Performance on our strategy

This chapter outlines our 2020 performance with respect to FMO’s three strategic pillars: a higher impact portfolio in our chosen industries, deeper relationships and higher productivity. 

Our response to COVID-19

The private sector is needed to address the public health, economic and social impacts of the COVID-19 crisis and safeguard employment in both the formal and informal sector. Therefore, FMO continues to work closely with its customers to boost resilience during and post-COVID-19. We are in close contact with them to understand how they expect to be impacted by the pandemic, and what, specifically, they need to overcome the current crisis and support their communities. We are closely aligning our COVID-19 response with partners.

Together with the DFI and MDB community we are committed to helping resolve current liquidity and solvency issues. Whilst FMO’s focus is typically on supporting jobs, it is unavoidable that some retrenchment takes place in the current environment. FMO works closely with its customers to protect jobs and to ensure retrenchment happens in a responsible way if necessary.

We provide our existing customers greater flexibility on previously agreed financing structures, including moratorium on debt payments for firms in distress or for firms that offer deferrals to their clients, which is common in the microfinance sector. We have approved 18 payment deferrals and 3 full restructuring requests from existing customers. We also continue to invest in new and existing business ventures, while exploring new ways to conduct due diligence and source opportunities by working closely with on-the-ground staff and external partners.

As small businesses are heavily affected, the European Commission, together with MASSIF and FMO scaled up the NASIRA program. The program is expanded to support COVID-19-affected entrepreneurs, next to female, young and migrant entrepreneurs who were already included. With these adjustments, the NASIRA guarantee will help small businesses in Africa and the European Neighborhood stay afloat during and after this pandemic. In response to the need for innovative technological solutions in our markets in Africa and Asia, FMO's NL Business team has supported several transactions by Dutch organizations, active in the Health and Water sector, based on a COVID-19 carve-out of €1 million from the Development Accelerator facility.

FMO also offers capacity development, which is comprised of three pillars, aimed to equip FMO customers with the critical knowledge, connections, and leadership they need to weather the social and economic implications of the crisis over the near- and long-term.

Pillar 1, Remote Advisory Services, helps to ensure FMO customers can achieve sustained impact and business continuity. Working through leading financial consultancies, FMO is supporting its customers on pertinent topics such as crisis management, business continuity and resilience planning, adaptive leadership and coaching, as well as in environmental, social and governance related challenges. As of July, there are 17 projects under implementation across nearly all sectors and regions. 

For Pillar 2, a Platform for Learning and Exchange, FMO is providing a space for its customers to learn from each other and to exchange experiences in dealing with the pandemic. So far, 18 webinars have been offered with approximately 700 attendees and featuring 15 customers as panelists.

For Pillar 3, the Emergency Grant Facility, FMO is providing €3.5 million in emergency funding to enable FMO customers to adapt or scale their business models. In total, 45 FMO customers are being awarded with a grant. Over 60% of grants focus on safeguarding the health and safety of affected employees, workers, and communities through the provision of personal protective equipment. The remaining 40% focus on business continuity by means of digitalization, last mile distribution of renewable energy to medical facilities and water and sanitation to communities, as well as awareness raising and education around effective health and safety measures to combat transmission.

Higher Impact Portfolio

We create higher impact by investing in regions where our impact can be greatest and in sectors that are crucial to economic, environmental and social progress. We measure our success in line with our core SDGs.

SDG 8 | Decent Work and Economic Growth

By creating or supporting jobs and strengthening local economies, we contribute to stability in underprivileged regions. Private business activity, investment and innovation are major drivers of productivity, inclusive economic growth and job creation.[1] SDG 8 calls for promoting economic growth that is sustained, inclusive and sustainable; and employment that is full, productive and decent.

Total commitments

To stimulate economic growth, FMO provides long-term financing to developing countries that the market does not provide or does not provide on an adequate scale or on reasonable terms. These countries are often characterized by a fragile private sector, little job security and high poverty rates. Our customers operate in volatile markets that are significantly impacted by macroeconomic trends like increasing commodity prices, exchange rate movements and more recently COVID-19. Long-term investments in these markets are needed now more than ever.

