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

case the internal limit increases to 24%. Based on consolidated capital of €7,179M at 31/12/2018, the regulatory limit for large exposures is €1,794M. The reporting of large exposures corresponds to authorised exposures exceeding 10% of capital. Non-sovereign limits In accordance with the regulations, AFD has a system of internal limits which are approved each year by the Board of Directors (1) . The system of operational limits applies to guarantees, equity investments and loans that are not guaranteed by the French government, excluding products subsidised by the government (e.g. micro-finance facility or Ariz Prime). It consolidates the exposures of AFD, Proparco and Fisea and weights them according to instrument type and counterparty rating (individual limits and groups of connected counterparties). In the area of loans exposing the Group to risk , we distinguish: P sovereign loans issued to, or guaranteed by, a foreign country. This type of loan may be eligible for debt restructuring as decided by the Paris Club; P non-sovereign loans granted to financial institutions or private or public companies with no guarantee from a foreign country. This aid is theoretically ineligible for the Paris Club’s initiatives. Any breach is identified in authorised risks in accordance with the regulatory requirements. Conversely, preventive measures (notifying the authorities and the French Treasury Department) include the residual amount to be authorised, so that action plans can be implemented if necessary. The consolidated capital eligible for reporting large exposures (“FPGR”) is used to calculate the internal limits. AFD’s Board of Directors has approved the principle of a six-monthly review of capital at the reporting dates, to be examined by the statutory Regional limits: The regional ceiling on non-sovereign risks (only applicable in foreign countries) is set at 30% of FPGR (i.e. €2,153M). In addition, a regional ceiling (sovereign and non-sovereign risks) of 15% of total risk authorised on foreign countries (€5,982M) has been set to ensure that they diversify their portfolios. Sector limit: The overall limit for credit institutions is 50% of the total non- sovereign risks for foreign countries. P Limits per group of connected counterparties and per counterparty: P auditors (30 June and 31 December). The system has three different limits: P

P develops risk management methods, tools and training materials. The Second Opinion unit , which reports to the Executive Risk Department, participates in project cycle committees (Identification Committees (CID) and Credit Committees (CCR)). It provides an independent opinion on the risks of projects submitted to decision-making bodies (sovereign loans, non- sovereign loans, etc.). The Economic Assessment and Public Policy Department (ECO), which reports to the Innovation, Research and Knowledge Department (IRS), measures the country risks (growth, stability of the financial system, public finances, external balances, sociopolitical situation) and credit risks of sovereign counterparties in regions where the Group operates (analysis of the structure and level of public debt, budget implementation, payment history and structural solvency indicators, etc.). Every six months, the Country and Sovereign Risks Committee (CORIS Pays) examines changes in the international financial and economic climate and in macroeconomic risks in countries where AFD operates, in addition to credit risks reported by ECO agents. It validates the classification of country risk and sovereign risk. Each quarter, the Counterparty Risk Committee (CORIS Contreparties) examines the Group’s exposure in terms of the system of operational and regulatory thresholds, the Group’s major sovereign and non-sovereign risks, the borrowers on the watchlist, application of the recovery and penalty procedures, the quality of the portfolios, the impairments/provisions and cost of risk and the activity of the subsidiaries. The CORIS committees are chaired by the Executive Risk Director. Their permanent members include Senior Management, the Executive Operations Director, the Finance Department, the head of risk management at Proparco, the head of DRG and the head of the Second Opinion unit. At Proparco, the Proparco Risks Division (DRI) is responsible for appraising and monitoring borrowers. The Group Risk Committee meets once a quarter after the CORIS Contreparties meeting. Its role is to conduct a regular review of the strategies, policies, procedures, systems, tools, risk positions, particularly credit risk, and thresholds, to notify the Board of Directors of its conclusions and to advise the latter

6

on the Group’s global risk strategy. System of operational limits Large exposure limit

The “large exposure” limit defines the aggregate maximum authorised exposure to third parties or groups of connected third parties as 25% of eligible capital. The default internal limit is 23%, unless all exposures are euro-denominated, in which

(1) The latest revision of the limit system was adopted at the Board meeting in July 2018.

155

REGISTRATION DOCUMENT 2018