AFD - 2018 Registration document

CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS ACCOUNTING PRINCIPLES ADOPTED BY THE EUROPEAN UNION

Notes to the consolidated financial statements

Gains or losses on financial instruments Gains or losses on financial instruments at fair value through profit and loss Income from financial instruments recognised at fair value through profit or loss is recognised under this item and consists essentially of: P dividends, other income and realised gains and losses; P impact of hedge accounting. Gains and losses on financial instruments at fair value through equity Income from financial instruments recognised at fair value through equity is recognised under this item and includes: P gains and losses realised on financial assets at fair value through equity to be included in profit or loss in the future. 6.2.3.2.4 Commitments to buy back minority interests In 2008 and again in 2014, during the Proparco capital increase, the Group made commitments to buy back the interests of Proparco’s minority shareholders. The strike price is defined contractually depending on the restated net asset value on the option exercise date. These optional buy-back commitments received the following accounting treatment in 2018: P in application of IAS 32, the Group recorded a debt for put options awarded to shareholders. This liability of €187.8M was initially booked at the present value of the strike price estimated on the exercise date, classified in “Other liabilities”; P consequently, the corresponding entry for this liability is deducted from “minority interests” in the amount of €177.4M, i.e. a proportionate share of Proparco’s underlying net assets valued at 31 December 2018, with the remainder deducted from “Consolidated reserves, Group share”, i.e. -€10.4M; P if the buyback is carried out, the liability will be settled by cash payment linked to the acquisition of minority interests. However if the buyback has not occurred when the commitment reaches its term, the liability is offset against the minority interests and the Group’s consolidated reserves. 6.2.3.2.5 Fixed assets Fixed assets appearing on AFD’s balance sheet include property, plant and equipment and intangible assets. Fixed assets are recorded at their acquisition cost plus directly related expenses. If a fixed asset consists of a number of items that may be regularly replaced and have different useful lives, each item is booked separately according to its own depreciation table. This item-by-item approach has been used for head office. Depreciation periods have been estimated on the basis of each item’s useful life. P changes in fair value; P dividends and other income;

Given that it makes relatively few loans, and that some of its portfolios are “low-default portfolios”, AFD Group has no database of its own of past defaults sufficiently representative of the economic reality of the regions of the world where its entities operate. For these reasons, AFD Group has adopted an approach based on rating transitions and probabilities of default published by rating agencies. Restatements may be necessary on external transition matrices in order to correct irregularities which could have an impact on the consistency of the probabilities of default calculated from those external matrices. Loss given default (LGD) Loss given default (LGD) is modelled for the assets of the different stages. AFD Group includes the collateral valuation in its LGD modelling. To take into account AFD’s business model and recovery capacity, AFD Group now relies on internally modelled recovery data based on doubtful portfolio coverage rates and factoring in

a prospective recovery level. Exposure at default (EAD):

Exposure at default corresponds to the residual amount forecast by the debtor at the time of default. It must therefore take into account future cash flows and forward-looking items. As such, EAD includes:

P the contractual amortisation of the principal;

P drawdown from lines recognised in the off-balance sheet;

P any early repayments. Restructuring of financial assets

Restructuring for the borrower’s financial difficulties results in a change to the terms of the initial contract to allow the borrower to contend with the financial difficulties it is having. If the restructuring does not result in derecognition of the assets and the changes in terms are such that the present value of these new expected future flows at the original effective interest rate of the asset is lower than its book value, a discount must be recognised under “cost of credit risk” to bring the book value back to the new present value.

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REGISTRATION DOCUMENT 2018