AFD // 2021 Universal Registration Document

RISK MANAGEMENT 4 Risk factors

4.1 Risk factors

check and forms the basis of the decision of whether to grant the loan combined with the institution’s risk appetite and the system of regulatory and internal operational limits (individual, geographical, sectoral, ɸ etc.) in place. This level of risk is reassessed periodically, and at least once a year, to identify any degradation of that risk subsequent to the loan being granted and to provision accordingly. This provision is based on the estimated debt recovery rate and is used to calculate the cost of risk of the institution, also factoring in losses.

4.1.1 Banking and fi nancial risks 4.1.1.1 Credit risk

Credit risk is defined as the risk of a borrower failing to repay all or some of their loan within the schedule stipulated in the agreement signed with the AFD Group. The level of credit risk (rating) reflects the likelihood of the borrower defaulting on their obligations. This risk is assessed during the credit

❙ Overview of the AFD Group’s credit risks at 31 December 2021

Total Breakdown of commitments 31/12/2021

Balance sheet 31/12/2021

Off-balance sheet

AFD Group

31/12/2021 Total 31/12/2021

AFD corporate entity Non-sovereign financing

14,689

3,228

17,918

31%

of which French Overseas Departments and Collectivities of which Foreign Countries and sub-part. Proparco

5,863 8,801

501

6,364

11% 20%

2,727

11,528

of which other

25

0

25

0%

Sovereign financing AFD financing subtotal Proparco (own behalf)

22,814 37,503

13,158 16,386

35,971 53,889

62% 93%

3,581

622

4,203

7%

GROUP TOTAL

41,084

17,008

58,092

100%

❙ Breakdown of credit risks on AFD Group loans by level of risk and associated provisions

Total Breakdown of commitments 31/12/2021

Balance sheet 31/12/2021

Off-balance sheet

31/12/2021 Total 31/12/2021

In millions of euros

Healthy risk (stage ɸ 1)

30,639

13,887

44,526

77%

IFRS ɸ 9 provisions

45

17

62

7%

Sensitive risk (stage ɸ 2)

8,790

2,414

11,204

19% 43%

IFRS ɸ 9 provisions

340

56

396

Doubtful risk (stage ɸ 3) Individual provisions

1,655

707

2,362

4%

470

0

470

50%

TOTAL RISK

41,084

17,008

58,092

100% 100%

TOTAL PROVISIONS

855

73

928

Outstandings in risks categorised as doubtful (stage ɸ 4) are limited to 4% of total Group outstandings at 31 ɸ December 2020

example, the AFD portfolio was successively impacted by the crises in Turkey in 2018, and in Argentina and Lebanon in 2019, which led to most counterparties in the portfolio being downgraded as non-performing loans – primarily those linked to the banking sector which was most affected – and an increase in the associated provision rate. In 2020 and 2021, AFD’s portfolio was impacted by the health crisis. The Group proactively set up provisions in a few sectors weakened by the environment (air & tourism sector provision of €69.1M at the end of December ɸ 2021 vs €79.4M at the end of December ɸ 2020 and provision for the Ariz portfolio of €22.3M at the end of December ɸ 2021 vs €31.2M at the end of December ɸ 2020).

with provision of 20% on average. Factors affecting credit risk

Owing to its remit and the nature and location of its borrowers in emerging or developing countries, the AFD Group is particularly exposed to macroeconomic fluctuations and geopolitical and regional financial events that may have a significant impact on its activities and financial solvency of borrowers, thus potentially generating a higher risk that is, by nature, more volatile. As an

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2021 UNIVERSAL REGISTRATION DOCUMENT