AFD // 2021 Universal Registration Document

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AFD’S ANNUAL PARENT COMPANY FINANCIAL STATEMENTS

Accounting principles and assessment methods

7.2 Accounting principles and assessment methods

7.2.1 Overview AFD’s annual financial statements are presented according to the accounting principles for credit institutions and financing companies prevailing in France, in accordance with ANC Regulation 2014-07 of 26 ɸ November 2014. The individual financial statements include the balance sheet, off-balance sheet, income statement and notes to the financial statements, which supplement the information provided in the first three documents. These have been prepared in accordance with the principles of prudence, going concern, separation of accounting periods and consistency of methods. In accordance with current applicable standards: P as of 1 ɸ January 2006, AFD has applied CRC Regulation 2005 03, which was repealed and replaced by ANC Regulation 2014-07 of 26 ɸ November 2014, relative to accounting practice for credit risk; P as of 1 ɸ January 2014, AFD has applied ANC recommendation 2013-02 of 7 ɸ November 2013 on the assessment and accounting rules for retirement obligations and similar benefits, which supersedes CNC Recommendation 2003-R01 of 1 ɸ April 2003. 7.2.2 Conversion of foreign currencies Amounts receivable, amounts payable and off-balance sheet commitments denominated in foreign currencies are evaluated based on the exchange rates at financial year-end. The conversion into a common currency, using the closing dates, results in differences in the income statement except in the following transactions, where the difference is shown in an adjustment account: P equity securities denominated in foreign currencies but financed in euros; P balance sheet and off-balance sheet items recorded in illiquid currencies. Foreign currency income and expenditure on loans, borrowings, securities or off-balance sheet operations are recorded in the foreign currency, in profit and loss accounts kept for each of the currencies concerned, with conversions made on a monthly closing date. Foreign currency income and expenditure are converted to euros on a monthly basis, and any subsequent variations in exchange rates result in exchange gains or losses in the income statement. With regard to AFD borrowings used to finance the International Monetary Fund’s PRGF (1) programme, it should be noted that foreign exchange gains and losses on interest are offset by subsidies, and therefore have no impact on the final result. In the case of transactions in illiquid currencies, only unrealised losses are taken into account by booked provisions. In compliance with regulations, unrealised gains on such transactions are not taken into account.

7.2.3 Loans to credit institutions and ɸ customers

They are recognised in the balance sheet at their amount (including related receivables) after impairment to address the risk of non-recovery. Commitments with respect to credit agreements signed but not yet disbursed or partly disbursed are shown as an undisbursed balance on the off-balance sheet. Interest and commitment fees are recognised under banking income on an accruals basis, whether due or not due, and are calculated pro rata temporis . In accordance with banking regulations, loans are downgraded to doubtful loans where instalments due have been unpaid for three or six months, depending on the type of debt. Debts guaranteed by the French State that are not downgraded and sovereign debts for which the allowed period of arrears has been extended to 90 days are exempt from this rule. Non-sovereign loans and credits for which the rating system shows significant risks are downgraded to doubtful debts (possibly even in the absence of arrears) and are subject to a partial or total impairment for the outstanding capital (impairment for specific risks). Litigated debt obligations are included in doubtful loans. Non-performing outstanding loans are doubtful loans for which the prospect of repayment is greatly reduced and for which reclassification to the rank of performing outstanding loan is unlikely. Loans rated doubtful for more than 12 consecutive months and credit agreements beyond their term are always classified in this category. AFD has recorded depreciations to cover the discounted value of all projected losses on non-performing loans and non performing outstanding loans. The projected losses are equal to the difference between the initial contractual cash flows, less those already received, and projected cash flows. Cash flows are discounted at the original effective interest rate for fixed rate loans and at the last effective interest rate for variable-rate loans. An impairment loss is recorded for the full amount of unpaid interest due and interest accrued on doubtful loans. ASSET RESTRUCTURING Restructuring for the borrower’s financial difficulties results in a change to the terms of the initial contract to allow the borrower to contend with the financial difficulties it is having. If, in view of the change in the borrowing terms, the present value of these new expected future flows at the original effective interest rate of the asset is lower than its carrying amount, a discount must be booked to bring the carrying amount back to the new present value. At 31 ɸ December 2021, restructured loans had a balance of €2.5M.

(1) PRGF: Poverty Reduction and Growth Facility.

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2021 UNIVERSAL REGISTRATION DOCUMENT