AFD_REGISTRATION_DOCUMENT_2017

CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS 6 Notes to the consolidated financial statements

to the outstanding balance (€1.37bM) of the Yemeni government, which has not paid any instalments since Decemberb2015band had arrears of €0.11M at 31bDecember 2017. Monitoring the risks of non-sovereign counterparties Third parties with arrears of over 90bdays (180bdays for local authorities) or an established credit risk (CCC credit rating) are downgraded to “doubtful” and individual impairments of the corresponding financing are estimated, taking account of the associated guarantees. Third party ratings are updated independently of the six month review cycles in the event of a new appraisal, the signature of a new loan agreement (1) or a major event which affects the quality of the borrower. Downgradings to doubtful, regradings to performing and the recoverability rates of doubtful loans are reviewed each quarter by the Counterparty Risk Committee (CORIS Contreparties) before closure of the financial statements. In line with IFRSbstandards, AFD Group also sets aside collective provisions for Ariz loan outstandings and guarantees in foreign countries. Provisions are based on the estimated residual loss at maturity, which takes into account the credit rating (including country risk), the counterparty type and the average term remaining on the loans. If need be, it is supplemented by an expert geographical and/or sectoral estimate. Borrowers with a high credit risk, because of their size or likelihood of default (especially all doubtful third parties), are included on a watchlist and monitored particularly closely. The watchlist is updated each quarter by DRG and sent to the Counterparty Risk Committee (CORIS) which reviews the current situation of all cases, decides which counterparties should be added to, or removed from, the list and can authorise dispensation from the recovery procedures. This system also assists with decision-making when determining individual impairments of loans. Counterparties for whom the rating system indicates significant risks are downgraded to doubtful loans and their outstandings are subject to partial or total impairments at a rate set by the Group Risk Committee. Impaired receivables also include those loans classified as doubtful under banking regulations (arrears of more than three, six or nine months, depending on the nature of the debt). In total, the gross value of consolidated outstandings exposing the Group to risk amounted to €30.2bn in 2017 (versus €29.2bn in 2016), including €24.9bn in foreign countries and €5.2bn in the French Overseas Departments and Collectivities. The parent company bears most of the Group’s credit risk (€26.3bn, i.e . 87% of outstandings). AFD Group’s doubtful outstandings totalled €762M at 31bDecember 2017 (versus €732M in 2016), including €144M in doubtful sovereign and €617M in doubtful non-sovereign outstandings. Doubtful non-sovereign outstandings are covered by impairments and provisions in the amount of €380M, equal to a coverage ratio of 62%.

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. To take account of potential fluctuations of the Group’s capital in the course of the year, a prescriptive benchmark consolidated equity (the “benchmark equity”) is used to calculate the limits. It was set at €5,600M for 2017. The system has three different limits: Regional limits The regional ceiling for weighted non-sovereign risks (foreign country, Polynesia and New Caledonia) is 30% of the Group’s consolidated benchmark equity (€1,680bM). In addition, a regional ceiling (weighted sovereign and non- sovereign risks) of 15% of total weighted risk (€7,044bM) has been set for foreign countries to ensure they diversify their portfolios; Sector limit The overall limit for credit institutions is 50% of the total weighted non-sovereign risks for foreign countries, i.e . €11,910M at The limit for weighted risk per non-sovereign counterparty is 10% of capital (€560bM). This limit applies to all counterparties or groups of counterparties registered in foreign countries and French Overseas Departments and Collectivities. A limit of 20% of capital applies to exposures (including market transactions) to banking groups whose registered office is located in mainland France. The exposure limit for sovereign (non-weighted) counterparties is 25% of capital (€1,400M in 2017). Monitoring the risks of sovereign counterparties The French government covers arrears and loan write-offs in the sovereign activity through its reserve account which, at the end of 2017, had a balance of €681M, i.e . 4.7% of sovereign outstandings (latest agreement signed on 8bJune 2015). There is a special automatic penalty system for sovereign loans: P arrears of over two months: suspension of approvals and signatures; P arrears of over four months: suspension of payments. The official bilateral creditors who are members of the Paris Club submit their arrears on their sovereign debt for review at the monthly review meetings known as the Tour d’horizon. AFD takes part in these meetings under the guise of the French Ministry of Finance. Where applicable, the Paris Club can grant debtor countries restructuring arrangements or write off their debt. The restructuring arrangements may affect AFD debts. The financial impact of these arrangements on AFD is absorbed by the French Treasury. In the event of arrears of over 18bmonths on a sovereign debt, the third party in question is downgraded to doubtful and the sum is taken from the Treasury’s reserve account. In 2017, this applied 31bDecember 2017; Counterparty limits

(1) A rating is valid for 18bmonths from the date of approval of the certified accounts used to determine the rating.

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REGISTRATION DOCUMENT 2017

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