AFD - 2019 Universal registration document

RISK MANAGEMENT

Risk factors

However, the group’s credit risk is naturally mitigated owing to: P The global geographical diversity of the portfolio (operations in 121 Ǿ countries) as presented below, within the framework of the Group’s limit system. ❙ Breakdown by geographical area of risks in respect of AFD Group loans

French Overseas Departments and Collectivities - Outre mer

Latin America. Central America and Caribbean

Central and Southern Africa

Middle East and North Africa

Multi- country foreign

Asia- Pacific

Total

Europe

In millions of euros

AFD Sovereign

9,397 2,839 1,081

4,765 2,120 1,163 8,048

7,688

5,107 1,690

941 908 451

0

0

27,898 16,536

886 477

1,934

6,158

AFD non-sovereign

Proparco

322

330

22

3,848

GROUP TOTAL

13,317

9,052

7,120

2,300

2,265

6,180 48,282

P The diversity of the portfolio by counterparty type. ❙ Breakdown of risks on AFD Group loans by counterparty type

4

31/12/2019

Loans In millions of euros

Local authorities Public institutions

5,538

25,009

Public financial institutions Private financial institutions Private non-financial entities Public non-financial entities

3,861 3,675 4,121 6,078

TOTAL

48,282

P The proportion of the Group’s activity in French Overseas Departments and Collectivities for which the associated credit risk is significantly reduced owing to the implicit support of the French state for most of the counterparties in question (local authorities in particular). Risk exposure in French Overseas Departments and Collectivities accounted for 37% of the Group’s non-sovereign risk as of end-2019. Climate risks Owing to its operations in a significant number of countries that are potentially subject to climate risks, AFD is exposed to the impact of climate risk in respect of some of its borrowers which may increase the associated credit risk. As the biggest category of risk associated with climate change, physical risks may have consequences that could affect the real economy and financial institutions. As such, AFD’s regulator (French Prudential Supervisory and Resolution Authority) has asked banking and insurance providers to include this aspect in their risk analysis. As a response, as part of its climate strategy, AFD has taken a proactive approach in order to better factor in these risks in its banking practices. As such, as recommended by the regulator, the exposure of the AFD Group’s portfolio to physical climate risks was mapped in 2018. The sample analysed accounts for 80% of the portfolio of AFD Group loans at 31/12/2017, 60% of the total balance sheet

and 20% of borrowers, i.e. 200 borrowers analysed. Each borrower was scored on exposure to physical risks. The score itself (1) comprises 5 climate indicators (extreme heat, extreme precipitation, rising sea levels, cyclones, drought). In total, 63% of borrowers in the sample were assigned at least one point where attention was required, which means that these borrowers have a climate exposure score higher than or equal to the 90 th Ǿ percentile of the AFD sample. 23% of counterparties (17% of outstandings) had 2 Ǿ points requiring attention and only 6 counterparties (4% of counterparties and 2% of outstandings) had three points requiring attention. At this stage, this relative and theoretical climate exposure of the portfolio – not factored into the credit rating for methodological reasons essentially linked to the time horizon - has never resulted in an impact on the risk profile of a counterparty. AFD has developed a methodology and ad hoc operational tools to assess and monitor exposure in the portfolio or new operations. In particular, the purpose of the tools developed is to systematically enter into dialogue with our counterparties to provide them with support in putting in place strategies to adapt to physical risks. In parallel, in 2020 AFD will continue its methodological work on assessing transitional risk, the second type of climate risk, to which it is by design less exposed due to the high proportion of sovereign borrowers in its portfolio and its remit according to which its financing is fully compliant with the provisions of the Paris Climate Agreement.

(1) The score measures change between a benchmark period (1975-2005) and a projected period (2030-2040).

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UNIVERSAL REGISTRATION DOCUMENT 2019