AFD - Universal Registration Document 2020

RISK MANAGEMENT 4 Risk factors

4.1.1.2 Geopolitical and macroeconomic risk Owing to the scope of its operations, AFD is exposed to the emergence of crises of political or geopolitical origin. This risk may take the form of any national or international political or administrative risks which could result in economic, commercial or financial losses for importers or exporters or businesses with investments overseas. As an illustration, the effects of contagion linked to regional conflicts (Middle East or the Sahel) or the rise of protectionist trading policies (United States and China or Brexit) fall into this category. Although this type of risk is, by nature, largely exogenous, in making operational decisions, AFD limits its operations in a given region based on the risk appetite framework relating to the risk of concentration (1) . Nevertheless, here is a presentation of assets under management by “economic or geopolitical zone” that could be subject to a massive effect.

AFD took part in the pilot climate stress exercise organised by the ACPR in the second half of 2020, focusing on transition risk. Preliminary results indicate a relatively low impact of this exercise on AFD’s portfolio due to its low exposure to carbon- intensive sectors linked to its mandate to ensure that its financing is fully compatible with the provisions of the Paris Climate Agreement. Climate risk, although relatively low to date, cannot be excluded from the risk factors because the subject is changing rapidly and it has become of major importance in all economic, financial, political and societal spheres. In 2021 AFD will continue its methodological work on the assessment of transition risk in order to integrate it into the risk processes, as was done for physical risks.

AFD’s regions of Ǿ intervention

Outstandings (1)

% Risks

%

Middle East

1,336

8% 1,651 3% 972

8% 4%

Egypt, Jordan, Lebanon, Turkey, Yemen Argentina, Bolivia, Brazil, Paraguay, Uruguay

Mercosur

597

Burma, Cambodia, Indonesia, Laos, Philippines, Thailand, Vietnam

ASEAN

467 462 218

3% 680 3% 704 1% 257

3% 3% 1%

OPEC Sahel

Algeria, Angola, Indonesia, Gabon, Iraq, Nigeria Burkina Faso, Mali, Mauritania, Niger, Chad

(1) Non-sovereign at end-2020

4.1.1.3 Refinancing risk The AFD Group, including its Proparco subsidiary, does not receive deposits or repayable funds from the public. As its funding model is essentially based on medium and long- term market borrowings, liquidity is a priority in terms of the Group’s performance target, which involves keeping the cost of resources under control and minimising the carrying cost (2) .

However, the Group inevitably remains exposed to an exceptional situation that cannot be modelled which could involve the simultaneous emergence of a large number of high-intensity geopolitical crises in regions with significant activity.

(1) Portfolio risk of a bank arising from its concentration on a single counterparty, sector or country. (2) The carrying cost of a resource is the difference between the cost of financing and interest from investing the resource.

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2020 UNIVERSAL REGISTRATION DOCUMENT