Notes to the consolidated balance sheet: assets

1. Banks

The cash on bank accounts can be freely disposed of.

2. Short-term deposits

Mandatory reserve deposits are not available for use in FMO’s day-to-day operations.

Fair value gain on money market funds and commercial paper portfolio recorded in the profit and loss amounts to €93 (2017: €45 loss). The amount attributable to change in credit risk is fairly limited.

3. Interest-bearing securities

This portfolio contains marketable bonds with fixed interest rates.

As per January 1, 2018 all interest-bearing securities are classified as AC (before January 1, 2018 as AFS). The movements can be summarized as follows:

For the purpose of maintaining a satisfactory regulatory USD denominated liquidity coverage ratio, FMO attracted hiqh quality liquid assets in the form of USD denominated bonds in 2018.

4. Derivative financial instruments and hedge accounting

Use of derivatives and hedge accounting

Derivatives are held for both hedge accounting and non-hedge accounting purposes. FMO uses derivatives for economic hedging purposes in the management of its asset and liability portfolios and structural positions. The objective of economic hedging is to enter into positions with an opposite risk profile to an identified exposure to reduce that exposure. The objective of FMO hedging activities is to optimize the overall cost to the bank of accessing debt capital markets and to mitigate the market risk which would otherwise arise from structural imbalances in the duration and other profiles of its assets and liabilities. The accounting treatment of hedge transactions varies according to the nature of the instrument hedged and whether the hedge qualifies under the IFRS hedge accounting rules. Derivatives that qualify for hedge accounting under IFRS are classified and accounted for in accordance with the nature of the instrument hedged and the type of IFRS hedge model that is applicable. FMO conducts fair value hedge accounting which is described below. To qualify for hedge accounting under IFRS, strict criteria must be met. Certain hedges that are economically effective from a risk management perspective do not qualify for hedge accounting under IFRS. The fair value changes of derivatives relating to such non-qualifying hedges are taken to the statement of profit or loss and recorded under the line results from financial transactions. If hedge accounting is applied under IFRS, it is possible that during the hedge a hedge relationship no longer qualifies for hedge accounting and hedge accounting cannot be continued, even if the hedge remains economically effective. As a result, the volatility arising from undertaking economic hedging in the statement of profit or loss may be higher than would be expected from an economic point of view. With respect to exchange rate and interest rate derivative contracts, the notional or contractual amount of these instruments is indicative of the nominal value of transactions outstanding at the balance sheet date; how-ever they do not represent amounts at risk.

Micro fair value hedge accounting

FMO only applies prospective micro-hedging strategies, hence at hedge inception the prospective test is conducted. FMO’s micro fair value hedges consist of interest rate swaps that are used to protect against changes in the fair value of fixed-rate instruments due to movements in market interest rates. Gains and losses on derivatives designated under fair value hedge accounting and hedged items are recognized in the statement of profit or loss.

For the year ended December 31, 2018, FMO recognized hedge ineffectiveness of a net profit of €4.1 million on the micro fair value hedges (2017: €4.6 million net loss). The profit on the hedging instruments amounts to €10.2 million (2017: €9.2 million loss). The loss on hedged items attributable to the hedged risk amounts to €6.1 million (2017: €4.6 million profit). The result is mainly attributed to widening of spreads between 3-month reference rates and Overnight-Index-Swap rates (OIS). The reported hedge ineffectiveness did not imply FMO to classify the existing hedge relations as broken.

The amounts relating to derivatives designated as fair value hedging instruments and hedge ineffectiveness were as follows:

At December 31, 2018, FMO held the following interest rate swaps as hedging instruments in fair value hedges of interest rate risk.

The amounts relating to items designated as hedged items were as follows:

The comparative figures under IAS 39 for derivatives have been included in the following table.

Derivatives other than hedging instruments

The following table summarizes the notional amounts and the fair values of the ‘derivatives other than hedging instruments’. These derivatives are held to reduce interest rate risks and currency risks but do not meet the specified criteria to apply hedge accounting at reporting period. The following table also includes derivatives related to the asset portfolio.