Description and methodology

Our contribution toward economic growth is measured by the total committed portfolio and new investments made in developing countries. Total committed portfolio reflects the risk exposure taken by FMO or another party on active commitments. For debt, this includes the outstanding portfolio plus remaining commitments that have not yet been disbursed, reduced by guarantees received from third parties; for equity, it includes the current exposure plus the remaining commitment reserved for all previously made investments; and for guarantees it includes the limit amount. New investment refers to the volume of new commitments made to customers in the first half of 2020. This includes decreases and increases of an existing commitment and new commitments to existing or new customers. Both metrics cover investments made on FMO’s own books as well as investments made through public funds, or through funds that have been mobilized from third party participants. This includes loans, equity investments, guarantees and mezzanine products. It excludes grants.

Results

In H1 2020, our total committed portfolio in developing and emerging markets amounted to €12.7 billion of which €8.6 billion was on FMO’s own books (H1 2019: €8.5 billion), €1.3 billion was through public funds (H1 2019: €1.2 billion) and €2.8 billion through mobilized funds (H1 2019: €2.8 billion). FMO’s committed portfolio grew by less than 1%. The COVID-19 pandemic and subsequent economic climate in our markets have negatively affected the activities in our debt and equity portfolios. In line with emerging market equity prices, the fair value of FMO’s private equity portfolio decreased in the first half of 2020. In addition, we closed fewer new contracts (debt and equity) than the previous year, as explained below. In our equity portfolio, several exits were postponed. But with procedures starting up again in recent weeks these are offering prospects for the near term. Furthermore, we have continued to transfer FMO participations to the FMO Investment Management funds in our efforts to mobilize more private party capital towards achieving higher impact. These funds are reflected in our direct mobilized portfolio.

In the first half of 2020, we invested a total of €520 million in developing and emerging markets of which €386 million was on FMO’s own books (H1 2019: €626 million), €65 million through public funds (H1 2019: €52 million) and €69 million through mobilized funds (H1 2019: €340 million). FMO new investments were 38% lower than the same period last year. This is explained by the current economic recession as well as the travel restrictions that inhibit FMO from carrying out its due diligence process and exploring new viable business opportunities. New investments primarily resulted from existing customers and customers that already advanced through FMO’s due diligence. In line with our strategy, approximately 55% of new investments on FMO’s own books went towards countries in Africa and Asia, while 28% of investments were made in countries in the European Neighborhood.

Jobs supported

Creating and safeguarding jobs is crucial for sustainable development, as employment paves the way out of poverty. The private sector is one of the most important employers across emerging and frontier economies. DFIs are promoters of private sector development, where job provision is a key focus. 

Description and methodology

The measurement of direct jobs is a commonly used indicator for corporates and DFIs. It enables us to report on the impact on employment as supported by our investments. Direct jobs refer to the number of full-time equivalent employees, as defined at a local level, working for the client company or on a project. In addition, we model the estimated indirect jobs supported by our portfolio businesses through supply chains, jobs supported from the spending of wages, and economy-wide employment enabled by bank lending and the supply of electricity. The additional output requires more direct employment and intermediary inputs. This in turn leads to expansion among existing and new suppliers, thereby supporting and/or creating jobs. Some products and services – most notably electricity and finance – remove constraints for other businesses, enabling them also to expand and again support and/or create jobs. In emerging markets, firm expansion is assumed not to significantly displace employment in competing businesses.

This is the first time we report according to the new Joint Impact Model (JIM). The JIM is the successor of FMO’s impact model which was introduced in 2015. Since early 2019, FMO and Steward Redqueen, together with other strategic partners, have worked on the harmonization of the underlying methodology and the inputs required. Given the change in approach, FMO has published a separate article on its public website explaining the new methodology, the first insights and next steps. A full methodological description is available on FMO's public website: Joint Impact Model

An important methodological change in this model is its ability to run at portfolio level instead of only at commitment, which has been the methodology of the current impact model so far. After careful consideration and discussion with the members of the JIM, it is recommended that the best application of the model is backward-looking (ex-post) portfolio analysis. In other words, the use of the new Joint Impact Model provides the opportunity for FMO to review the way it reports on direct and indirect jobs. This means that we are no longer estimating the expected effects in the future. Instead our focus is on what is in our current outstanding portfolio; what has already been built, and the investees of the funds we invest in. For example, we no longer include estimations on power plants built in the future, or funds’ future expected impact. FMO continues to collect information to run the JIM. Assumptions have been made where information is currently unavailable.

