AFD_REGISTRATION_DOCUMENT_2017

AFD’S ANNUAL FINANCIAL STATEMENTS Accounting principles and assessment methods

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7.2.3 Loans to credit institutions and customers These are shown in the balance sheet as an amount (including related credits) after impairment is booked to account for the risk of non-recovery. Commitments with respect to credit agreements signed but not yet disbursed or partly disbursed are shown as an undisbursed balance on the off-balance sheet. Interest and commitment fees are recognised under banking income on an accruals basis, whether due or not due, and are calculated pro rata temporis . In accordance with banking regulations, loans are downgraded to doubtful debts where instalments due have been unpaid for three, six or nine months, depending on the type of debt. By agreement with the French Prudential Supervisory and Resolution Authority, the following exceptions are allowed: debts guaranteed by the French State, which are not downgraded, and sovereign debts for which the allowed period of arrears has been extended to 18bmonths. Non-sovereign loans and credits for which the rating system shows significant risks are downgraded to doubtful debts (possibly even in the absence of arrears) and are subject to a partial or total impairment for the outstanding capital (impairment for specific risks). Litigated debt obligations are included in doubtful loans. Non-performing outstanding loans are doubtful loans for which the prospect of repayment is greatly reduced and for which reclassification to the rank of performing outstanding loan is unlikely. Loans rated doubtful for more than 12bconsecutive months and credit agreements beyond their term are always classified in this category. AFD has recorded depreciations to cover the discounted value of all projected losses on doubtful loans and non-performing loans. The projected losses are equal to the difference between the initial contractual cash flows, less those already received, and projected cash flows. Cash flows are discounted at the original effective interest rate for fixed-rate loans and at the last effective interest rate for variable-rate loans. An impairment loss is recorded for the full amount of unpaid interest due and interest accrued on doubtful debts. Asset restructuring Restructuring for the borrower’s financial difficulties results in a change to the terms of the initial contract to allow the borrower to contend with the financial difficulties it is having. If, in view of the change in the borrowing terms, the present value of these new expected future flows at the original effective interest rate of the asset is lower than its book value, a discount must be booked to bring the book value back to the new present value. At 31bDecember 2017, restructured loans had a balance of €52.3M. Discounts of €469K related to two restructured loans were recognised.

7.2.4 Short-term and long-term investments Depending on the purpose of the transaction, the following rules apply: P Short-term investment securities intended to be held for six months or more are recorded at the date of their acquisition, at the purchasing price, excluding accrued interest. Premiums or discounts are amortised on an actuarial basis. At each monthly account closing, the coupon accrued since the last period is reported as income. Impairment for unrealised losses, calculated as the difference between book value and market price, is made monthly on a line-by-line basis, without offsetting unrealised gains. Unrealised gains are not shown in the financial statements; P Long-term investment securities (mainly bonds), purchased with the intention of holding them for a long time, until maturity, are recorded at the date of their acquisition, at the purchase price, excluding accrued interest. They may be subject to impairment in case of counterparty risk. Premiums or discounts (the difference between purchase price and redemption price) are spread on an actuarial basis over the residual life of the investment. At each monthly account closing, the coupon accrued since the last period is reported as income. AFD has secured resources allocated to funding its long-term securities investments. 7.2.5 Shares in related businesses, equity stakes and long-term investments Shares in related businesses Shares in related businesses are those held in exclusively controlled companies that can be fully consolidated. Equity stakes These are securities for which long-term retention is deemed useful to the company’s activities, particularly because it enables influence or control to be exercised over the issuing company. This relates especially to interests that meet the following criteria: P interests in proportionately consolidated companies or issued by equity-accounted companies; P interests in companies with directors or managers who are also in the holding company, under terms that enable influence to be exercised over the company whose shares are held; P interests in companies belonging to the same Group controlled by individuals or corporate entities with control over the whole Group and thus demonstrating centralised decision-making;

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REGISTRATION DOCUMENT 2017

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