AFD - Universal Registration Document 2020

RISK MANAGEMENT Basel III Pillar 3

4.2.4.1.3 Techniques for reducing credit risk To guarantee repayment of its loans to non-sovereign counterparties, AFD uses real securities (bank account pledges, receivables pledges, Daily assignments for its activities in French Overseas Departments and Collectivities, etc.) and personal sureties (joint sureties, first-demand guarantees, etc.). It also enters into payment mechanism agreements which give AFD priority access to the cash flow generated by the borrower’s activity. Specialist operations lawyers help AFD to structure its financing and, for counterparties based in a foreign country, they consult local lawyers on the legitimacy of the loan agreement and related agreements before the first payment is made.

Bank account pledges are subject to periodic valuation taken into account in provisioning. Moreover, AFD records exposure guaranteed by the French State on its balance sheet and off-balance sheet. In calculating its solvency ratio, AFD recorded its exposure covered by eligible personal guarantees, which breaks down as follows: P €3,551M of balance sheet exposure that mainly consists of loans guaranteed by the French State and foreign governments; P €673M of off-balance sheet exposure consisting mainly of undisbursed amounts guaranteed by the French State and foreign governments.

❙ Balance sheet exposure to credit risk covered by eligible personal sureties (guarantees)

Net weighted exposure after

Net unweighted exposure covered by a guarantee

Net weighted exposure covered by a guarantee

Mitigating techniques (guarantees)

mitigating techniques

In thousands of euros

Governments and central banks

656

506

-506 -492

0

4

Corporates Institutions

1,482

1,636

1,144

305

280

-45

236

Public sector entities

0

0

0

0

Local and regional governments

1,108 3,551

1,228 3,650

-329

899

TOTAL

-1,371

2,779

❙ Off-balance sheet exposure to credit risk covered by eligible personal sureties (guarantees)

Net unweighted exposure covered by a guarantee Before conversion factor

Net unweighted exposure covered by

Net weighted exposure after

a guarantee Net weighted exposure covered by a guarantee

Mitigating techniques (guarantees)

After conversion factor

mitigating techniques

In thousands of euros

Governments and central banks

35

35

35

-35 -20 -10

0

Corporates Institutions

578

416

436

416

59

59

59

50

Local and regional governments

0

0

0

0

0

GRAND TOTAL

673

510

531

-65

466

Limit system Counterparty risk on financial instruments is managed using a set of limits and management rules whose principles and main characteristics are set by the Board of Directors. The unitary approval limit is set for a counterparty based on the counterparty’s type, rating, capital and AFD’s capital. 4.2.4.1.5 Securitisation AFD Group does not carry out any securitisation transactions and does not intend to invest in this type of vehicle. However, in 2020, an investment transaction carried out by the Proparco subsidiary in a debt fund was reclassified as securitisation in view of the terms of the contract in question. This is an

4.2.4.1.4 Counterparty risk Counterparty risk relating to fi nancial activities

AFD uses derivatives to hedge interest rate and foreign exchange risks (see derivative exposure table above). Transactions are limited to counterparties that have signed framework agreements with French (AFB or FBF) or international (ISDA) bodies. AFD renegotiated collateral contracts with almost all of its active counterparties. These contracts are activated with no regard to rating and are triggered immediately and with no deductible upon reaching a certain threshold. AFD does not carry out credit derivative transactions.

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2020 UNIVERSAL REGISTRATION DOCUMENT