Total of 'derivatives other than hedging instruments' and 'derivatives designated as fair value' amounts to EUR 247,823 for assets and 217,174 for liabilities.

The comparative figures under IAS 39 for derivatives have been included in the following table.

5. Loans to the private sector

These loans to the private sector comprise of:

• Loans to the private sector in developing countries are for the account and risk of FMO;

• Loans in developing countries which are individually guaranteed by the Dutch State for 80% to 95% or other financial guarantors. Any losses will be compensated by the guarantors up to the guaranteed amount. Refer to our Credit Risk Management Chapter for details of these guarantees received. 

The movements of these loans can be summarized as follows: 

The contractual amount of assets that were written off during the period are still subject to enforcement activity. 

The following table summarizes the loans segmented by sector.

For definition and more details on non-performing loans, we refer to section 'Credit Risk' within the Risk Management paragraph.

The movements in the gross carrying amounts for the loans to the private sector at AC are as follows:

6. Equity investments

These equity investments in developing countries are for FMO’s account and risk. The movements in fair value of the equity investments are summarized in the following table. Equity investments of FMO are measured at FVPL or measured at FVOCI.

The following table summarizes the equity investments segmented by sector:

At January 1, 2018 FMO has designated 3 investments as shown in the following table as equity investments at FVOCI. In 2017 these equity investments were classified as AFS. The FVOCI designation was made because the investments are expected to be held for long-term strategic purposes.

None of these strategic investments were disposed of during 2018, and there were no transfers of any cumulative gain or loss within equity relating to these investments.
 

7. Investments in associates

The movements in net book value of the associates are summarized in the following table.

All investments in associates from FMO are valued based on the equity accounting method.

On July 21, 2016 FMO signed an agreement to set up an investment vehicle, Arise B.V., together with Norfund and Rabobank. This investment vehicle is set up to invest in African financial institutions. The commitment for FMO amounts to USD 211 million. In 2017 FMO distributed USD 86,9 million in cash and finalized the distribution of assets to Arise B.V. with an underlying value of USD 3,7 million. As of 31 December 2018 our outstanding commitment towards Arise B.V. amounts to USD 46,8 million.

Arise B.V. is a private limited liability company incorporated in the Netherlands whose statutory seat is registered at Croeselaan 18, 3521 CB Utrecht, the Netherlands and registered in the Dutch commercial register under number 64756394. FMO’s share and voting rights in Arise B.V. is 27%.

The following table summarizes the associates segmented by sector.

The following table summarizes FMO’s share in the total assets, liabilities, total income and total net profit/loss of the associates.

8. Impairment

All interest-bearing securities (credit quality of AA+ or higher) and banks (credit quality of BBB- or higher) are classified as Stage 1. An amount of €64 is calculated for the ECL of both asset classes as per December 31, 2018.

Below follows the movement in ECL for AC loans:

Below follows the value adjustments during 2017 for AC loans:

The impairments related to guarantees are included in provisions (see Note 17).

FMO’s own risk participation with regard to FOM (5% to 20%) is not guaranteed. The guaranteed part is recorded under other receivables (see also Note 11). In 2018 no amounts where claimed towards the guarantors which where recorded in the value adjustments (2017: nil).

ECL assessment

The table show the values of the IMF GDP forecasts used in each of the economic scenarios for the ECL calculations for 2018 and 2019. The upside and downside scenario calculations are derived from the base case scenario, adjusted based on an indicator of public debt to GDP in emerging markets.

The following tables outline the impact of multiple scenarios on the ECL allowance as at January 1, 2018 and December 31, 2018:

We also refer to our accounting policy on macro-economic scenarios on PD estimates.

9. Property, plant and equipment

Software related assets are included in the ICT equipments and amount to €11,3 million (2017: €8,2 million).

10. Current accounts with State funds and other programs (assets)

11. Other receivables

Debtors related to equity investments reflects dividend receivables and sales proceeds of our private equity portfolio. The significantly decrease is predominantly due to one large exit in December 2017 amounting to €98 million. This amount has been received in January 2018.