AFD - Universal Registration Document 2020

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

Monitoring the risks of sovereign counterparties The French State is responsible for the payment of arrears and write-offs of receivables relating to sovereign activities via a reserve account endowed with a total of €910M at the end of Ǿ 2020. The local offices take the following reminder and penalty measures within the maximum periods from the due date of the loan (or of notification of the government’s call of the guarantee for guaranteed loans). AFD may ask the Secretariat of Paris Club to send a reminder letter. The official bilateral creditors who are members of the Paris Club submit their arrears on their sovereign debt for review at the monthly review meetings known as the Tour d’horizon . AFD takes part in these meetings under the guise of the French Ministry of Finance. Where applicable, the Paris Club can grant debtor countries restructuring arrangements or write off their debt. The restructuring arrangements may affect AFD debts. The financial impact of these arrangements on AFD is absorbed by the French Treasury. Monitoring the risks of non-sovereign counterparties Within theOperationsDepartment, thePortfolioManagement and Specialised Support Department provides financial monitoring through (i) Ǿ the Portfolio Management and Quality Division, which monitors non-sovereign loans from the first payment (monitoring the financial commitments of counterparties, or “covenants”, monitoring recovery and management of waivers, amendments and restructuring) and (ii) Ǿ the Counterparty Regulatory Knowledge Division, which is responsible for the quarterly updating of permanent credit files. The risk assessment sheets, which contain the categories for the different rating methods, are updated each year by the local offices (or the operational departments at Headquarters for multi-country risks). The exercise consists of the following stages: P collection and control of qualitative and financial data (accounting documentation, latest available company accounts, qualitative assessment of the borrower and/or the beneficiary and the exposure situation); P visit and interview with the counterparty; P preparation of the evaluation grid and spreadsheets for analysis and calculation of financial and prudential ratios; P proposal for an intrinsic rating accompanied by a reasoned assessment report and any shareholder support which, automatically cross-referenced with the country risk, generate a credit rating in the risk assessment sheet. The project managers of the Portfolio Management and Quality Division as well as the Country Managers carry out first-level control. Credit analysts in the Credit Risk Assessment Division perform second-level checks and validate credit ratings. Third parties with overdue payments of more than 90 Ǿ days (180 Ǿ days for local authorities in French Overseas Departments and Collectivities) or with a proven credit risk are downgraded to “doubtful” (credit rating D+ or lower). Individual impairments on the corresponding loans are estimated taking into account the associated guarantees.

Two preventive alert thresholds also exist to inform the Executive Committee and the Group Risk Committee of a risk of a threshold being exceeded (major risks and non-sovereign limits). In Ǿ 2020, nine regions were the subject of an information memorandum from DXR regarding the risk of breach of the preventive alert and/or tolerance threshold for the large exposure limit. These are India, Tunisia, Mexico, Indonesia, Egypt, Colombia, Morocco, Brazil and Nigeria. Non-sovereign limits P Regional limits: Non-sovereign regional limits are presented for all foreign countries in the portfolio. Their exposure is calculated as non-weighted risk for greater transparency. In addition, these regional limits are presented in two ways: with undisbursed balance andwithout undisbursed balance. The regional ceiling on non-sovereign risks (only applicable in foreign countries) is set at 30% of large exposure capital ( i.e. €2,373M); P Unknown third party limit: Pursuant to Article Ǿ 390 Ǿ (8) of the CRR of Delegated Regulation 1187/2014 of 2 Ǿ October 2014, where the transparency approach is not possible, certain exposures (in particular related to collective investment schemes) are assigned to the “unknown client” category which constitutes a counterparty subject to an internal limit set at 23% of Large Exposure Capital; P Sector limit: A limit on credit institutions is set by region at up to 50% of the non-sovereign geographic limit ( i.e. 15% of the FPGR). This limit is calculated quarterly on the closing date according to the exposure base used to value the non-sovereign geographic limit; P Limits per group of connected counterparties and per counterparty: The non-sovereign limit per group of connected counterparties is risk-weighted (according to the type of instrument and the counterparty’s listing) with a ceiling of 12% of the FPGR ( i.e. €949M). The single counterparty limit is also risk-weighted with a ceiling of 8% of the FPGR (€633M). In Ǿ 2020, a new rating (CCC with a weighting of 700%) was validated by the Group’s bodies. The impact study carried out on the portfolio revealed two breaches of limits due to the reassessment of the weightings for ratings below B-. These breaches are qualified as “sustained” because they do not result from the introduction of a new grant. AFD’s Board of Directors of 18 Ǿ December Ǿ 2020 approved these overruns. At the end of Ǿ 2020, they concerned: P the “Municipality of Guayaquil” (Ecuador) third party: 8.3% (for a limit of 8%), i.e. an overrun of €3.4M, P Caisse des Dépôt et Gestion Group (Morocco): 16.5% (up Ǿ to a limit of 12%), i.e. an overrun of €85M.

6

161

2020 UNIVERSAL REGISTRATION DOCUMENT