Results

Each investment area shows different effects. For example, in Financial Institutions, impact is mainly driven by finance enabling effects. These are Economy-wide jobs generated via financial services due to lending to businesses and individuals. Direct employment is also a strong driver for Financial Institutions as they are one of the biggest direct employers. In Energy, impact is mainly driven by power enabling effects, which attributes the number of jobs as a result of an increase in gigawatt hours (GWh) of electricity supplied to the national system. It also has very high temporary effects, which is due to the number of projects that are currently in construction phase. In Agribusiness, Food & Water, the split is distributed more evenly across supply chain effects related to the impact that stem from sourcing goods and services from producers, and Induced effects that stem from re-spending wages into the economy. Private Equity consists of corporates, funds, energy projects and financial institutions. Their impact stems from power enabling, finance enabling and induced/supply chain effects, reflecting the wide-ranging activities that Private Equity engages in.

For the first time the results also take into account Private Equity investees themselves. However, the portion linked to FMO is very small as attribution is applied at the fund and investee level. It is important to note that the model is used to estimate economy-wide effects using the latest ILO and World Bank data. This means that recent impacts from COVID-19 and other worldwide crises are not being considered in the model. 

SDG 10 | Reduced Inequalities

Through our investments FMO aims to contribute to the targets of SDG 10 – Reduced Inequalities (RI). Specifically to target 10.1: “by 2030, progressively achieve and sustain income growth of the bottom 40 per cent of the population at a rate higher than the national average” and target 10.B: “encourage official development assistance and financial flows, including foreign direct investment, to States where the need is greatest, in particular least developed countries, African countries, small island developing states and landlocked developing countries, in accordance with their national plans and programmes”.[2]

Reduced Inequalities-labelled commitments

FMO labels investments to capture whether, and the extent to which they contribute towards reduced inequalities.

Description and methodology

An investment is eligible for the RI label when the level of (ex ante) impact is targeted at Least Developed Countries (LDCs) and/or inclusive business. Funds channelled towards LDCs – countries that suffer severe structural impediments to sustainable development – reduce inequalities vis à vis higher income countries. Investing in inclusive business reduces inequalities within countries by increasing access to goods, services, and livelihood opportunities on a commercially viable basis to people at the Base of the Pyramid (BoP). The BoP is defined as people who live on less than US$8 per day in terms of purchasing power parity or who lack access to basic goods, services and sources of income. FMO’s inclusive business investments target the un(der)banked, the unconnected, youth, women, smallholder farmers and rural populations.

Results

In the first half of 2020, FMO invested a total of €185 million in reducing inequalities (H1 2019: €231 million) of which €101 million was from FMO’s own books, €40 million was managed on behalf of the Dutch government and €44 million was from mobilized funds. €69 million contributed towards LDCs and €116 million contributed towards inclusive businesses. Overall, this represents a 20% decrease compared to the same period last year, caused by the lower volumes of new investment achieved by the business. Nevertheless, the total committed portfolio that was labelled RI increased from approximately €3.5 to €3.8 billion in the same period, representing a 30% share of the total committed portfolio. This increase is explained by the new investments that were achieved at the end of 2019.

Gender

In May 2019 FMO joined the “2X Challenge – Financing for Women”. The 2X Challenge is a multilateral initiative launched during the G7 Charlevoix Summit with the ambitious objective of deploying and mobilizing unprecedented amounts of capital to support projects and enterprises that empower women as entrepreneurs, as business leaders, as employees and as consumers of products and services that enhance their economic participation.

