AFD // 2021 Universal Registration Document

CONSOLIDATED FINANCIAL STATEMENTS 6 Notes to the consolidated financial statements

The watchlist is updated quarterly by the investment officers responsible for managing the files (DOE/GPS/GEP or DOE/OCN or JUR/JIN). This represents the first-level control. The credit analysts of the Risk Assessment Division carry out a second level control and validate proposals for changes to the watchlist (entry, exit, maintenance) as well as the proposed level of provisioning. The watchlist is then sent to the Counterparty Risk Committee, which reviews the topicality of the files, validates the entries or exits as proposed by the Risk Assessment Division and, in the event of disagreement between the operational and risk teams, serves as the arbitrator. The Counterparty Risk Committee may also place certain cases under legal oversight, authorise exemptions from collection procedures and validate write-offs. There are three levels of watchlist: P borrowers under simple monitoring (level ɸ 1 watchlist); P restructuring and non-performing loans (level ɸ 2 watchlist); P pre-litigation cases, from the date of acceleration of payment, and cases in litigation from the start of a legal proceeding (level ɸ 3 watchlist). The inclusion of a third party on a watchlist is proposed to the Risk Committee based on the following criteria: P level-1 watchlist inclusion criteria: P qualitative criterion with expert appraisal: significant adverse event impacting the borrower’s credit quality, P quantitative criteria based on risk exposure thresholds, on the duration of arrears, as well as on a significant deterioration in the rating observed over a period of 24 ɸ months as well as on the deterioration in the rating leading to a final CCC rating (or on the granting of a loan for a counterparty rated CCC that received a negative opinion from the SOP), P restructuring criteria: counterparties that have been restructured with regular resumption of repayments of principal must be added to the level-1 watchlist for a 24-month probationary period; P level-2 watchlist inclusion criteria: P counterparties classified as doubtful for accounting purposes (unless if already in level ɸ 3), P counterparties with restructured loans (unless if already in level ɸ 3); P level-3 watchlist inclusion criteria: P notification of acceleration of payment, P anticipation/initiation of a legal proceeding, P anticipation/initiation of insolvency proceedings (amicable or collective); P removal from the watchlist is proposed to the Risk Committee based on the following criteria: P resolution of the criteria that resulted in inclusion on the watchlist and any new criteria observed during monitoring: P if arrears criterion: payment of arrears and non occurrence of new arrears for two consecutive due dates,

P if rating criterion: removal from doubtful or stable or improvement in the credit rating over the last 24 ɸ months for performing counterparties (with an additional condition of improving the credit rating to at least B- over this 24-month period for counterparties formerly pre-doubtful, i.e. rated CCC), P if restructuring criterion: end of the 24-month probationary period; P renewed compliance with contractual obligations, P management of the impacts of the significant unfavourable events that led to monitoring or continued monitoring. Compliance with the removal criteria alone does not automatically result in removal, which is subject to an expert appraisal. Classi fi cation of outstandings according to the ɸ different stages of deterioration In accordance with IFRS, AFD has developed a collective provisioning mechanism for performing loans. The level of impairment is determined for each contract, based on changes in credit risk since approval. At the reporting date, each contract is assigned to a risk category depending on whether or not it has recorded a significant deterioration in credit risk since its initial recognition. Each instrument is classified according to the following risk stages: P stage ɸ 1: this category includes the performing (non-impaired) loans of third parties, namely: P outstandings (balance sheet and off-balance sheet) measured at amortised cost of third parties which do not meet any of the criteria for significant impairment (stage ɸ 2) or default (stage ɸ 3) set out below, and P debt securities recognised at fair value through equity to be included in profit and loss in the future or at amortised cost which do not meet any of the significant impairment criteria of stages ɸ 2 or ɸ 3. Under IFRS, the low credit risk (LCR) exemption applies to some of these securities and those with a rating above BBB- will therefore be classified in stage ɸ 1; P stage ɸ 2: this category includes the impaired performing loans of third parties, namely: P outstandings (balance sheet and off-balance sheet) measured at amortised cost which have suffered a significant deterioration in their credit risk since inception, P exposures related to ARIZ guarantees, P and debt securities recognised at fair value through equity to be included in profit and loss in the future or at amortised cost which have suffered a significant deterioration in their credit risk since inception. Those to which the LCR exemption applies and those with a rating below BB+ will also be classified in stage ɸ 2. This significant deterioration in risk is demonstrated by at least one of the following criteria being met:

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2021 UNIVERSAL REGISTRATION DOCUMENT