AFD - 2018 Registration document

RISK MANAGEMENT

Basel III Pillar 3

4.2.5.2 Foreign exchange and market risk AFD does not have a speculative operations portfolio. However, it records in its trading book any non-deliverable or illiquid currency hedging instruments, forward hedging instruments and/or hedging instruments that have lost their hedging purpose. AFD’s positions were below the thresholds applicable to capital requirements for market risk. The Group’s overall net foreign-currency position subject to capital requirements at 31 December 2018 is €162M, primarily in dollars. 4.2.5.3 Operational risk Operational risk management within AFD Group (identifying and evaluating risks, rating risk management data, reporting, procedure for declaring operational incidents) is described in detail in Paragraph 4.3.1 “Internal control and risk monitoring”.

The measurement and management of operational risk is incorporated in the permanent control system. 4.2.5.3.1 Operational risk assessment When calculating its regulatory capital requirements for operational risk, AFD Group uses the basic method, which relies on the basic indicator as defined in Article 316 of EU Regulation 575/2013 on prudential requirements for credit institutions and investment firms. Under the basic method, capital requirements for operational risk are equal to 15% of the average of the basic indicator (net banking income, excluding provisions and impairments) smoothed over three years. 4.2.5.3.2 Capital requirements for operational risk AFD’s average net banking income (NBI) for the last three financial years is €723M. The capital requirement for operational risk is €108M (15% of average NBI) at 31 December 2018. 4.2.5.5 Interest rate risk in the banking portfolio The Paragraph 6.2.6.3 on “Interest rate risk” describes this type of risk in detail. 4.2.5.6 Information on encumbered and unencumbered assets An asset is considered to be “encumbered”, or may be used contractually for the purpose of guaranteeing, acting as collateral for or enhancing a transaction from which it is inseparable. On the other hand, an “unencumbered” asset is one free of any restrictions of a legal, regulatory, contractual or any other nature, and free from the possibility of being liquidated, sold, transferred or assigned. AFD does not record any assets as encumbered apart from securities sold under repurchase agreements to the Banque de France for a nominal amount of €64.5M. 2018 2017 723,136 707,872 15% 15% 108,470 106,181

In thousands of euros

GDP - Smoothed 3-year average

Capital requirement ratio

4

Capital requirement

4.2.5.4 Risk on equities and other financial instruments

The methods for valuing and recording equity investments held by the Group are presented in Paragraph 6.2.3.2 of the financial statements and in the following notes thereto: Note 1 (Financial assets and liabilities at fair value through profit and loss) and Note 3 (Financial assets at fair value through equity) (Paragraph 6.2.5). The accounting standards for equity-accounted equity investments are outlined in Paragraph 6.2.3.1.2 «Accounting principles and methods». The summary table of equity investment exposure is provided in Paragraph 4.2.4.1.1.2. The amount of capital gains (losses) realised on disposals and liquidations during the period under review is presented in Notes 13 and 14 to the consolidated financial statements in Paragraph 6.2.5. Realised gains and losses are recorded as gains or losses on assets at fair value through P&L (Note 13) or at fair value through equity (Note 14). Capital requirements for this category of risk equalled €181M based on a risk-weighted amount of €2,263M.

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REGISTRATION DOCUMENT 2018