AFD - 2019 Universal registration document

RISK MANAGEMENT 4 Risk factors

4.1 Risk factors

4.1.1 Banking and fi nancial risks 4.1.1.1 Credit risk

check and forms the basis of the decision of whether to grant the loan combined with the institution’s risk appetite and the system of regulatory and internal operational limits (individual, geographical, sectoral etc.) in place. This level of risk is reassessed periodically, and at least once a year, to identify any degradation of that risk subsequent to the loan being granted and to provision accordingly. This provision is based on the estimated debt recovery rate and is used to calculate the cost of risk of the institution, also factoring in losses.

Credit risk is defined as the risk of a borrower failing to repay all or some of their loan within the schedule stipulated in the agreement signed with the AFD Group. The level of credit risk (rating) reflects the likelihood of the borrower defaulting on their obligations. This risk is assessed during the credit

❙ Overview of the AFD Group’s credit risks at 31/12/2019

Breakdown of commitments 31/12/2019

Total 31/12/2019

AFD Group

Balance sheet 31/12/2019

Off-balance sheet 31/12/2019

AFD corporate entity Non-sovereign financing

13,400

3,136

16,536

34%

of which French Overseas Departments and Collectivities incl. subsidiaries SIC/Socredo/Soderag of which Foreign Countries and sub-part. Proparco

5,629 7,746

528

6,157

13% 21%

2,608

10,354

of which other

25

0

25

0%

Sovereign financing

17,309 30,709

10,588 13,725

27,898 44,434

58% 92%

AFD financing subtotal Proparco (own behalf)

3,225

623

3,848

8%

GROUP TOTAL

33,934

14,348

48,282

100%

❙ Breakdown of credit risks on AFD Group loans by level of risk and associated provisions

Breakdown of commitments 31/12/2019

Total 31/12/2019

Balance sheet 31/12/2019

Off-balance sheet 31/12/2019

In millions of euros

Healthy risk (stage Ǿ 1)

24,646

11,328

35,973

75%

IFRS Ǿ 9 provisions

102

70

172

9%

Sensitive risk (stage Ǿ 2)

7,980

2,926

10,906

23% 49%

IFRS Ǿ 9 provisions

401

497

897

Doubtful risk (stage Ǿ 3) Individual provisions

1,310

94

1,404

3%

744

0

744

41%

TOTAL RISK

33,935

14,348

48,282

100% 100%

TOTAL PROVISIONS

1,246

567

1,814

regional financial events that may have a significant impact on its activities and financial solvency of borrowers, thus potentially generating a higher risk that is, by nature, more volatile. As an example, the AFD portfolio was successively impacted by the crises in Turkey in 2018, and in Argentina and Lebanon in 2019, which led to most counterparties in the portfolio being downgraded as doubtful outstandings - primarily those linked to the banking sector which was most affected - and an increase in the associated provision rate.

Outstandings in risks categorised as doubtful (stage Ǿ 3) are limited to 3.8% of total group outstandings at 31/12/2019 with

provision of 56% on average. Factors affecting credit risk

Owing to its remit and the nature and location of its borrowers in emerging or developing countries, the AFD Group is particularly exposed to macroeconomic fluctuations and geopolitical and

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UNIVERSAL REGISTRATION DOCUMENT 2019

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