AFD - 2018 Registration document

6 CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS ACCOUNTING PRINCIPLES ADOPTED BY THE EUROPEAN UNION Notes to the consolidated financial statements

6.2.6.3 Interest rate risk Interest rate risk reflects the sensitivity of current or future earnings and of the net economic value of the balance sheet to changes in interest rates on the financial markets. This sensitivity may result from differences between lending and borrowing structures (maturity spreads), the conditions of use of equity (short-term investments, loan financing or investments), and off-balance sheet commitments. As AFD’s funding mainly relies on floating-rate resources (market borrowings swapped on issuance), disbursements of fixed-rate loans are covered by a micro-hedge consisting of a fixed-for- floating swap that protects the net interest margin. AFD’s total interest-rate risk is monitored using asset liability management and modified duration gap matching. Based on the figures at 31 December 2018, an upward shock to interest rates of +100bps would have a negative impact of -€19.2M in 2019 The foreign-exchange risk is the risk of losses on financial instruments and margins due to adverse changes in exchange rates. AFD’s general policy is to systematically hedge foreign currency loans through cross-currency swaps, which exchange future foreign-currency cash flows for future euro cash flows. Financing transactions carried out in currencies other than the euro are also hedged using cross-currency swaps. Because AFD does not hold speculative positions, market risk is limited to foreign exchange risk, which is below the threshold set by the French Banking and Financial Regulations Committee (CRBF) Regulation 95-02 on capital adequacy with regard to the market. Foreign exchange risk can be measured by analysing sensitivity: if foreign currencies appreciate against the euro by 10%, this has an estimated impact on earnings of -€4.8M (+€4.8M for a 10% decrease), the sensitivity to exchange rates mainly originating from the dollar. (+€19.5M for a -100 bp decrease). 6.2.6.4 Foreign-exchange risk

For information, AFD Group applies an internal limit approved by the Board of Directors on 12 July 2018: individual currency exposure may not exceed 1% of the three-month average of regulatory capital, while aggregated exposure must remain below 2%. This internal policy keeps foreign exchange risk to a minimum (excluding ownership interests, provisions and past due amounts). Fair value hedges modify the risk caused by changes in the fair value of a fixed rate financial instrument as a result of interest rate movements. Fair value hedges transform fixed rate assets or liabilities into floating rate assets or liabilities. The items hedged are principally loans, securities, deposits and debt. In practice, funding raised by AFD (fixed rate bond issues) is not immediately “allocated” to refinancing lending operations under the “resources with ordinary conditions” (RCO) scheme. The funding raised therefore initially increases the volume of AFD’s variable rate cash investments. In order to eliminate interest rate risk, when the bond is issued AFD arranges an issue swap to make debt servicing variable over the entire lifetime of the bond. It is only once the loans are actually disbursed subject to review that the borrowings are allocated to resources with ordinary conditions, for the purposes of balance sheet management and for an amount corresponding to the principal outstanding on the loan. AFD disaggregates outstanding loans allocated to resources with ordinary conditions on the basis of their quarterly and contractual maturity. In order to freeze the subsidy paid by the French State, AFD “resets” its funding when disbursing loans using a “fixed rate/ revisable rate” interest rate swap. The notional value of the swap is therefore a function of the outstanding principal not past due in resources with ordinary conditions. Since it is allocated to a group of loans (resources with ordinary conditions) rather than individually, this operation is described as macro-hedging. 6.2.6.5 Compliance with regulatory ratios The Group was in compliance with all of the regulatory ratios at 31 December 2018.

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REGISTRATION DOCUMENT 2018