AFD // 2021 Universal Registration Document

RISK MANAGEMENT Basel III Pillar 3

4.2.3.3 Basel III ratios Because AFD does not hold speculative positions, market risk is limited to foreign-exchange risk. This year the capital requirement is nil (see application of Regulation (EU) No. ɸ 575/2013 on capital adequacy with regard to the market). AFD meets the minimum capital requirements with a solvency ratio of 16.04%, compared with 16.29% at 31 ɸ December 2020. The entry into force of the CCR2/CRDV regulation on 28 June 2021 resulted in amendments to the calculation of risk-weighted assets and new ratio requirements. The main impacts for the Group are as follows: P The value of derivates exposed to risk, previously modelled according to the mark-to-market method, is now modelled using the standard method (SA – CCR), corresponding to the sum of the replacement cost and the potential future exposure; P Exposures in the form of shares or stocks of collective investment funds, previously weighted according to the simple weighting method, are now treated according to the transparency approach. The implementation of CRR2 had a limited impact on the Group over the 2021 financial year. 4.2.3.4 Leverage ratio Since AFD’s status was changed to that of a “financing company” in 2017, it is no longer subject to this ratio. 4.2.4 Risk exposure and evaluation procedures 4.2.4.1 Credit risk 4.2.4.1.1 General information Exposure to credit risk includes balance sheet risk, notably exposure to loans, equity investments, financial instruments and derivatives, as well as off-balance sheet exposures (financing commitments and guarantees given). Regarding risk stemming from loans, exposures that are in arrears, i.e. primarily loan risk, are monitored in the information system and are automatically downgraded as doubtful loans, in accordance with arrears rules defined by the regulations, and impairments are recorded. The approaches adopted for specific and general provisions and impairments are presented in Paragraph ɸ 6.2.3.2 of the consolidated financial statements. Ratings are reviewed on a periodic basis to ensure individual monitoring of counterparties. The review of information on risks is presented in Paragraph ɸ 6.2.5.1 on credit risk.

Since the first ICAAP declaration in 2016, the process was reviewed in line with the change in its status to a financing company and in its risk profile. The methodological approach has been adapted and the process updated. As part of this internal process, AFD could use the following two approaches to measure its capital adequacy: P the regulatory approach which is based on regulatory capital ratios; P the internal approach which is based on the capital adequacy ratio and reserve account resources for hedging sovereign exposure. Of the two approaches the most restrictive is used as a priority in decision-making processes relating to managing capital such as forward-looking assessments and the allocation of capital. The process applied is therefore that of a projection exercise focused on the regulatory approach, which is more conservative than the economic approach, which essentially differs in that it takes into account, in the definition of internal capital, instruments with a capacity to absorb loss, i.e. the reserve account. It should be recalled that, since the first ICAAP declaration in 2016, the process was reviewed in line with the change in its status to a financing company and in its risk profile. In the regulatory approach, a materiality threshold was determined to identify tangible risks (AFD defines as tangible any risk that may have a significant impact on its solvency). In 2021, the Group maintained the materiality threshold set at a loss level equal to 10 ɸ basis points of the regulatory solvency ratio. Capital planning includes capital ratio projections in a central scenario and an adverse scenario established in conjunction with the Risk and Economic Departments over the same time horizon. The 2021 ICAAP has enabled the AFD Group to ensure that its capital is adequate to cover the tangible risks to which it is exposed, in terms of its activity, its economic model and its business plan. This process will be presented to the Board of Directors for approval on 17 ɸ March 2022 and will apply to all entities within the AFD Group’s prudential scope. The ICAAP will be updated in the first quarter of 2023 to be presented to and approved by the Board of Directors, enabling the latest trends in activity to be factored in and to ensure alignment with the planned duration of the AFD Group’s next Contractual Targets and Resources (2023-2025) and changes to the Group’s risk profile as set out in its Risk Appetite Framework.

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2021 UNIVERSAL REGISTRATION DOCUMENT