AFD - Universal Registration Document 2020

AFD’S ANNUAL PARENT COMPANY FINANCIAL STATEMENTS 7 Accounting principles and assessment methods

This is defined as follows: P stage Ǿ 1: groups “performing” assets for which the counterparty risk has not increased since they were granted. The provision calculation is based on expected losses within the following 12 Ǿ months; P stage Ǿ 2: groups performing assets for which a significant increase in credit risk has been observed since they were first entered in the accounts. The provision calculation is statistically based on expected losses on maturity; P stage Ǿ 3: groups assets for which there is an objective impairment indicator (identical to the notion of default currently used by the group to assess the existence of objective evidence of impairment). The provision calculation is based on expected losses on maturity (see section Ǿ 7.2.3 Loans to credit institutions and customers). In 2020, the AFD Group analysed the new rules related to the application of the definition of default EBA guidelines (EBA/ GL/2016/7) and thresholds defined by the European Union (Article Ǿ 1 of Regulation (EU) 2018/1845 ECB of 21 Ǿ November 2018). The application of this new regulation to the scope of non-sovereign loans did not have a material impact on the Group’s financial statements as at 31 Ǿ December 2020. As of 1 Ǿ January 2021, the AFDGroupwill adopt this newdefinition for the scope of sovereign loans and does not anticipate any significant impact given the reserve account mechanism. Signi fi cant increase in credit risk The significant increase in credit risk can be measured individually or collectively. The Group examines all the information at its disposal (internal and external, including historic data, information about the current economic climate, reliable forecasts about future events and economic conditions). The impairment model is based on the expected loss, which must reflect the best information available at the year-end. To measure the significant increase in credit risk of a financial asset since its entry into the balance sheet, which involves it moving from stage Ǿ 1 to stage Ǿ 2, the Group has created a methodological framework which sets out the rules for measuring the deterioration of the credit risk category. The methodology selected is based on a combination of several criteria, including internal ratings, inclusion on a watchlist and the refutable presumption of significant deterioration because of monies outstanding for more than 30 Ǿ days.

7.2.10 Provisions This item covers provisions meant to hedge risks and expenses that past or ongoing events have rendered likely to occur, and whose purpose is clearly specified. COLLECTIVE PROVISIONS ON NON-SOVEREIGN LOANS AND COMMITMENTS GIVEN The agreement “on the reserve account (1) ” signed on 8 Ǿ June 2015 between AFD and the French State for an indefinite term, determines the mechanism for creating provisions for hedging the sovereign risk and the principles for using the provisions recognised thereby. This reserve account is intended to (i) Ǿ fund the provisions that AFD would have to recognise in case a sovereign borrower defaults, (ii) Ǿ serve normal unpaid interest and (iii) Ǿ more generally, help compensate AFD in the event of debt cancellation for sovereign loans. The balance of this account cannot be less than the amount required by banking regulations applicable to collective provisions on performing or restructured loans. This lower regulatory limit is calculated using estimated losses expected across the sovereign loan portfolio (losses at one year, losses at termination, regulatory requirements on provisions or any other data available to AFD that can be used to anticipate the sovereign loan portfolio’s risk profile). Doubtful sovereign debts are provisioned. Furthermore, this depreciation is neutralised by deduction from the reserve account. Net provisions for reversals of provisions are recorded in Net Banking Income. PROVISIONS ON NON-SOVEREIGN OUTSTANDINGS AND COMMITMENTS GIVEN Loans amortised collectively comprise all non-sovereign loans in countries outside France and in the French Overseas Departments and Collectivities not amortised individually, as well as guarantee commitments given and financing commitments given for amounts to be disbursed under signed

lending agreements. General principle

Assets are sorted into 3 Ǿ categories, or “stages”, according to how the related credit risks change since loan origination. The method used to calculate the provision differs according to which of the 3 Ǿ stages an asset belongs to.

(1) The signature of this agreement precludes the agreement “on recording provisions for sovereign loans granted by AFD on its own behalf” of 30 Ǿ December 2010 between the State and AFD.

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2020 UNIVERSAL REGISTRATION DOCUMENT