Description and methodology

As part of the program, evidence-based eligibility criteria have been developed around five focus areas: entrepreneurship, leadership, employment, consumption and investments through financial intermediaries. The Gender Finance Collaborative, in which FMO also participates, translated these into a set of indicators which have been harmonized with the Global Impact Investing Network’s IRIS+ system. To qualify, an investment needs to meet at least one of the criteria with the intent of maintaining it.

Results

In H1 2020, a total of €32 million was committed through our Financial Institutions and Energy investments which qualified under the leadership and consumption criteria. €3 million was on FMO’s own books, €10 million was from public funds and €19 million was from mobilized funds.

SDG 13 | Climate Action

FMO contributes to the commitment among developed countries, as stated by the UN Framework Convention on Climate Change, to jointly mobilize US$100 billion annually by 2020 to address the needs of developing countries in the context of meaningful mitigation actions (target 13.A).[3]


Green-labelled commitments

Tackling climate change has been central to our strategy since we adopted our 2050 vision in 2013. FMO’s ambition is to align its investment portfolio to a 1.5֯ pathway. One way to support this ambition is to grow our “Green” portfolio, which is aimed at reducing greenhouse gas emissions, increasing resource efficiency, preserving and growing natural capital, and supporting climate adaptation. FMO labels investments to capture whether, and the extent to which they contribute towards climate action.

Description and methodology

FMO’s Green Definition is based on the existing common Principles of Climate Mitigation as defined in the Multilateral Development Banks (IDFC-MDB) report for Climate Finance Tracking. All Green investments should meet FMO’s Green principles, leading to genuine improvement as follows: the improvement 1) goes beyond the local regulatory requirements; 2) is unrelated to stress on local resources; and 3) is sustainable throughout the value chain of an industry or a business. Moreover, Green investments should not contribute to a long-term lock-in of high carbon infrastructure. FMO’s Green criteria, eligible investments and internal Green label process are further described in our Green Methodology available on FMO’s public website.

Results

The majority of our Green-labelled investments flow towards renewable energy projects (wind, solar, hydro), agriculture and so-called Green credit lines. In the first half of 2020, FMO invested a total of €151 million in Green projects (H1 2019: €323 million) of which €108 million was on FMO’s own books, €39 million was managed on behalf of the Dutch government and €4 million was from mobilized funds. This represents a 53% decrease compared to the same period last year, caused by fewer Green transactions in the Energy and Financial Institutions sector and an increase in the number of Private Equity fund investments, which only qualify for a Green label if more than 50% of the expected pipeline or portfolio volume of the fund support activities that fall within FMO's Green definition. Nevertheless, the total committed portfolio that was labelled Green increased from approximately €3.8 to €4 billion in the same period, representing a 32% share of the total committed portfolio. This increase is explained by the new investments that were achieved at the end of 2019.

ESG Performance

FMO monitors all customers with high or medium ESG risks against internationally accepted ESG standards and in line with contractual agreements. We support our customers in managing the environmental, social and corporate governance risks and impacts of their business ventures. We step up our engagement when ESG issues arise or a customer’s ESG performance is below standard.

Description and methodology

The ESG target and results cover all customers with a high or medium ESG risk profile. This includes customers with Environmental & Social (E&S) risk categories A or B+ or those supported by a corporate governance officer. In the first half of 2020, this translated to 303 customers. FMO identifies and rates performance on ESG risks that apply to each customer at the start and during the relationship. FMO includes ESG requirements and conditions in all its contractual agreements with its customers. These requirements are based on local laws, the IFC Performance Standards, the World Bank Group Environmental, Health & Safety Guidelines and the G20/OECD Principles of Corporate Governance. Each customer’s ESG performance is re-evaluated as part of FMO’s annual Client Credit Review cycle. We expect 90% of their high and medium ESG risks to be managed in line with international standards, or with a clear strategy in place for meeting them.

