AFD - 2019 Universal registration document

CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS

Notes to the consolidated financial statements

Non-sovereign limits P Regional limits:

AFD may ask the Secretariat of Paris Club to send a reminder letter. The official bilateral creditors who are members of the Paris Club submit their arrears on their sovereign debt for review at the monthly review meetings known as the Tour d’horizon . AFD takes part in these meetings under the guise of the French Ministry of Finance. Where applicable, the Paris Club can grant debtor countries restructuring arrangements or write off their debt. The restructuring arrangements may affect AFD debts. The financial impact of these arrangements on AFD is absorbed by the French Treasury. For the principal amount, AFD writes down 100% of principal in arrears. These allocations are set up based on the deduction from the reserve account. For the interest amount, interest in arrears (excluding INN) and interest accrued not yet due (excluding INN) are fully written down. INN in arrears is not written down. It is covered by the reserve account. Monitoring the risks of non-sovereign counterparties WithintheOperationsDepartment,thePortfolioManagementand Specialised Support Department provides financial monitoring through (i) Ǿ the Portfolio Management and Quality Division, which monitors non-sovereign loans from the first payment (monitoring the financial commitments of counterparties, or “covenants”, monitoring recovery and management of waivers, amendments and restructuring) and (ii) Ǿ the Counterparty Regulatory Knowledge Division, which is responsible for the quarterly updating of permanent credit files. The risk assessment sheets, which contain the categories for the different rating methods, are updated each year (annually for local authorities) by the local offices (or the operational departments at Headquarters for multi-country risks). The exercise consists of the following stages: P collection and control of qualitative and financial data (accounting documentation, latest available company accounts, qualitative assessment of the borrower and/or the beneficiary and the exposure situation); P visit and interview with the counterparty; P preparation of the evaluation grid and spreadsheets for analysis and calculation of financial and prudential ratios; P proposal for an intrinsic rating accompanied by a reasoned assessment report and any shareholder support which, automatically cross-referenced with the country risk, generate a credit rating in the risk assessment sheet. The investment officers within the Portfolio Management and Quality Division perform first-level checks. Credit analysts in the Credit Risk Assessment Division perform second-level checks and validate credit ratings. Third parties that are more than 90 Ǿ days past due (180 Ǿ days for local authorities in French Overseas Departments and Collectivities) or that pose a known credit risk (CCC credit rating) are downgraded to “doubtful” and impairments of the corresponding exposures are estimated, taking into account the associated guarantees.

Non-sovereign regional limits are presented for all foreign countries in the portfolio. Their exposure is calculated as non-weighted risk for greater transparency. In addition, these regional limits are presented in two ways: with undisbursed balance and without undisbursed balance. The regional ceiling on non-sovereign risks (only applicable in foreign countries) is set at 30% of large exposure capital (i.e. €2,240M). P Unknown third party limit Unknown third party exposure mainly consists of UCITS. The internal limit is set at 23%. P Sector limit: The overall limit for credit institutions is 50% of the total non- sovereign risks for foreign countries. It was 48.38% at the end of December Ǿ 2019. P Limits per group of connected counterparties and per counterparty: The non-sovereign limit per group of connected counterparties is risk-weighted (according to the type of instrument and the counterparty’s listing) with a ceiling of 12% of the FPGR (i.e. €896M). The single counterparty limit is also risk-weighted with a ceiling of 8% of the FPGR (€597M). Monitoring the risks of sovereign counterparties The French government covers arrears and loan write-offs in the sovereign activity through its reserve account which, at the end of 2019, had a balance of €805M, i.e. 4.7% of sovereign outstandings (latest agreement signed on 8 Ǿ June Ǿ 2015). The local offices take the following reminder and penalty measures within the maximum periods from the due date of the loan (or of notification of the government’s call of the guarantee for guaranteed loans) indicated below: P as soon as the non-payment is detected, the office suspends payments on the loan in question and gives an initial informal reminder (telephone call, letter, visit, etc.); P D+30: formal letter to the counterparty considered formal notice; P D+60 (level-one penalties): P suspension of any further decision to grant assistance to the government in default, P suspension of formalisation of financial assistance granted to the government which is not yet authorised, P suspension of authorisation of contracts for which loans already in force are earmarked; P D+90 (level-two penalty): P suspension of payments relating to financial assistance already deployed, excluding payment for work or services which are shown to have been completed and invoiced before the date of the level-two penalty.

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UNIVERSAL REGISTRATION DOCUMENT 2019