AFD - 2019 Universal registration document

CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS

Auditors’ report on the consolidated financial statements

Your Group is booking impairments to cover those risks on non-sovereign loans. These are estimated as follows: P since 1 Ǿ January Ǿ 2018, the impairment calculation for performing and nonperforming non-sovereign exposure has been based on an anticipated loss model which, in addition to the outstandings, now takes into account the performing commitments signed and the undisbursed balances of the corresponding loans. This method is based on classification into different categories (also referred to as Stages) depending on changes in their credit risk since the outset: P stage Ǿ 1: performing loans for which the counterparty risk has not increased since they were granted. The impairment calculation is based on expected losses within the following 12 Ǿ months; P stage Ǿ 2: performing and non-performing loans for which a significant increase in credit risk has been observed since their initial recognition. The impairment/provision calculation is statistically based on expected losses on maturity; P AFD Group also calculates impairment on exposures in default. These are calculated individually and are the difference between the book value of the exposure with an established credit risk and the discounted value of future cash flows the group thinks will be recoverable on maturity after the effects of guarantees coming into play. Known as “Stage Ǿ 3” impairment, these are calculated individually based on assumptions such as the counterparty’s financial position, the country risk associated with the counterparty, the valuation of any guarantees and expected future cash flows. We are of the opinion that the credit risk assessment and the impairment/provisions calculation are a key component of the audit because they require Senior Management to exercise its judgment when making the assumptions and classifying the exposure. As a result, there is a risk that the bases for each tier identified by the Group are not exhaustive and the impairment/provisions created do not adequately cover the credit risk of the portfolio. As at December Ǿ 31, 2019, AFD Group consolidated financial statements include €919 Ǿ million in total for impairment of assets and provisions for liabilities as indicated in Notes Ǿ 3.2.3, 3.3.1, note 5.2, note 9, and 3.3.2 note Ǿ 17 to the consolidated financial statements. AUDIT PROCEDURES IMPLEMENTED IN RESPONSE TO RISKS IDENTIFIED To assess the reasonableness of the provisions booked, we: P reviewed provision evaluation process and the internal control procedures governing them; P reviewed the governance of the provisioning processes; P verified the consistency of data between the risk management with the accounting data; P assessed the consistency of changes in provisions, receivables and cost of risk. When the provision was calculated on a collective basis (Stage Ǿ 1 and Stage Ǿ 2), we put in place the following substantive procedures: P checking the bases are exhaustive and the classification rules have been correctly applied; P checking the consistency of the parameters applied in the calculation method and checking that any update is in line with the methodology principles validated; P verification of the arithmetical accuracy of the calculations made. When the provision was determined on an individual basis, our work consisted of: P testing the underlying assumptions and data used by Management to estimate impairments using credit file samples; P verifying the correct implementation of the decisions made during Risk Committee meetings. P ensuring that the downgrading rules for outstandings were not changed compared to the previous financial year. We also made sure that the downgrading rules for doubtful receivables were not changed compared to the previous year and were correctly applied throughout the financial year. Valuation of fi nancial assets at fair value of level b 3 RISKS IDENTIFIED The AFD Group holds financial assets at fair value as detailed in Notes Ǿ 3.2.3, 3.4.1 - note Ǿ 1, note Ǿ 3 and note Ǿ 4 to the consolidated financial statements. Changes in fair value from one statement to the next are recognized either through profit or loss or through equity depending on the IFRS Ǿ 9 accounting classification used.

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UNIVERSAL REGISTRATION DOCUMENT 2019