AFD - Universal Registration Document 2020

AFD’S ANNUAL PARENT COMPANY FINANCIAL STATEMENTS 7 Statutory auditor’s report on the financial statements

Identi fi cation and assessment of credit risk RISK IDENTIFIED The Agence Française de Développement is exposed to credit and counterparty risks.

These risks are defined as the probability that a debtor will be unable to handle the repayment of the financing granted. A default by a counterparty can have a material impact on the results of AFD. Your Agency is booking provisions to cover those risks. These are estimated as follows: P Since 1 Ǿ January 2018, the provision calculation for sound exposures has been based on an expected loss model which, in addition to the outstandings, takes into account the performing commitments signed and the undisbursed balances of the corresponding loans. This method involves calculating expected losses based a model which incorporates several parameters (probability of default, loss rate in the event of default, exposure in default, rating). P AFD also records impairments on doubtful exposures. These are calculated individually and correspond to the difference between the book value of the asset and the discounted value of future cash flows recoverable on maturity after considering the effects of the bringing into play of guarantees. They are determined individually on the basis of assumptions such as the counterparty’s financial position, the corresponding country risk, the valuation of any guarantees, and expected future cash flows. We consider that the credit risk assessment and the impairment/provisions calculation are a key audit matter as they correspond to significant accounting estimates, as they require Management to exercise its judgement when making the assumptions and classifying the exposure, in particular in the COVID-19 context. As at 31 Ǿ December 2020, AFD’s annual financial statements include €415 million for impairment of assets and €521 million in provisions for liabilities as indicated in Notes 2.3, 2.10, 3.3, 3.4, 3.15 and 3.28 to the annual financial statements. AUDIT PROCEDURES IMPLEMENTED IN RESPONSE TO RISKS IDENTIFIED P tested the operating efficiency of the provisioning processes of the related internal controls; P verified the consistency of data between the risk management systems and the accounting data; P assessed the consistency of changes in exposures and provisions. When the provision was calculated on a collective basis, we: P assessed the methodological principals and the reasonableness of key underlying risk parameters; P checked the completeness of the exposures subject to provision calculations and the appropriate application of methodological principals; P tested data quality on a sample basis; P verified of the arithmetical accuracy of the calculations performed. When the provision was determined on an individual basis, we: P tested the appropriateness downgrading rules for doubtful receivables and verified their application; P tested the underlying assumptions and data used by Management to estimate impairments on a sample basis; P ensured the appropriate application of decision taken by the Risk Committee. Valuation of equity stakes RISK IDENTIFIED The Agence Française de Développement holds long-term investments as detailed in Notes 1.5, 2.5, 3.5, 3.6, 3.8, 3.28 and 3.30 to the annual financial statements. These securities are recorded at their acquisition cost. These assets are impaired when the estimated value, assessed according to the company’s net position and its prospects (which are estimated based on economic and financial information gathered on the company particularly on conditions in its country) or its stock market value, as the case may be, is lower than the acquisition cost. Due to the limited availability of market data, the valuation of some of these financial instruments requires the exercise of judgment by management for the selection of the valuation method and parameters to be used, in particular in the COVID-19 context. To assess the reasonableness of the provisions booked, we: P examined the governance of the provisioning processes;

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2020 UNIVERSAL REGISTRATION DOCUMENT