AFD - 2018 Registration document

6 CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS ACCOUNTING PRINCIPLES ADOPTED BY THE EUROPEAN UNION Statutory auditors’ report on the consolidated financial statements

The impacts of first-time application of this new standard (€142M of which €16M impact of Classification and Measurement (phase 1) and €126M of Impairment (phase 2)) were recognised in the Group’s opening consolidated equity, as mentioned in notes 1.6, 2, 3.2.2, 3.2.3, 3.2.6, 3,3, 3.4- notes 1, 3, 5, of the notes to the consolidated financial statements. We considered this change of standard to be a significant risk given the importance of the methodology selected for this first-time application of IFRS 9, the presentation changes it required and its impact on the financial information published. Audit procedures implemented in response to risks identified When implementing IFRS 9 within the full AFD Group, we:

P For phase 1 – Classification and Measurement:

P examined the normative analyses carried out, the accounting principles defined by the Group and how they applied to the main business lines;

P assessed the control mechanism put in place by AFD Group;

P examined samples of contracts to verify the financial asset classification analysis carried out;

P assessed the financial asset management models;

P checked, based on sampling, the valuation of the financial instruments.

P For phase 2 – Impairment of financial assets:

P reviewed the governance of the new impairment models;

P assessed and reviewed the main phase 2 methods used by AFD Group, the relevance of the assumptions of the provisioning model, the normative options selected and the special processing of some exposures;

P reviewed the process for evaluating the provisions and the internal control procedures governing them;

P reviewed implementation of the IFRS 9 impairment calculation method;

P verified the comprehensiveness of the basis on which the provision was calculated, the consistency of the parameters applied according to the methods validated, and checking the accuracy of the calculations made; We also checked the appropriateness of the information published in the note on the impacts of first-time application of IFRS 9. Identification and assessment of credit risk Risks identified The Agence Française de Développement Group is exposed to credit and counterparty risks. These risks are defined as the probability that a debtor will be unable to handle the repayment of the financing granted. A default by a counterparty can have a material impact on the results of AFD or its subsidiaries (especially PROPARCO S.A.). Your group is creating impairments on these non-sovereign loans to cover these risks. These are estimated as follows: P Since 1 January 2018, the impairment calculation for performing and non-performing non-sovereign exposure has been based on an anticipated losses model which, in addition to the outstandings, takes account of the performing commitments signed and the undisbursed balances of the corresponding loans. This method involves placing loans into different categories (also referred to as tiers) based on changes in their corresponding credit risk since the outset: P Tier 1: performing loans for which the counterparty risk has not increased since they were granted. The impairment calculation is based on expected losses within the following 12 months; P Tier 2: performing and non-performing loans for which a significant increase in credit risk has been observed since their initial recognition. The impairment/provision calculation is statistically based on expected losses on maturity; AFD Group also calculates impairment on exposures in default. Theses are calculated individually and are the difference between the book value of the exposure with an established credit risk and the discounted value of future cash flows the group thinks will be recoverable on maturity after the effects of guarantees coming into play. Known as «Tier 3» impairment, these are calculated individually based on assumptions such as the counterparty’s financial position, the country risk associated with the counterparty, the valuation of any guarantees and expected future cash flows. We are of the opinion that the credit risk assessment and the impairment/provisions calculation are a key component of the audit because they require Senior Management to exercise its judgement when making the assumptions and classifying the exposure. As a result, there is a risk that the bases for each tier identified by the Group are not exhaustive and the impairment/provisions created do not adequately cover the credit risk of the portfolio.

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REGISTRATION DOCUMENT 2018