AFD_REGISTRATION_DOCUMENT_2017

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

unrealised gains or losses which were previously recognised as equity will not be recycled as income. Only the dividends will be recognised as income. As for financial liabilities, the rules for classification and measurements set out in IASb39bremain unchanged in IFRSb9, with the exception of financial liabilities which the entity chooses to recognise at fair value through profit and loss (fair value through profit and loss option). Variations in value related purely to the credit risk of debts recognised at fair value through profit or loss will be posted as other items of non-recyclable comprehensive income and no longer as profit or loss. The provisions of the standard covering the de-recognition of financial assets and liabilities remain unchanged in IFRSb9. Based on the characteristics of the financial assets held by the Group and the management models analysed, the main classifications anticipated at 1bJanuary 2018 break down as followsb: P most of the loans and receivables due from credit institutions and customers are eligible for recognition at amortised cost under IFRSb9, with the exception of those which do not meet the contractual characteristics; P securities held to maturity remain eligible for recognition at amortised cost; P available-for-sale financial assets per IASb39: P debt securities will be classified at amortised cost or at fair value through non-recyclable equity, depending on the management model, P investments in share-type equity instruments will be classified under the fair value through equity option, P shares held in collective investment funds (investment funds, UCITS, etc.), equity stakes with an embedded put option and debt instruments which can be converted into equity (convertible bonds) do not meet the contractual characteristics criteria and will therefore be recognised at fair value through profit or loss. Impairments IFRSb9bintroduced a new impairment model which requires recognition of Expected Credit Losses (ECL) from investments in debt instruments measured at amortised cost or fair value through recyclable equity, loan commitments and financial guarantee contracts not recognised at fair value, and lease receivables and commercial receivables. These impairments and provisions will be recognised as soon as the corresponding financial assets enter the balance sheet without waiting for objective evidence of impairment. The aim of this new ECL approach is to allow credit risk expense to be recognised as and when the credit margin included in interest income is posted to profit or loss.

The concept of credit risk provision, introduced by IFRSb9, provides for classification of the assets into three separate categories (referred to as “stages” in the remainder of the document), according to changes in the underlying credit risk from the time of granting. The method used to calculate the provision differs according to which of the three stages an asset belongs to. This is defined as follows: P stageb1: is for “performing” assets, i.e . assets for which the counterparty risk has not increased since they were granted. The provision calculation is based on the Expected Loss within the following 12bmonths. Interest is calculated on a gross value (thus, the provision charge does not affect the interest margin); P stageb2: are assets for which a significant increase in credit risk has been observed since they were first entered in the accounts. The provision calculation is based on the Expected Loss on maturity of the contract. Interest is calculated on a gross value; P stageb 3: is for assets for which there is an objective impairment indicator (identical to the notion of default currently used by the Group to assess the existence of objective evidence of impairment). The provision calculation is based on the Expected Loss on maturity of the transaction (with a 100% default probability). Interest is calculated on a net value (in the same way as IASb39, in the event of impairment). The significant increase in credit risk can be measured individually or collectively. The Group will examine all the information at its disposal (internal and external, including historic data, information about the current economic climate, reliable forecasts about future events and economic conditions) without incurring additional work or expense. The impairment model is based on the expected loss, which must reflect the best information available at the year-end, adopting a forward looking approach. To measure the significant increase in credit risk of a financial asset since its entry into the balance sheet, which involves it moving from stage 1bto stage 2band then to stage 3, the Group has created a methodological framework which sets out the rules for measuring the deterioration of the credit risk category. The methodology selected is based on several criteria, including internal ratings, inclusion on a watchlist and the refutable presumption of significant deterioration because of monies outstanding for more than 30bdays. For assets entering stage 3, application of IFRSb9bhas not changed the notion of default the Group currently uses under IASb39. According to this standard, if the risk for a particular financial instrument is deemed to be low at year-end (a financial instrument with a very good rating, for example), then it can be assumed that the credit risk has not increased significantly since its initial recognition. This can be applied to all debt securities.

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REGISTRATION DOCUMENT 2017

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