AFD - 2019 Universal registration document

CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS

Notes to the consolidated financial statements

The model used to estimate credit losses varies depending on the stage to which the outstanding amount relates and the type of outstanding amount involved. Estimates of impairments and provisions Impairment and provisions are calculated for non-sovereign loans issued by AFD, debt securities, financial guarantees and undisbursed balances that have been authorised (by identifying a conversion factor and estimating early repayment). For exposures in stage Ǿ 1, provisions are based on the calculation of the 12-month expected credit loss, which takes into account the probability of default (which varies according to the credit rating, country risk, type of counterparty and residual term), loss given default (which depends on the type of instrument and associated guarantees) and exposure at default (which varies according to the residual term and conversion factor for off-balance sheet exposures). AFD includes forward- looking elements in the internal rating process through the use of the provisional budget or country risk. If need be, this is supplemented by an expert appraisal. For loans in stages Ǿ 2 and 3, individual impairments or provisions are determined using the same calculation methodology, but based on a calculation at maturity (instead of after one year). Maximum credit risk exposure In total, the gross value of consolidated outstandings exposing the Group to risk (excluding non-sovereign doubtful debts) amounted to €32.5bn at 31 Ǿ December Ǿ 2019 (compared with €31.2bn at 31 Ǿ December Ǿ 2018), including €27.3bn in foreign countries and €5.2bn in French Overseas Departments and Collectivities. The parent company bears most of the Group’s credit risk (€30.6bn, i.e. 91% of outstandings). The AFD Group’s doubtful outstandings totalled €1.3bn at 31 Ǿ December Ǿ 2019, including €100M in sovereign doubtful outstandingsand€1.2bn innon-sovereigndoubtful outstandings. Non-sovereign doubtful outstandings are covered by impairments and provisions totalling €0.7bn, equivalent to a coverage ratio of 54.2%.

P debt securities recognised at fair value through equity to be included in profit and loss in the future or at amortised cost which do not meet any of the significant impairment criteria of stages Ǿ 2 or 3. Under IFRS, the low credit risk (LCR) exemption applies to some of these securities and those with a rating above BBB- will therefore be classified in stage Ǿ 1; P stage Ǿ 2: this category includes the impaired performing loans of third parties, namely: P outstandings (balance sheet and off-balance sheet) measured at amortised cost which have suffered a significant deterioration in their credit risk since inception, P exposures related to ARIZ guarantees, and P debt securities recognised at fair value through equity to be included in profit and loss in the future or at amortised cost which have suffered a significant deterioration in their credit risk since inception. Those to which the LCR exemption applies and those with a rating below BB+ will also be classified in stage Ǿ 2. This significant deterioration in risk is demonstrated by at least one of the following criteria being met: P downgrading of the counterparty’s internal rating between the state at inception of the contract and the current state, P placement of the counterparty under supervision, P 30 Ǿ days past due; P stage Ǿ 3: this category includes doubtful outstandings, i.e. outstandings (balance sheet and off-balance sheet) of third parties with: P significant arrears over 90 Ǿ days (180 Ǿ days for local authorities); significant arrears are determined on the basis of significance thresholds, P proven credit risk, P a restructured (“forborne”) credit which is more than 30 Ǿ days past due and/or a second forbearance during the probation period. The doubtful nature is applied to all exposures to the third party concerned, according to the contagion principle.

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UNIVERSAL REGISTRATION DOCUMENT 2019