booked under the forward-looking IFRS 9, and the booking of collective provisions on debtors operating in sectors strongly impacted by the COVID-19 pandemic. Risk management RCI Banque uses advanced credit scoring systems and queries external databases to assess the quality of loans to individuals and businesses. The Group also uses an internal rating system to evaluate dealer loans. Although RCI Banque continually adjusts its lending policy to take market conditions into account, an increase in credit risk would increase its cost of risk and provisions for credit losses. RCI Banque implements detailed procedures to ensure the recovery of debts incurred or otherwise organizes the recovery of unpaid vehicles and the sale of repossessed vehicles. However, there can be no assurance that the lending policy, credit risk monitoring, collection activities, recording of accounts receivable or vehicle repossessions are or will be sufficient to prevent an adverse effect on its results and financial position. In 2020, in anticipation of the deterioration in economic conditions linked to the COVID-19 pandemic, RCI Banque adjusted its lending policy in line with the risk observed, and forecasts and stress in the main countries by market (individuals, companies). As a result, additional controls have been implemented, with specific granting policies for each business segment (corporate client or employer of a particular client), pricing has been increased, mainly in South American countries and regions, and default probability targets have been adjusted down. In addition, following the first period of lockdown, RCI Banque increased the number of employees dedicated to the recovery of non-performing and doubtful receivables, and additional staff were assigned in countries that have granted a significant number of deferred payments.