AFD // 2021 Universal Registration Document

RISK MANAGEMENT Basel III Pillar 3

4.2.4.1.3 Techniques for reducing credit risk To guarantee repayment of its loans to non-sovereign counterparties, AFD uses real securities (bank account pledges, receivables pledges, Daily assignments for its activities in French Overseas Departments and Collectivities, ɸ etc.) and personal sureties (joint sureties, first-demand guarantees, ɸ etc.). It also enters into payment mechanism agreements which give AFD priority access to the cash flow generated by the borrower’s activity. Specialist operations lawyers help AFD to structure its financing and, for counterparties based in a foreign country, they consult local lawyers on the legitimacy of the loan agreement and related agreements before the first payment is made.

Bank account pledges are subject to periodic valuation taken into account in provisioning. Moreover, AFD records exposure guaranteed by the French State on its balance sheet and off-balance sheet. In calculating its solvency ratio, AFD recorded its exposure covered by eligible personal guarantees, which breaks down as follows: P €3,325M of balance sheet exposure that mainly consists of loans guaranteed by the French State and foreign governments; P €851M of off-balance sheet exposure consisting mainly of undisbursed amounts guaranteed by the French State and foreign governments.

❙ Balance sheet exposure to credit risk covered by eligible personal sureties (guarantees)

Net weighted exposure after

Net unweighted exposure covered by a guarantee

Net weighted exposure covered by a guarantee

Mitigating techniques (guarantees)

mitigating techniques

In millions of euros

Governments and central banks

675

625

-625 -408

0

Corporates Institutions

1,497

1,588

1,180

4

301

279

-46

233

Public sector entities

0

0

0

0

Local and regional governments

851

961

-110

851

TOTAL

3,325

3,454

-1,190

2,264

❙ Off-balance sheet exposure to credit risk covered by eligible personal sureties (guarantees)

Net unweighted exposure covered by a guarantee Before conversion factor

Net unweighted exposure covered by

Net weighted exposure after mitigating techniques

a guarantee Net weighted exposure covered by a guarantee

Mitigating techniques (guarantees)

After conversion factor

In millions of euros

Governments and central banks

56

34

34

-34 -20

0

Corporates Institutions

672 123

471

491

471

67

67

0 0

67

Local and regional governments

0

0

0

0

GRAND TOTAL

851

571

591

-53

538

4.2.4.1.4 Counterparty risk Counterparty risk relating to fi nancial activities

Limit system Counterparty risk on financial instruments is managed using a set of limits and management rules whose principles and main characteristics are set by the Board of Directors. The unitary approval limit is set for a counterparty based on the counterparty’s type, rating, capital and AFD’s capital. 4.2.4.1.5 Securitisation Proparco does not carry out any securitisation transactions and does not intend to invest in this type of vehicle. However, as an investor in funds (AIF, UCITS, ɸ etc.), an incidental reclassification

AFD uses derivatives to hedge interest rate and foreign exchange risks (see derivative exposure table above). Transactions are limited to counterparties that have signed framework agreements with French (AFB or FBF) or international (ISDA) bodies. AFD renegotiated collateral contracts with almost all of its active counterparties. These contracts are activated with no regard to rating and are triggered immediately and with no deductible upon reaching a certain threshold. AFD does not carry out credit derivative transactions.

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2021 UNIVERSAL REGISTRATION DOCUMENT