Results

In the first half of 2020, we completed annual reviews for 124 customers. Following these reviews, 97% of all high and medium ESG risks in our portfolio appear to be managed in line with, or with a clear strategy towards, meeting international standards. The remaining 3% of risks will be addressed with each customer. FMO has an appetite for managed risk in our portfolio. In case of gaps in ESG risk management, FMO works with its customers to develop and implement an Action Plan to avoid adverse ESG impacts and/or to improve ESG risk management over time.

Later this year we will migrate to a new system and methodology to assess customer ESG performance. To enhance the granularity of our assessments we have redefined the risks under each Performance Standard and introduced five different performance levels, replacing the previous three. In the interest of continuity with respect to ESG performance reporting, the current assessments will be translated to the new methodology. The ESG performance results, based on the new methodology, as well as an update on the known E&S issues in our portfolio will be included in the next Annual Report.

Deeper Relationships

FMO attaches strategic importance to deepening relationships with our stakeholders, because by pooling resources and partnering with others we can significantly increase our impact. As part of these efforts, FMO mobilizes and blends funds, builds partnerships, manages funds on behalf of the Dutch government, supports Dutch businesses and empowers its employees and customers.

Mobilized funds

Mobilizing additional funds is important to finance the needs of the Sustainable Development Goals. Private sector investments are among the most important sources of financing to support development and growth in low- and middle-income countries. Increasing private mobilized capital is therefore a key focus for FMO.

Description and methodology

Our mobilization efforts are measured in terms of total committed portfolio and mobilized amounts in a given reporting period. Total committed portfolio reflects the risk exposure taken by third parties on active commitments. Mobilized amounts reflect the commitments made by third parties in a given reporting period, which distinguishes between new investments made to customers and transfers of risk participation from FMO to third parties. We focus on “direct mobilization”: investments made by other public and private participants due to the direct and active role of FMO. Indirect mobilization, as such, is excluded although we also participate in deals that are led by other DFIs and MDBs. Direct mobilized funds include commitments made by syndicate partners, FMO loan commitments that have been transferred to a third party (“funded risk participation”), and credit risk related to specific loan commitments that have been transferred to a third party (“unfunded risk participation”). It excludes equity investments. Parallel loans fall under the definition of direct mobilization but are excluded from the total committed portfolio figures as payments are administered by each parallel partner in the transaction and, as such, are not known by FMO.

Results 

Over the years, we built up a direct mobilized committed portfolio of €2.8 billion (1H 2019: €2.8 billion). Almost half – €1.3 billion – has been mobilized from private participants through our FIM funds and other commercial parties. Compared to the same period last year, the portfolio has not increased, which is the result of a significantly lower volume of new investments made in the first half of 2020 – €69 million (H1 2019: €340 million). This was insufficient to offset scheduled loan repayments.

Our efforts to crowd in more third-party capital towards projects with high development impact have been constrained by the economic crisis following the global COVID-19 pandemic. Commercial investors are typically more risk averse and are less interested in investing in developing and emerging markets at this stage of the crisis. Nevertheless, we continue to invest through the FIM funds and a new mobilizing vehicle established with Munich Re, which have expressed their ongoing commitment to co-investing in select FMO loans. Furthermore, we are exploring opportunities with our DFI and MDB partners to provide financing in places that need it most. We utilize one another’s networks and experiences to advance through the investment process, which is otherwise hampered by the current travel restrictions.

Public funds

Public investment partners allow us to make investments with a higher risk profile and development impact.

Description and methodology

We track the total committed portfolio as well as new investments made using the public funds we manage. This follows the same methodology as FMO funds, as described previously. Our public investment partners are the Dutch state, the European Commission and the Green Climate Fund. On behalf of the Dutch state, we manage Building Prospects, the Access to Energy Fund (AEF), the Dutch Fund for Climate and Development (DFCD) and MASSIF. With guarantees from the European Commission we were able to set up NASIRA and the Venture Capital program. We also manage the Capacity Development program that offers grants to strengthen the organizational capabilities of our customers. Finally, as an accredited entity, we receive funds from the EC and the GCF that are ultimately managed by EDFI MC (for ElectriFi, AgriFi) and by Climate Fund Managers for Climate Investor One. Grants provided through the CD program are excluded from the results.

