AFD - 2019 Universal registration document

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

6.2.5.2 Liquidity risk The notion of liquidity refers to the company’s ability to finance new assets and meet obligations as they mature. Liquidity must enable the Group to meet its commitments, including under adverse circumstances (crisis, financial market tensions, etc.). The AFD Group, including its Proparco subsidiary, does not receive deposits or repayable funds from the public. Its financing model is mainly based on medium- and long-term market borrowings; liquidity is given high priority in light of the Group’s performance target, which entails controlling the financing cost and minimising the cost of carry. This model reflects the Agency’s aversion to refinancing risk and liquidity risk, which are monitored as part of asset and liability management for both AFD and Proparco. The Group’s risk appetite framework primarily uses two indicators to monitor liquidity risk: P the standard liquidity indicator, which enables the Group to measure the time horizon over which it will be able to meet its commitments without raising new resources. The target value of this indicator is between 9 and 12 Ǿ months;

P the stressed liquidity coverage ratio, which is the regulatory LCR, to which AFD is no longer strictly subject, with a methodology adapted to AFD’s activity regarding liquidity outflows. The target value of this indicator is 110%. AFD has a Euro Medium Term Notes (EMTN) programme for not more than €40bn enabling it to complete financing transactions with fewer financial disclosure requirements. Short-term liquidity risk prevention relies on a programme of short term Negotiable European Commercial Papers (“NEU CPs”) amounting to €4bn. There is also a €2bn programme of Negotiable European Medium-Term Notes (“NEU MTNs”). AFD also has a portfolio of high quality bonds, which constitutes a liquidity reserve that can be mobilised through market repurchase agreements. The notional amount outstanding of these portfolios amounted to €1.720bn at 31 Ǿ December Ǿ 2019. The liquidity risk measuring and monitoring system includes both regulatory ratios and internal indicators. The various liquidity risk measuring and monitoring indicators reveal very moderate exposure to liquidity risk.

The statement of financial assets and liabilities by contractual maturity presents the maturity of financial liabilities at 31 Ǿ December Ǿ 2019.

Less than 3 b months

3 b months to b 1 b year

1 b year to 5 b years

More than

Contractual term to maturity

5 b years Book value

Liabilities Financial liabilities at fair value through profit or loss

756

6,040 3,892

95,661

257,241

359,698

Hedging derivatives (liabilities)

1,061

140,431 1,340,734 1,486,117

Financial liabilities valued at amortised cost

2,009,471 2,781,387 15,046,549 15,943,473 35,780,880

6.2.5.3 Interest rate risk Interest rate risk reflects the sensitivity of current or future earnings and of the net economic value of the balance sheet to changes in interest rates on the financial markets. This sensitivity may result from differences between lending and borrowing structures (maturity spreads), the conditions of use of equity (short-term investments, loan financing or investments) and off-balance sheet commitments. As AFD’s funding mainly relies on floating-rate resources (market borrowings swapped on issuance), disbursements of fixed-rate loans are covered by a micro-hedge consisting of a fixed-for- floating swap that protects the net interest margin. AFD’s total interest rate risk is monitored using asset liability management and modified duration gap matching. Based on the figures at 31 Ǿ December Ǿ 2019, an upward shock to interest rates of +100bps would have a negative impact in economic value of -€10.3M in 2020 (+€10.4M for a -100 Ǿ bp decrease). Fair value hedging modifies the risk induced by the changes in fair value of a fixed-rate instrument caused by changes in interest rates. This hedging transforms fixed-rate assets and

liabilities into variable-rate items. Fair value hedging notably includes the hedging of loans, securities, deposits and debts. In practice, the resources raised by AFD (fixed-rate bond issues) are not immediately “allocated” to the refinancing of loan transactions as part of the Resources with Ordinary Conditions regime. The resources raised initially increase the volume of AFD’s cash invested at variable rates. In order to eliminate interest rate risk, at the same time as the bond issue is raised, AFD sets up an issue swap that makes the debt service variable over the total period of the loan. It is onlywhen the loans are effectively disbursed on an adjustable basis that the loans are allocated, for AFD’s balance sheet management requirements and for an amount corresponding to the outstanding capital for the loan issued in resources with ordinary conditions. AFD breaks down the outstanding loans in resources with ordinary conditions by quarterly maturity band and based on their contractual term. In order to set the subsidy paid by the French state, AFD “resets” the resource when disbursing the loans through a “fixed rate Ǿ / adjustable rate” swap . The notional value of the swap is,

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UNIVERSAL REGISTRATION DOCUMENT 2019

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