AFD - 2018 Registration document

RISK MANAGEMENT

Risk management

4.3.4 Comprehensive interest rate, foreign exchange, liquidity and market risks Asset and liability management covers the management of liquidity, interest-rate and foreign-exchange risks as well as counterparty risk management for financial activities. AFD is responsible for financing the operations of its main subsidiaries and holds most of the Group’s asset and liability management risks on its balance sheet. The key components of AFD’s financial and asset and liability management strategy are submitted to the Board of Directors every year for approval. These components include: P ensuring sustainable and steady interest revenue streams for AFD; P limiting exchange rate exposure to the minimum necessary for temporary operational needs; P limiting counterparty risk exposure from financial activities by carrying out market and investment operations with only the counterparties that have the highest credit ratings. Limits and management criteria are set based on guidance from AFD’s Board of Directors. In 2018, this body carried out the annual review of the system. 4.3.4.1 Liquidity risk Liquidity risk is described in Paragraph 6.2.6.2 (page 163). 4.3.4.2 Interest rate risk Interest rate risk is described in Paragraph 6.2.6.3 (page 164). 4.3.4.3 Foreign-exchange risk Foreign-exchange risk is described in Paragraph 6.2.6.4 (page 164). 4.3.4.4 Market risk Market risk is described in Paragraph 6.2.6.494 (page 164). 4.3.5 Major risk ratio At 31 December 2018, AFD Group was in compliance with the major individual risk ratio set out by banking regulations, i.e., a maximum of 25% of risk-based consolidated capital. P limiting exposure to liquidity risk;

The RCC department is in contact with the external auditors (Statutory Auditors, tax authorities, French Prudential Supervisory and Resolution Authority). An accounting procedures manual that includes procedures and accounting schematics for all transactions is available on the intranet site. It includes a procedure for accounting controls. With regard specifically to the audit trail, its functioning is described below. The accounting system is structured around a multi-company (AFD-Proparco-Sogefom) and multi-currency accounting software package powered by business applications and auxiliary accounting systems. The conversion of foreign currency transactions is performed by a specific module of the accounting software package, which publishes control reports at each step of the conversion and calculation of translation adjustments. A procedure describes the controls to be performed at each stage of the conversion treatment for the exchange positions until the determination of translation adjustments. An “Infocentre” application makes it possible to retrieve the accounting information for balances and accountingmovements for each transaction or at the desired aggregated level. In accordance with Article 85 of the Decree of 3 November 2014, the audit trail allows the unitary event to be traced back to the accounting aggregate or, conversely, from the accounting aggregate to the corresponding unit events. In the case of a grouping of accounting movements within an upstream interface, the audit trail also makes it possible to retrieve the unit events that make up those grouping movements. 4.3.3 Credit risk 4.3.3.1 Credit risk measurement and monitoring The system in place to measure and monitor credit risk is described in Paragraph 6.2.6 “Risk Information”. 4.3.3.2 System of operational limits The systemof operational limits is described in Paragraph 6.2.6.1 (page 154). 4.3.3.3 Monitoring the risks of sovereign counterparties Monitoring the risks of sovereign counterparties is described in Paragraph 6.2.6.1 (page 154). 4.3.3.4 Monitoring the risks of non-sovereign counterparties The monitoring of the risks of non-sovereign counterparties is described in Paragraph 6.2.6.1 (page 154).

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REGISTRATION DOCUMENT 2018