AFD - 2018 Registration document

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AFD’S ANNUAL FINANCIALS STATEMENTS

Statutory auditors’ report on the annual financial statements

Impacts of the first-time application of the revised models used to calculate the provision allocations for the credit risk of performing non-sovereign loans Risks identified Implementation of IFRS 9 brought about a revision of the models for calculating the provision allocations for the credit risk of P Financing commitments given in respect of undisbursed amounts under signed loan agreements are now taken into account; P The overhaul of the method for calculating the collective provision allocations for performing non-sovereign loans. The overhaul of the method for calculating provision allocations as a whole was classed as a change in accounting method. The impact of this revision was a €120M reversal in the collective provision allocations, offset in the opening shareholders’ equity in line with ANC Regulation 2018-01 and as mentioned in notes 1.7, 2.10, 3.15 and 3.18 appended to the annual financial statements. Audit procedures implemented in response to risks identified In this context, our work consisted in: P verifying 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 ensured the appropriateness of the information published in the notes on the impact of first-time application of these new provisioning models, classed as a change in accounting method. Identification and assessment of credit risk Risks identified The Agence Française de Développement 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. AFD is creating provisions to cover these risks. These are estimated as follows: P Since 1 January 2018, the provision 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. The method involves calculating expected losses based on changes in the credit risk since the outset and using a model which incorporates different parameters (probability of default, loss rate in the event of default, exposure in default, rating). P AFD also calculates impairment on exposures in default. Theses are calculated individually and are the difference between the book value of the asset and the discounted value of future cash flows recoverable on maturity after guarantees have come into play. They are determined individually on the basis of assumptions such as the counterparty’s financial position, the corresponding country risk, 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 provisions identified by the Group is not exhaustive and the impairment/provisions created do not adequately cover the credit risk of the portfolio. At 31 December 2018, AFD’s annual financial statements include €471 million for impairment of assets and €243 million in provisions for liabilities as indicated in Notes 2.3, 2.10, 3.3, 3.4, 3.15, 3.28 and 3.29 to the annual financial statements. performing non-sovereign loans. The main changes are as follows: P reviewing the governance of the new provisioning models; P assessing and reviewing the main methods used, the relevance of the assumptions of the provisioning model and the special processing of some exposures; P reviewing the provision evaluation processes and the internal control procedures governing them; P reviewing implementation of the provision calculation method for performing and non-performing loans;

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REGISTRATION DOCUMENT 2018