Financial performance

The financial performance of FMO in 2019 showed mixed results. Our regular income was driven by continued stable growth of the loan portfolio whilst maintaining our margins. Furthermore, the equity investments showed initial signs of stabilization in the second half of 2019, leading to a higher valuation of the private equity portfolio compared to 2018. These positive developments, however, have been offset by a substantial increase of the level of impairments in our loan portfolio and higher operating expenses. Overall this has led to an overall net profit in 2019 of €120 million (2018: €151 million). 

2019 compared to 2018 financial results

The financial results can be explained in more detail as follows:

• Regular income which consists of interest income, fee and commission income, dividend income and remuneration for services rendered, improved with €8 million, mainly as a result of continued growth of our loan portfolio of 5% in 2019, while we maintained stable margins. As a result, interest income amounted to €215 million (2018: €210 million);

• Operating expenses increased by €24 million due to increased staff costs resulting from the recruitment of new staff and contractors. Moreover, additional project expenses were incurred related to the implementation of the strategic initiatives;

• Loan impairments and revaluations changed with €77 million. The significant change is mainly driven by impairments on the loan portfolio in 2019, which amounted to €92 million (2018: €23 million). The difficult economic situation in Argentina and stage 3 impairments on individual clients, led to a substantial increase of our credit provisions in 2019. As a consequence, our overall non-performing loans portfolio increased to 9.8% (2018: 8.4%);

• Results from our equity investments (including associates), including currency effects, amounted to a €84 million gain. (2018: €41 million gain). This gain is the result of:

• • EUR/USD FX effects: €25 million gain (2018: €44 million gain);

  • Appreciation of the portfolio, including local currency effects: €59 million gain (2018: €5 million loss). In the second half of 2019, we noted that the valuations of our investments in primarily Nigeria, Vietnam, China and Cambodia have appreciated due to stabilization in local markets;

• Corporate taxation on the profit in 2019 amounted to €2 million credit (2018: €15 million charge). The result on equity investments and dividends are exempted from corporate taxation due to the participation exemption. The profit before taxation in 2019 amounted to €118 million of which 85% are exempted results (2018: gross result €165 million / exemption 46%). The variance in the exemption percentage compared to 2018 is the result of the material impairments on the loan portfolio in 2019.

The capital position of FMO remained well within the boundaries of our risk appetite in 2019. The increase in the total capital position is primarily the result of the addition of the net profit. As a net growth in the loan- and equity portfolio of €0.6 billion was achieved in 2019, this led to an overall increase in the risk-weighted assets. This has led to a decrease in the Total Capital ratio from 25.5% in 2018 to 22.5% in 2019 and Common Equity Tier 1 ratio from 24.6% in 2018 to 21.8% in 2019.