AFD - 2019 Universal registration document

CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS 6 Notes to the consolidated financial statements

The risk assessment sheets are updated independently of the six-monthly review cycles in the event of a new appraisal, the signing of a new loan agreement (1) or a major event which affects the quality of the borrower. The downgrading to doubtful or reclassification as performing and the recoverability rates of doubtful debts are reviewed each quarter by the Counterparty Risk Committee before closing the accounts. The level of individual provisions for doubtful loans is revised quarterly at the Counterparty Risk Committee meeting. Collective provisions for performing loans and ARIZ sub-participations are also estimated each quarter based on risk parameters and management rules in accordance with IFRS Ǿ 9. This standard has been applied since 1 Ǿ January Ǿ 2018 based on a methodology approved by the statutory auditors. Borrowers with a high credit risk, because of their size or likelihood of default (especially all doubtful third parties) are included on a watchlist and monitored particularly closely. The watchlist, which summarises the key information relating to these third parties (outstandings, undisbursed balances, arrears, credit rating, current situation, etc.), is composed of three compartments: borrowers subject only to monitoring, restructured borrowers and pre-litigation or litigation cases. It identifies counterparties in financial difficulty who have benefited from a forborne exposure. The watchlist is updated each quarter by the Group Risk Management Department and sent to the Counterparty Risk Committee, which reviews the current situation of all cases, decides which counterparties should be added to, or removed from, the list, can set up legal monitoring for some cases and can authorise dispensation from the recovery procedures. The criteria for inclusion on the watchlist were defined at the Risk Committee meeting of March Ǿ 2019: P borrowers subject only to monitoring; P restructured and doubtful loans; P pre-litigation cases, from the date of acceleration of payment, and cases in litigation from the start of a legal proceeding. The inclusion of a third party on a watchlist is proposed to the Risk Committee based on the following criteria applied since 1 Ǿ July Ǿ 2019: P level-1 watchlist inclusion criteria: P qualitative criterion with expert appraisal: significant adverse event impacting the borrower’s credit quality, P quantitative (automatic) criteria based on risk exposure thresholds, during the period of arrears, and on significant deterioration in the score observed over a 24-month period and a very low rating, P restructuring criteria: counterparties that have been restructured with regular resumption of repayments of principal must be added to the level-1 watchlist for a 24-month probationary period;

P level-2 watchlist inclusion criteria: P counterparties classified as doubtful for accounting purposes (unless if already in level Ǿ 3), P counterparties with restructured loans (unless if already in level Ǿ 3), P counterparties monitored by special business teams of other financial partners; P level-3 watchlist inclusion criteria: P notification of acceleration of payment, P anticipation/initiation of a legal proceeding, P anticipation/initiation of insolvency proceedings (amicable or collective). Removal from the watchlist is proposed to the Risk Committee based on the following criteria: P resolution of the criteria that resulted in inclusion on the watchlist and any new criteria observed during monitoring: P if arrears criterion: payment of arrears and non-occurrence of new arrears for two consecutive due dates, P if rating criterion: removal from doubtful debts and/or stability or improvement in the credit rating over the last 24 Ǿ months, P if restructuring criterion: end of the 24-month probationary period; P renewed compliance with contractual commitments; P management of the impacts of the significant unfavourable events that led to monitoring or continued monitoring; P compliance with the removal criteria alone does not automatically result in removal, which is subject to an expert appraisal. Classi fi cation of outstandings according to the different stages of deterioration In accordance with IFRS, AFD has developed a collective provisioning mechanism for performing loans. 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 stages: P stage Ǿ 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 (stage Ǿ 2) or default (stage Ǿ 3) set out below, and

(1) A rating is valid for 18 months from the date of approval of the certified financial statements used to determine the rating.

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UNIVERSAL REGISTRATION DOCUMENT 2019

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