SFIL Annual financial report 2018

Management report I 1 7 Annual Financial Report 2018 SFIL Management report Report on corporate governance Consolidated financial statements in accordance with IFRS Annual financial statements in accordance with French GAAP Shareholders’ Meeting of May 29, 2019 General information 9. Continuation of the European legislative process for the adoption of the banking package The European Council and the European Parliament con‑ firmed and strengthened the measures aimed at recognizing the specific nature of public development banks that the European Commission had included in its proposed amend‑ ment of banking prudential regulations (the CRR, which notably introduces a minimum leverage ratio and a long- term structural liquidity ratio). SFIL will therefore benefit from specific, appropriate calculation rules for determining these ratios when these new requirements enter into force (two years after the text’s definitive adoption and publica‑ tion, which are expected in the first half of 2019). 10. Market volatility 2018 was marked by the following three major international events: •  continued Brexit negotiations between the European Union and the United Kingdom; •  general elections in Italy leading to the formation of an unprecedented coalition government; •  tensions relating to the increase in customs duties on cer‑ tain goods between the United States and China initially, and then between the United States and the European Union. These three events increased financial market volatility but did not materially affect the covered bond market or the SFIL Group’s issuance capacity. Caisse Française de Financement Local’s ratings There was no change in the rating of the obligations fon- cières issued by Caisse Française de Financement Local in 2018. As of December 31, 2018, CAFFIL’s ratings were as follows: Aaa with Moody’s, AA+ with Standard & Poor’s, AAA with DBRS and AA with Fitch. The outlook for each of these rat‑ ings was stable. Lastly, based on CAFFIL’s performance in terms of social and environmental responsibility, its obligations foncières are rated Prime and Positive (BBB), respectively, by the extra-financial rating agencies ISS-oekom and IMUG. 8. First application of the IFRS 9 accounting standard The IFRS 9 accounting standard came into force on January 1, 2018. It contains three main components: the classification and measurement of financial instruments, the provisioning of loans, securities and financing commitments, and hedge accounting, for which the SFIL Group has chosen to con‑ tinue to apply IAS 39 pending the entry into force of the future macro-hedging standard. The first-time application of IFRS 9 led to a 119-basis-point increase in the fully loaded CET1 ratio and a EUR 50 mil‑ lion increase in equity (see section 2 of “Operating results”: “First-time application of IFRS 9”). It will also impact results after its first-time application, due in particular to the change in the value of assets now recog‑ nized at fair value through profit or loss (non-SPPI assets). This standard therefore increases net banking income vola‑ tility in a way unrelated to the SFIL Group’s activity, as its business model involves holding all loans until their contrac‑ tual maturity. These impacts are isolated in order to restate them in the analyses of the Company’s performance.