AFD // 2021 Universal Registration Document

CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements

through (i) ɸ the Portfolio Management and Quality Division, which monitors non-sovereign loans from the first payment (monitoring the financial commitments of counterparties, or “covenants”, monitoring recovery and management of waivers, amendments and restructuring) and (ii) ɸ the Counterparty Regulatory Knowledge Division, which is responsible for the quarterly updating of permanent credit files. The Risk Assessment Sheets, which contain the categories for the different rating methods, are updated each year by the local offices with, potentially, the support of the Regional Portfolio Monitoring managers (or the operational departments at Headquarters for multi-country risks). The annual updates of the Risk Assessment Sheets are carried out on an ongoing basis according to the date of availability of the financial statements of the counterparties and to different deadlines prepared according to a risk-based approach. The Risk Assessment Sheets may also be updated independently of the annual review cycles in the event of a new appraisal, the signing of a new loan agreement (1) or a major event which affects the quality of the borrower. The exercise consists of the following stages: P collection and control of qualitative and financial data (accounting documentation, latest available company accounts, qualitative assessment of the borrower and/or the beneficiary and the exposure situation); P visit and interview with the counterparty; P update of qualitative information (local context, governance, internal organisation, ɸ etc.); P preparation of the evaluation grid and spreadsheets for analysis and calculation of financial and prudential ratios; P proposing intrinsic rating, which is then automatically cross referenced with the country risk; P reasoned assessment of possible shareholder support; P determination of the credit rating based on the cross referencing of the intrinsic rating with the country risk, the level of shareholder support and a possible expert opinion. Investment officers of the Portfolio Management and Quality Division (for third parties monitored after the first payment) as well as Country Managers conducting a first-level control. Credit analysts in the Credit Risk Assessment Division perform second level checks and validate credit ratings. Third parties with overdue payments of more than 90 ɸ days (180 ɸ days for local authorities in French Overseas Departments and Collectivities) or with a proven credit risk are downgraded to “doubtful” (credit rating D+ or lower). Individual impairments on the corresponding loans are estimated taking into account the Borrowers with a high credit risk, because of their likelihood of default (especially all doubtful third parties) are included on a watchlist and monitored particularly closely. The watchlist, which summarises key information relating to these third parties (outstandings, undisbursed balance, unpaid bills, credit rating, news, provisions). associated guarantees. Watchlist monitoring

Non-sovereign limits P Regional limits:

Non-sovereign geographic limits are monitored for all foreign countries in the portfolio, in two ways: through balance-to-pay and excluding balance-to-pay. The ceiling by region is set at 30% of Large Exposure capital ( i.e. €2,643M). P Unknown third party limit: Pursuant to Article ɸ 390 ɸ (8) of the CRR of Delegated Regulation ɸ 1187/2014 of 2 ɸ October 2014, where the transparency approach is not possible, certain exposures (in particular related to collective investment schemes) are assigned to the “unknown client” category which constitutes a counterparty subject to an internal limit set at 24% of Large Exposure capital ( i.e. €2,114M). P Sector limit: A limit on credit institutions is set by region at 50% of the non-sovereign regional limit ( i.e. 15% of the Large Exposure capital, in other words €1,322M). This limit is calculated quarterly on the closing date according to the exposure base used to value the non-sovereign geographic limit. P Limits per group of connected counterparties and per counterparty: The non-sovereign limit per group of connected counterparties is risk-weighted (according to the type of instrument and the counterparty’s listing) with a ceiling of 12% of Large Exposure capital ( i.e. €1,057M). The risk-weighted ratio applicable to a counterparty is also set at 8% of Large Exposure capital (€705M). Thebreakdownof limits (for loans) by rating is shown in the tables below. The weightings by type of instrument are also specified and adjust the limits accordingly. Monitoring the risks of sovereign counterparties The French State is responsible for the payment of arrears and write-offs of receivables relating to sovereign activities via a reserve account endowed with a total of €985M at the end of 2021. The local offices take the following reminder and penalty measures within the maximum periods from the due date of the loan (or of notification of the government’s call of the guarantee for guaranteed loans). AFD may ask the Secretariat of Paris Club to send a reminder letter. The official bilateral creditors who are members of the Paris Club submit their arrears on their sovereign debt for review at the monthly review meetings known as the Tour d’horizon . AFD takes part in these meetings under the guise of the French Ministry of Finance. Where applicable, the Paris Club can grant debtor countries restructuring arrangements or write off their debt. The restructuring arrangements may affect AFD debts. The financial impact of these arrangements on AFD is absorbed by the French Treasury. Monitoring the risks of non-sovereign counterparties Within theOperationsDepartment, thePortfolioManagement and Specialised Support Department provides financial monitoring

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(1) A rating is valid for 18 ࣢ months from the date of approval of the certified financial statements used to determine the rating.

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2021 UNIVERSAL REGISTRATION DOCUMENT