AFD - 2019 Universal registration document

RISK MANAGEMENT

Basel III Pillar 3

4.2.3.3 Basel III ratios Because AFD does not hold speculative positions, market risk is limited to foreign-exchange risk. This year the capital requirement is nil (see. application Regulation (EU) N 575/2013 on capital adequacy with regard to the market). AFD meets the minimum capital requirements with a capital adequacy ratio of 16.75%, compared with 18.37% at 31 Ǿ December Ǿ 2018. 4.2.3.4 Leverage ratio Since AFD’s status was changed to that of a “financing company” in 2017, it is no longer subject to this ratio. 4.2.4 Risk exposure and evaluation b procedures 4.2.4.1 Credit risk 4.2.4.1.1. General information Exposure to credit risk includes balance sheet risk, notably exposure to loans, equity investments, financial instruments and derivatives, as well as off-balance sheet exposures (financing commitments and guarantees given). Regarding risk stemming from loans, exposures that are in arrears, i.e. primarily loan risk, are monitored in the information system and are automatically downgraded as doubtful loans, in accordance with arrears rules defined by the regulations, and impairments are recorded. The approaches adopted for specific and general provisions and impairments are presented in Paragraph Ǿ 6.2.3.2 of the consolidated financial statements. Ratings are reviewed on a periodic basis to ensure individual monitoring of counterparties.

Since the first ICAAP declaration in 2016, the process was reviewed in line with the change in its status to a financing company and in its risk profile. The methodological approach has been adapted and the process updated. In particular, AFD has focused its projections on the regulatory approach, which is more conservative than the economic approach with the key difference being that it factors in the definition of internal capital of instruments with the capacity to absorb losses, i.e. the reserve account. AFD measures the adequacy of its capital using the two following approaches: P the regulatory approach which is based on regulatory capital ratios; P the internal approach which is based on the capital adequacy ratio and reserve account resources for hedging sovereign exposure. Of the two approaches the most restrictive is used as a priority in decision-making processes relating to managing capital such as forward-looking assessments and the allocation of capital. Through the internal approach, all risks are assessed using a process of identifying material risks. Financial capital requirements are then assessed only in the case of material risks to supplement any capital requirements dictated by the regulatory approach. ICAAP has enabled the AFD Group to ensure that its capital is adequate to cover the material risks to which it is exposed, in terms of its activity, its economic model and its business plan. This process, approved by the Board of Directors at its meeting of 11 Ǿ July Ǿ 2019, applies to all entities within the prudential scope of consolidation of the AFD Group. The ICAAPwill be updated in the first half of 2020 to be presented to and approved by the Board of Directors, enabling the latest trends in activity to be factored in and to ensure alignment with the planned duration of the AFD Group’s next Contractual Targets and Resources (2020 -2022) and changes to the Group’s risk profile as set out in its Risk Appetite Framework.

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UNIVERSAL REGISTRATION DOCUMENT 2019