AFD - Universal Registration Document 2020

CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS Notes to the consolidated financial statements

system of operational and regulatory thresholds, the Group’s major sovereign and non-sovereign risks, the borrowers on the watchlist, application of the recovery and penalty procedures, the quality of the portfolios, the impairments/provisions and cost of risk and the activity of the subsidiaries. The Risk Committees are chaired by the Executive Risk Director. Their permanent members include Senior Management, the Executive Operations Director, the Executive Finance Director, the Head of Risk Management at Proparco, the Director of the Group Risk Management Department and the Head of the Second Opinion Unit. The Group Risk Committee meets at least quarterly after the Counterparty Risk Committee meetings. Its role is to conduct a regular review of the strategies, policies, procedures, systems, tools, risk positions (notably credit risk) and thresholds, to notify the Board of Directors of its conclusions and to advise the latter on the Group’s global risk strategy. System of operational limits The system of operational limits applies to products (loans, guarantees given, other securities, holdings) not guaranteed by the French State, excluding products subsidised by the government ( e.g. micro-finance facility or ARIZ Prime). It consolidates the exposures of AFD, Proparco and Fisea. AFD’s limit system consists of three monitoring levels: P regulatory with limits common to all credit institutions; P internal limits; P internal with monitoring indicators whose objective is to alert on the level of exposure before a limit is crossed (crossing of the first threshold: report to the Executive Committee – crossing of the second threshold: report to the Group Management Risk Committee). This system is reviewed annually at the time of the review of the Agency’s risk appetite framework and operational system. It is broken down into two main limit categories: P limits and alert thresholds regarding sovereign activity, by region (see table Ǿ 1); P limits regarding non-sovereign activity, by region (see table Ǿ 2), sector and counterparty.

periodic update of the parameters taken into account in these calculations, and iii) Ǿ the reporting of the Group’s risks to the Senior Management, the Audit Committee, the Group Risk Committee and the Board of Directors. The division participates in defining the risk response framework (limits, pricing, new products, Ǿ etc.) and monitors compliance with it. The Second Opinion Unit , which reports to the Executive Risk Director, performs the regulatory function of expressing a “second opinion” on financial transactions in the form of loans (sovereign and non-sovereign), guarantees or equity investments recorded on AFD’s balance sheet. This unit participates in project cycle committees (Identification Committees and Credit Committees for AFD, Project Committees for Proparco). It expresses an independent opinion on projects submitted to the decision-making bodies regarding the various types of risk (credit, operational, reputation, Ǿ etc.) based on the analyses produced by AFD’s project teams and other departments involved in the appraisal (environmental and social analysis, macroeconomic analysis, credit analysis, compliance, Ǿ etc.). For non-sovereign risks, the Second Opinion Unit works closely with the analysts in the Credit Risk Evaluation Division who have expertise in credit risk rating and financial structuring. Before each Credit Committee meeting, a preparatory meeting led by the Executive Risk Director is held to ensure a concerted risk position in committees. The Economic Assessment and Public Policy Department (ECO), which reports to the Innovation, Research and Knowledge Executive Department, measures the country risks (growth, stability of the financial system, public finances, external balances and socio-political situation) and credit risks of sovereign counterparties in regions where the Group operates (analysis of the structure and level of public debt, budget implementation, payment history and structural solvency indicators, Ǿ etc.). Every six months, the Country and Sovereign Risk Committee (CORIS Pays) examines changes in the international financial and economic climate and in macroeconomic risks in countries where AFD operates, in addition to credit risks reported by agents of the Economic Assessment and Public Policy Department. It validates the classification of country risk and sovereign risk. Each quarter, the C ounterparty Risk Committee (CORIS Contreparties) examines the Group’s exposure in terms of the

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2020 UNIVERSAL REGISTRATION DOCUMENT