AFD // 2021 Universal Registration Document

CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements

Each quarter, the Counterparty Risk Committee (Counterparty CORIS) examines the risk of concentration (Large Exposures), exposure in terms of the system of operational thresholds, the quality of the portfolios, impairments/provisions and the associated cost of risk, borrowers on the watchlist, the implementation of the recovery procedures, and the monitoring of activities on the scope of consolidation. Every six months, a review of equity investment monitoring is carried out. The Risk Committees are chaired by the Executive Risk Director. Their permanent members include Executive Management, the Executive Operations Director, the Executive Finance Director, the Risk Management Director at Proparco, the Director of the Group Risk Management Department and the Head of the Second Opinion Unit. The Group Risk Committee meets at least quarterly, after the Counterparty Risk Committee meetings or prior to a Board of Directors meeting. Its role is to conduct a regular review of the strategies, policies, procedures, systems, tools, risk positions (notably credit risk) and thresholds, to notify the Board of Directors of its conclusions and to advise the latter on the Group’s global risk strategy. System of operational limits The system of operational limits applies to products (loans, quasi-equity loans, guarantees given, ARIZ guarantees, other securities, equity investments) not guaranteed by the French State, excluding products subsidised by the French State ( e.g. micro-finance facility or ARIZ Prime). It consolidates exposures net of individual AFD, Proparco and Fisea provisions. AFD’s limits system has three levels of monitoring: regulatory, internal, and a warning system whose purpose is to alert before a limit is crossed through an information system based on escalation. This system is reviewed annually at the time of the review of the Agency’s risk appetite framework and operational system. It is broken down into two main limit categories: P limits and alert thresholds regarding sovereign activity, by region (see table ɸ 1); P limits regarding non-sovereign activity, by region (see table ɸ 2), sector and counterparty.

provisions on the contribution to the portfolio and the periodic update of the parameters taken into account in these calculations, and iii) ɸ the reporting of the Group’s risks to the Executive Management, the Audit Committee, the Group Risk Committee and the Board of Directors. The division participates in defining the risk response framework (limits, pricing, new products, credit and concentration indicators of the Risk Appetite Framework, ɸ etc.) and monitors compliance with it. The Second Opinion Unit , which reports to the Executive Risk Director, performs the regulatory function of expressing a “second opinion” on financial transactions in the form of loans (sovereign and non-sovereign), guarantees or equity investments recorded on AFD’s balance sheet. This unit participates in project cycle committees (Identification Committees and Credit Committees for AFD, Project Committees for Proparco). It expresses an independent opinion on projects submitted to the decision-making bodies regarding the various types of risk (credit, operational, reputation, ɸ etc.) based on the analyses produced by AFD’s project teams and other departments involved in the appraisal (environmental and social analysis, macroeconomic analysis, credit analysis, compliance, ɸ etc.). For non-sovereign risks, the Second Opinion Unit works closely with the analysts in the Credit Risk Evaluation Division who have expertise in credit risk rating and financial structuring. Before each Credit Committee meeting, a preparatory meeting led by the Executive Risk Director is held to ensure a concerted risk position in committees. The Economic Assessment and Public Policy Department (ECO), which reports to the Innovation, Research and Knowledge Executive Department, measures the country risks (growth, stability of the financial system, public finances, external balances and socio-political situation) and credit risks of sovereign counterparties in regions where the Group operates (analysis of the structure and level of public debt, budget implementation, payment history and structural solvency indicators, ɸ etc.). Every six months, the Country and Sovereign Risk Committee (Country CORIS) examines changes in the international financial and economic climate and in macroeconomic risks in countries where AFD operates, in addition to credit risks reported by agents of the Economic Assessment and Public Policy Department. It validates the classification of country risk and sovereign risk.

6

163

2021 UNIVERSAL REGISTRATION DOCUMENT