AFD // 2021 Universal Registration Document

CONSOLIDATED FINANCIAL STATEMENTS 6

Statutory auditors’ report on the consolidated financial statements

Identi fi cation and assessment of credit risk RISK IDENTIFIED The Agence Française de Développement Group is exposed to credit and counterparty risks. These risks are defined as the probability that a debtor will be unable to handle the repayment of the financing granted. A default by a counterparty can have a material impact on the results of AFD or its subsidiaries (especially PROPARCO). P The provision calculation for sound exposures is based on an expected loss model which, in addition to the outstandings, takes into account the performing commitments signed and the undisbursed balances of the corresponding loans. This method is based on a classification of exposures into distinct categories (also called “stage”) according to the evolution, from the outset, of the credit risk attached to the asset: P Stage ɸ 1: groups together sound exposures that have not suffered any significant increase in credit risk since their inception. The method of calculating depreciation is based on expected losses over a 12-month horizon; P Stage ɸ 2: groups together the sound exposures for which a significant increase in credit risk has been observed since initial recognition. The method of calculating depreciation is statistically based on expected losses over a maturity horizon. P The AFD group also records impairments on doubtful exposures. These are calculated individually and correspond to the difference between the book value of the asset and the discounted value of future cash flows estimated by the Group at maturity after considering the effects of the bringing into play of guarantees. They correspond to so-called “Stage ɸ 3” impairments and are determined individually on the basis of assumptions such as the counterparty’s financial position, the corresponding country risk, the valuation of any guarantees, and expected future cash flows. We consider that the credit risk assessment and the impairment/provisions calculation are a key audit matter as they correspond to significant accounting estimates, as they require Management to exercise its judgement when making the assumptions and classifying the exposure, in particular in the COVID-19 context. As at December ɸ 31, 2021, AFD’s consolidated financial statements include €818 ɸ million for impairment of assets and €210 ɸ million in provisions for liabilities as indicated in Notes ɸ 3.2.3, 3.3.1 notes ɸ 5.2, 6 and 10 to the consolidated financial statements. AUDIT PROCEDURES IMPLEMENTED IN RESPONSE TO RISKS IDENTIFIED P tested the operating efficiency of the provisioning processes of the related internal controls; P verified the consistency of data between the risk management systems and the accounting data; P assessed the consistency of changes in exposures and provisions. When the provision was calculated on a collective basis (stage ɸ 1 and stage ɸ 2), we: P assessed the methodological principals and the reasonableness of key underlying risk parameters; P checked the completeness of the exposures subject to provision calculations and the appropriate application of methodological principals; P tested data quality on a sample basis; P verified of the arithmetical accuracy of the calculations performed. When the provision was determined on an individual basis (stage ɸ 3), we: P tested the appropriateness downgrading rules for doubtful receivables and verified their application; P tested the underlying assumptions and data used by Management to estimate impairments on a sample basis; P ensured the appropriate application of decision taken by the Risk Committee. To assess the reasonableness of the provisions booked, we: P examined the governance of the provisioning processes;

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2021 UNIVERSAL REGISTRATION DOCUMENT