Groupe Renault - 2020 Universal Registration Document

113 GROUPE RENAULT I UNIVERSAL REGISTRATION DOCUMENT 2020 01 INTERNAL CONTROL AND RISK MANAGEMENT GROUPE RENAULT GROUPE RENAULT: A COMPANY THAT ACTS RESPONSIBLY CORPORATE GOVERNANCE FINANCIAL STATEMENTS RENAULT AND ITS SHAREHOLDERS ANNUAL GENERAL MEETING OF RENAULT ON APRIL 23, 2021 ADDITIONAL INFORMATION The total cost of risk at December 31, 2020 was 0.75% of average performing assets and at December 31, 2019 was 0.42%. At December 31, 2020, net customer assets amounted to €38,301 million and net dealer assets to €8,894 million. For further details on customer and network credit risk management, see note 25-B6 to the consolidated financial statements. Bank counterparty risk - medium risk As a result of its transactions in the financial and banking markets for the investment of its cash surpluses, for the management of its foreign exchange and interest rate risk, and for the management of its settlement flows, the Group is exposed to bank counterparty risk. This risk corresponds to the non-recovery of the capital committed as a deposit or cash investment transaction recorded among assets, or the possible impossibility of returning to market conditions (interest rates, exchange rates) equivalent to those of the initial conditions for the use of derivative instruments. The counterparty’s default could have a negative financial impact on Groupe Renault. Risk management The management of the bank counterparty risk of the Group’s various entities is fully coordinated between the Automotive and Sales Financing segments. It is based on an internal rating system that mainly takes into account counterparties’ long-term ratings and the level of their shareholders equity. This system is used by all Groupe Renault companies exposed to counterparty risk. Some Group companies have significant exposure to counterparty risk owing to the nature of their business. These companies are monitored daily to ensure that they comply with authorized limits by counterparty, in accordance with specific procedures. The Group produces a consolidated monthly report covering all its bank counterparties, organized by credit rating. This report provides a detailed analysis of compliance with limits in terms of amount, maturity and type, as well as a list of the main exposures. To reduce bank counterparty risk, most deposits are made with large network banks and generally have terms shorter than 90 days, as this allows a good spread of the risk and lowers the systemic risk. Due to the international expansion of its business activities, including in emerging countries, the Group pays special attention to the choice of its counterparties in each banking system. In 2020, the Group suffered no financial loss as a result of the failure of a banking counterparty. For more details on the bank counterparty risk management system, see note 25-B6 to the consolidated financial statements. Interest rate risk - medium risk Exposure to interest rate risk relates mainly to the Sales Financing segment, for which this risk represents the impact of a change in interest rates on future financial gross margin. RCI Banque’s operating profit may be affected by changes in market interest rates or rates on customer deposits. Risk management The Sales Financing segment monitors interest rate risk daily: sensitivity is calculated by currency, by management entity and by asset portfolio, thus verifying that each entity respects its individual imposed limits. Sensitivity to interest rate risk is measured using the same methodology throughout all RCI Banque entities. The sensitivity consists of measuring the impact of a 100 bps rise in interest rates on the value of balance sheet flows for each entity. The hedging system enables RCI Banque's overall exposure to be reduced as well as that of each entity. At December 31, 2020, after hedging, RCI Banque’s overall sensitivity to interest rate risk was €5.8 million below the limit set by the Group (€50 million). For the Automotive segment , cash reserves are generally built up at variable rates, and long-term investments in the Automotive segment excluding AVTOVAZ are generally financed at fixed rates (fixed-rate borrowings are maintained at fixed rates as long as the yield curve is close to zero or even negative). The Automotive segment available cash is centralized, as far as possible, within Renault SA, and invested in the form of short-term bank deposits by Renault Finance. AVTOVAZ's cash surpluses and bank debt are mainly indexed at floating rates. AVTOVAZ did not set up any interest rate hedging instruments on its financial debt in 2020. AVTOVAZ’s Finance department closely monitors interest rate trends in Russia and, in the event of a rise in interest rates, could take measures to reduce the impact on its financial result by increasing the proportion of fixed-rate debt as its portfolio is refinanced. For further details on interest rate risk management, see note 25-B3 to the consolidated financial statements. Risk of decrease in residual values - medium risk The Group’s Sales Financing activity may be exposed to a risk of a decrease in residual values when vehicles are financed with a buy-back commitment and do not benefit from a buy-back agreement from a third party and/or when a customer does not exercise a purchase option. If the value of the vehicle is less than the residual value defined in the financing contract, the holder of these residual values incurs a loss when the vehicle is sold. Changes in prices on the used vehicle market can entail a risk for the owner of residual values, who is committed to taking back the vehicle at the end of its lease at a price fixed when the contracts are put in place. This risk could have a negative impact on the company’s operating results and financial position due to the recognition of higher-than-expected losses.