AFD - 2018 Registration document

CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS ACCOUNTING PRINCIPLES ADOPTED BY THE EUROPEAN UNION Notes to the consolidated financial statements

Classification of outstandings according to the different layers of non-performance: In accordance with IFRS, the level of impairment is determined for each contract, based on changes in credit risk since approval. At the reporting date, each contract is assigned to a risk category depending on whether or not it has recorded a significant deterioration in credit risk since its initial recognition. Each instrument is classified according to the following risk layers: P Layer 1: this category includes the performing (non-impaired) loans of third parties, namely: P outstandings (balance sheet and off-balance sheet) measured at amortised cost of third parties which do not meet any of the criteria for significant impairment (layer 2) or default (layer 3) set out below, P and debt securities recognised at fair value through equity to be included in profit or loss in the future or at amortised cost, for which the low credit risk exemption applies in accordance with IFRS (i.e. those with a rating above BBB-). P Layer 2: this category includes performing loans (balance sheet and off-balance sheet) of downgraded third parties, i.e. those that have suffered a significant deterioration in their credit risk since inception, and exposures related to ARIZ guarantees. This significant deterioration in risk is demonstrated by at least one of the following criteria being met: P downgrading of the counterparty’s internal rating since the inception of the contract; P Layer 3: this category includes doubtful outstandings, i.e. outstandings (balance sheet and off-balance sheet) of third parties which: P aremore than 90 days past due (including local authorities); P represent a known credit risk (CCC credit rating); P have significant arrears identified according to the following two criteria: P the total arrears on all credit obligations exceeds €500, P the total arrears on all credit obligations is greater than 1% of all credit obligations of the third party (excluding undisbursed balance and equity participation), have a restructured (“forborne”) credit which is more than 30 days past due and/or a second forbearance during the probation period. P placement of the counterparty under supervision; P 30 days past due; P downgrading based on an expert appraisal.

The doubtful nature is applied to all exposures to the third party concerned, according to the contagion principle. The model used to estimate credit losses varies depending on the layer to which the outstanding amount relates and the type of outstanding amounts involved. Estimates of impairments and provisions Individual impairments are calculated on non-sovereign loans granted by AFD (including exposures associated with local authorities in French Overseas Departments and Collectivities) and debt securities classified at fair value through equity to be included in profit or loss in the future. Provisions are established for financial guarantees and undisbursed balances that have been authorised (by identifying a conversion factor and estimating early repayment). For exposures in layer 1, individual impairments or provisions (for off-balance sheet commitments and financial guarantees) are based on the calculation of the 12-month expected credit loss, which takes into account the probability of default (which varies according to the credit rating, country risk, type of counterparty and residual term), loss given default (which depends on the type of instrument and associated guarantees), and exposure at default (which varies according to the residual term and conversion factor for off-balance sheet exposures). AFD includes forward-looking elements in the internal rating process through the use of the provisional budget or country risk. If need be, this is supplemented by an expert appraisal. For loans in layers 2 and 3, individual impairments or provisions (for off-balance sheet commitments and financial guarantees) are determined using the same calculation methodology, but based on a calculation at maturity (instead of after one year). Maximum credit risk exposure In total, the gross value of consolidated outstandings exposing the Group to risk (excluding non-sovereign doubtful debts) amounted to €31.2bn at 31 December 2018 (compared with €30.2bn at 31 December 2017), including €26.1bn in foreign countries and €5.1bn in French Overseas Departments and Collectivities. The parent company bears most of the Group’s credit risk (€28,5bn, i.e. 91% of outstandings). AFD Group’s doubtful outstandings totalled €1.0bn at 31 December 2018, including €0.1bn in sovereign doubtful outstandingsand€0.9bn innon-sovereigndoubtful outstandings. Non-sovereign doubtful outstandings are covered by impairments and provisions totalling €0.6 bn, equivalent to a coverage ratio of 63%.

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REGISTRATION DOCUMENT 2018