SFIL Annual financial report 2018

1 I Management report 6 SFIL Annual Financial Report 2018 Highlights of 2018 In 2018, SFIL fully discharged its key missions, which involve using its subsidiary Caisse Française de Financement Local to finance loans granted by La Banque Postale to eligible French local government entities and public hospitals, sup‑ plying specialized services to La Banque Postale and Caisse Française de Financement Local and managing the final stages of its structured loan portfolio sensitivity reduction policy. Since 2017, SFIL has become the biggest provider of liquidity to the State-guaranteed export credit sector, and it continued to expand its activity in this second business line in 2018. It also implemented its IT streamlining program early in the year. Lastly, on November 15, 2018, the French government and Caisse des Dépôts (CDC) announced that they had entered into discussions with a view to entrusting control of SFIL to CDC. The SFIL Group’s highlights of the fiscal year are described below. 1. Planned change in shareholder structure On November 15, 2018, in line with the project to create a major public sector financial hub revolving around CDC and La Poste, the French government and Caisse des Dépôts announced that they had entered into discussions with a view to transferring control of SFIL to Caisse des Dépôts. This operation will contribute to the ongoing streamlining of the organization of public financial institutions in the service of France’s regions, by merging them into the CDC Group. SFIL’s shareholder base will remain – as today – fully pub‑ lic. Its shareholders will ensure that SFIL’s financial solidity is preserved and its economic base protected, and will con‑ tinue to provide it with the support it needs, in accordance with the applicable regulations. This change in shareholder structure is expected to take place at the same time as the changes to that of La Poste and CNP Assurances. 2. Partnership with La Banque Postale (LBP) Within the framework of its partnership with SFIL, La Banque Postale granted EUR 3.6 billion in loans to the local public sector in 2018, a 12% increase compared with 2017. During this sixth year of activity, Caisse Française de Financement Local also acquired nearly EUR 3.4 billion in loans from La Banque Postale, through four transfers. Since 2015, the SFIL/LBP sys‑ tem has been recognized as the largest source of financing for the French local public sector. 3. Export credit refinancing With four transactions completed in 2018 for EUR 3.8 bil‑ lion, SFIL’s export credit activity continued to grow – by 46% relative to 2017 (also four transactions, for EUR 2.6 billion). SFIL strengthened its position as the leading liquidity pro‑ vider in the French export credit market. The plan to extend the benefit of SFIL’s export credit refi‑ nancing system to guaranteed loans for projects of strategic interest for the French overseas economy was announced in March 8, 2018. The decree governing credit insurance and the finance law relating to the enhanced guarantee came into force in December 2018. The aim is to complete the authorization process allowing SFIL to use this new proce‑ dure in 2019. The plan to extend SFIL’s export credit activity to this new guarantee will enable France to offer a financing tool comparable to the best foreign equivalents, in line with the practices observed in major exporting countries, particu‑ larly in Asia. 4. Issues by Caisse Française de Financement Local (CAFFIL) CAFFIL issued a total volume of EUR 4.9 billion in 2018 through three public issues. The first, in January 2018, was in two tranches, with a first, 8-year tranche of EUR 1 billion and a second, 15-year tranche of EUR 500 million. The second issue was in April, for EUR 1.5 billion over 10 years, and the third, in June, was for EUR 500 million over 20 years. 5. SFIL issues and certificate of deposit program SFIL launched two long-term issues in 2018 on the public agency market. The first, in February, was for EUR 1 billion with an 8-year maturity, and the second, in June, was for USD 1 billion with a 3-year maturity. As of December 31, 2018, outstanding certificates of deposit issued by SFIL totaled nearly EUR 600 million, unchanged from December 31, 2017. 6. Completion of the IT streamlining program SFIL passed a major milestone in its IT streamlining program in the last weekend of March 2018, when it migrated a large part of its IT system to a new, upgraded and simplified infor‑ mation system, catering in particular for its capital markets activities. It also inaugurated a single data warehouse. The successful completion of this plan, launched in 2014, means that the SFIL Group now has an IT system tailored to its roles that enables it to meet more effectively SFIL and CAF‑ FIL’s risk control and management needs as well as its reg‑ ulators’ various requirements. 7. Entity ratings A new rating agency SFIL and its subsidiary CAFFIL appointed the international rating agency DBRS in addition to their existing agencies, Moody’s and Standard & Poor’s. In September 2018, DBRS awarded SFIL a long-term rating of AA (high), i.e. only one notch below the AAA rating of France, SFIL’s reference shareholder, and a short-term rating of R-1 (high), the high‑ est in the agency’s scale. DBRS also rated the SFIL Group’s issuance programs very highly: AAA for CAFFIL’s covered bond issues, and AA (high) and R-1 (high), respectively, for SFIL’s long and short- term issues. SFIL and CAFFIL also decided to no longer apply for ratings from Fitch as from end-2018. As a result, as from January 1, 2019, the financial rating agencies that the SFIL Group uses for its issuance activity will be Moody’s, Standard & Poor’s and DBRS. SFIL’s ratings SFIL’s ratings underscore the strong ties binding it to the French State, its reference shareholder. As Moody’s French sovereign rating has a “positive” outlook and SFIL’s rat‑ ing is correlated to this State rating, its own rating (Aa3) has improved from “stable” to “positive”. Meanwhile, SFIL’s long-term rating from Standard & Poor’s remains aligned with that of France, unchanged at AA. Standard & Poor's raised its intrinsic rating for SFIL by two notches as a result of the completion of its loan sensitivity reduction program and the very positive trajectory of its results. As of December 31, 2018, SFIL’s ratings therefore stood at Aa3 with Moody’s, AA with Standard & Poor’s, AA- with Fitch and AA (high) with DBRS.