AFD - 2018 Registration document

RISK MANAGEMENT

Basel III Pillar 3

4.2 Basel III Pillar 3

4.2.1 General principles The objective of Pillar 3 of the Basel III framework is to improve financial transparency by publishing quantitative and qualitative disclosures of different types of risk, risk evaluation procedures and the capital adequacy of companies. This involves companies: P aligning data with the new international accounting standards (IFRS) on financial communication; P explaining their internal rating methodology and their risk assessment process to the market. Article 7 of the Decree of 23 December 2013 on the prudential regime for financing companies stipulates that they are required to comply with the provisions applicable to credit institutions pursuant to (EU) ruling no. 575/2013 of the European Parliament unless otherwise exempted by this decree. These exemptions relate to: P the liquidity management ratios (LCR and NSFR) Note that AFD complies with the LCR ratio, even if it is no longer required to do so (see 6.2.6.2); P the BRRD directive and its resulting MREL on the resolution of banking institutions in the EU. 4.2.2.2 Corporate purpose of the Group’s parent company to which this measure applies Agence Française de Développement (AFD) Detailed information about AFD Group’s corporate purpose is presented in Paragraph 1.1.2 ‘‘General information about AFD’s capital’’. 4.2.2.3 Consolidation scope andmethods There is no difference with regard to consolidation principles between accounting data and prudential data. The consolidation scope andmethods are defined in Paragraph 6.2.3 “Consolidated financial statements prepared in accordance with IFRS adopted by the European Union”; Notes 6.2.3.1 “Consolidation scope and methods”. Moreover, there are no restrictions on transferring funds or regulatory capital within the Group. P the leverage ratio; 4.2.2 Scope of application 4.2.2.1 AFD’s prudential regime

4.2.3 Implementation of IFRS 9 Since 2015, the Group has been doing preliminary work to identify and analyse the potential impacts of the application of IFRS 9 as of 1 January 2018. The implementation of the new IFRS 9 by the AFD Group has been managed by way of a project that involves the full range of business lines (IT, Risk, Finance, Senior management, Financial communication, etc.). The IFRS 9 project was evolved into four major stages that are being simultaneously rolled out at the various sites (phase 1 and phase 2 only given the Group’s decision not to apply phase 3 as at 1 January 2018): P a diagnostic phase involving the interpretation of the standard, options to be considered and the resources required. This essentially comprised a comparative analysis between IAS 39 and IFRS 9 and defining the major challenges, the implementation schedule, the sequencing of work between the Risk and Finance Departments, and the drafting of various reports for the Group’s governance bodies (the Accounting, Finance and Management Control Committee, the Risk Committee and the Audit Committee); P a needs identification phase to define the normative and modelling options used, to identify problems of implementation, propose solutions and estimate the financial impact of IFRS 9; P a deployment phase which involved developing and rolling out the target IT architecture, adapting the control and other processes, preparing the detailed normative and methodological documentation, calibrating the model parameters in place, and estimating the financial impacts; P a blank test phase maintaining the IAS 39 accounting principles concurrently with the implementation of the new IFRS 9 - mainly on IFRS 9 phase 2 which has been ascertained as having the greatest impact on the Group. The Group has also been strongly affected by the publication on 12 October 2017 of the amendment to IFRS 9 regarding early repayment penalties and the mandatory application as of 1 January 2019 with a recommendation for early application. The main area impacting the Group relates to symmetric early repayment penalties based on the cost of unwinding a hedge swap. As such, certain loan contracts are classified as non-SPPI as they include an early repayment clause, the contractual amount of which corresponds to a settlement amount equal to the cost of unwinding an associated hedge swap. The loans are therefore subject to a valuation exercise based on the methodology for discounting future flows, with a discount rate specific to each loan. The impacts of first application of IFRS 9 are presented in Paragraph 6.2.4.

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REGISTRATION DOCUMENT 2018