AFD - 2018 Registration document

RISK MANAGEMENT

Basel III Pillar 3

4.2.5.1.2 Credit risk: portfolios under the standard approach and regulatory weightings AFD chose the standardised method to calculate the risks used to determine the capital adequacy ratio. The weightings applied depend on the ratings given to countries or entities by external bodies (Moody’s, FITCH and Standard & Poor’s) and to the type of counterparty (third-party asset class). As most of the non- sovereign counterparties do not have a rating from an external body, they are weighted at 100% or 150% for doubtful debt.

4.2.5.1.1.5 Reconciliation of changes in provisions for impaired receivables Note 9 “Provisions”, in the notes to the financial statements, outlines the changes for each category of provisions and impairments.

The weightings applied by the Group for rated counterparties are as follows: Weighting used to calculate risks Rating Asset class AAA to AA-

Lesser than or equal to CCC+ Not rated

A+ to A- BBB+ to BBB- BB+ to BB-

B+ to B-

Sovereign

0%

20% 50% 50%

50% 50%

100% 100% 100%

100% 100% 150%

150% 150% 150%

100% 100% 100%

Banks

20% 20%

Corporates

100%

The application of weightings to AFD’s credit risk results in the following weighted exposures: ❙ Group credit risk: portfolio subject to the standardised approach, by risk segment Weighted exposures (in millions of euros)

4

Sovereigns and other institutions

Risk weighting

Banks Corporates

Equities

Total

0% 20% 50%

724

205

112

0 0

1,040 4,594

3,220

1,364 4,825

10

100% 150% 250%

14,677

7,249

468

27,219

767

35

501

1,092

2,395

0

0

704

704

TOTAL

19,387

6,428

7,872

2,264

35,951

4.2.5.1.3 Techniques for reducing credit risk To guarantee repayment of its loans to non-sovereign counterparties, AFD uses real securities (bank account pledges, receivables pledges, Daily assignments for its activities in French Overseas Departments and Collectivities, etc.) and personal sureties (joint sureties, first-demand guarantees, etc.). It also enters into payment mechanism agreements which give AFD priority access to the cash flow generated by the borrower’s activity. Specialist operations lawyers help AFD to structure its financing and, for counterparties based in a foreign country, they consult local lawyers on the legitimacy of the loan agreement and related agreements before the first payment is made.

Bank account pledges are subject to periodic valuation taken into account in provisioning. Moreover, AFD records exposure guaranteed by the French State on its balance sheet and off-balance sheet. In calculating its capital adequacy ratio, AFD recorded its exposure covered by eligible personal guarantees, which breaks down as follows: P €3,161M of balance sheet exposure that mainly consists of loans guaranteed by the French State and foreign governments; P €236M of off-balance sheet exposure consisting mainly of undisbursed amounts guaranteed by the French State and foreign governments.

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REGISTRATION DOCUMENT 2018