AFD // 2021 Universal Registration Document

RISK MANAGEMENT 4 Risk factors

rapidly and has become of key importance in all economic, financial, political and societal spheres. These risks also tend to increase over time and their materialisation becomes progressively more certain. A more exhaustive discussion on this topic is presented in AFD’s TCFD (Task-Force on Climate Related Financial Disclosure) report published for the first time in 2021. 4.1.1.2 Geopolitical and macroeconomic risk Owing to the scope of its operations, AFD is exposed to the emergence of crises of political or geopolitical origin. This risk may take the form of any national or international political or administrative risks which could result in economic, commercial or financial losses for importers or exporters or businesses with investments overseas. By way of illustration, monetary policy decisions in advanced economies (with a tightening expected in the United States and possibly in the euro zone) are likely to have impacts on the financing conditions of the countries in which AFD operates, while the appreciation of hard currencies (USD, EUR) against local currencies could weigh on the debt service expenses for countries heavily indebted in foreign currencies (Angola, Kenya, Ghana, Ethiopia, Tunisia, Turkey, Sri Lanka, Cambodia, Armenia, Serbia, Georgia, Argentina, Dominican Republic). Although this type of risk is, by nature, largely exogenous, in making operational decisions, AFD limits its operations in a given region based on the risk appetite framework relating to the risk of concentration (1) . Nevertheless, here is a presentation of assets under management by “economic or geopolitical zone” that could be subject to a massive effect.

The inclusion of the analysis of our counterparties’ exposure to physical risks in AFD’s risk information systems in the first quarter of 2021 completes the system and in the future will provide a better understanding of these risks for the portfolio and will regularly update the portfolio mapping. A second category of financial risks associated with climate change, transition risk was given special attention from 2020. In 2020, the AFD Group took part in a stress test exercise on transition risk led by the ACPR. The work carried out revealed a limited impact of stress on credit ratings, including in the most adverse scenario (average deterioration of one notch by 2050 in the adverse “accelerated transition” scenario, average deterioration of 0.03 of a notch in the central “orderly transition” scenario).This result isexplainedbyAFD’s lowlevel of exposure to the highest-emitting sectors, resulting from the implementation of the “50% Climate” and “100% Paris Agreement” strategy adopted by the Group. However, the exercise made it possible to identify certain sectors that are potential vectors of transition risk within the AFD portfolio and require further methodological and analytical work. The year in 2021 was also devoted to the development of a transition risk analysis methodology based in part on the work carried out as part of the stress exercise. Tools (preliminary analysis matrix, questionnaires to help with customer dialogue and scoring methodology) will be rolled out in the test phase in 2022 before being rolled out across the entire portfolio and fully integrated into Risk information systems. Climate risks, although they have not led to a deterioration in the risk profile of AFD’s counterparties to date, cannot be excluded from the Group’s risk factors. Indeed, this subject is changing

Outstandings*

%

Risks 5,193 2,659 4,802 4,489 1,498

%

AFD’s regions of intervention

Middle East

3,707 2,315

9% 6%

9%

Egypt, Jordan, Lebanon, Turkey, Yemen

Mercosur

5% Argentina, Bolivia, Brazil, Paraguay, Uruguay Burma, Cambodia, Indonesia, Laos, Philippines, Thailand, Vietnam 8% Algeria, Angola, Indonesia, Gabon, Iraq, Nigeria 8%

ASEAN

3,863 2,528

9% 6% 2%

OPEC Sahel

720

3%

Burkina Faso, Mali, Mauritania, Niger, Chad

(*) Sovereign and non-Sovereign at the end of 2021.

(1) Portfolio risk of a bank arising from its concentration on a single counterparty, sector or country.

90

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2021 UNIVERSAL REGISTRATION DOCUMENT