Results

Over the years, our public funds have built up a total committed portfolio of €1.3 billion (H1 2019: €1.2), representing an increase of over 10% compared to the same period last year. This is explained by the relatively higher volume of new investments made in the past 12 months, which is reflected in a proportionally higher share of remaining commitment. 

In the first half of 2020, we invested a total of €65 million (H1 2019: €52 million) of which €32 million was through Building Prospects, €28 million was through MASSIF and €5 million was through DFCD. €13 million was invested through our Venture Capital Program to support early-stage, technology-enabled businesses. No investments were made through AEF or NASIRA during this period.

Stakeholder events

FMO organized several events for our stakeholders to share expertise, ideas and build new connections. In June, FMO and Rockstart organized the second edition of Finture Solutions, a competition to support Dutch startups and scale-ups that bring positive change in emerging markets across the world in the fields of AgriTech, Clean Energy, and Health. Since the COVID-19 pandemic prevented organizations from hosting a live pitch event, it was decided to shift to a virtual live stream event that was attended by over 100 people. After an extensive selection process, considering 80 applications and pitches of the top 10 startups, five winners were chosen. Each of these will receive €125,000 in development capital and support from FMO experts to grow their businesses. We further hosted 18 webinars and exchange platforms for approximately 700 attendees aimed at sharing knowledge, connections and expertise to equip our customers to deal with the effects of COVID-19 on their business and community.  

Employee engagement

FMO firmly believes it should practice what it preaches when it comes to the SDGs; for example with respect to Gender Equality (SDG 5). FMO has the ambition to be one of the leading organizations in the Netherlands, as well as among DFIs, in the realm of gender diversity and inclusion. 

Description and methodology

In 2019, we started reporting internally on 7 key performance indicators (KPIs) related to different gender aspects of the workforce: gender balance, recruitment, turnover, reward, bonuses, promotions and engagement.

Results

Per 30 June 2020, these indicators show a positive picture. The workforce is equally distributed, with 49% women and 51% men. The other indicators show there is no bias in recruitment, turnover, promotions or the distribution of bonuses. At least once per year, FMO conducts a (multiple linear regression) analysis to compare men's and women’s salaries, while correcting for part-time work, salary scale, age and tenure. The outcome of the latest analysis (dated 1 April 2020) showed that at a 5% significance level, there is insufficient evidence to indicate that there is a difference in the salaries paid to men and women at FMO in cases where equal work is performed. FMO awards women and men equally for the same work.

7 Gender diversity & inclusion metrics

  

total

female

male

% female

1. Gender balance

Total number of employees per June 30, 2020

622

306

316

49%

 

Employees in senior and middle management per June 30, 2020

71

30

41

42%

      

2. Staff growth

New joiners January - June 2020 (headcount)

46

21

25

 
 

Net growth percentage

3.5%

2.7%

4.3%

 
      

3. Turnover

Number of leavers January - June 2020 (headcount)

25

13

12

 
 

Turnover percentage (based on average total headcount)

4.1%

4.3%

3.9%

 
      

4. Reward

Gender Pay Gap: FMO conducts periodically (at least once per year) quantitative research to compare men and women’s salaries, while correcting for part-time work, salary scale, age and tenure to have a fair comparison. The outcome of the (multiple linear regression) analysis with reference date 1 April 2020, showed there is no sufficient evidence to indicate that there is a difference in the salaries of men and women at FMO in cases where equal work is performed.

    
      

5. Bonuses

Share of bonus amount paid in 2020

100%

44%

56%

 
      

6. Promotions

Promotion ratio January - June 2020

13%

16%

10%

 
      

7. Engagement

Engagement score based on latest survey (October 2019)

7.4

7.3

7.5

 

Over the years, FMO has become more international. More than 40 percent of our employees were born outside of The Netherlands and almost one-third has a nationality other than Dutch. In total, our colleagues represented 57 nationalities. 

Other FMO employee statistics

  
 

Jun 30, 2020

Dec 31, 2019

Number of internal employees

622

601

Number of internal FTEs

594

574

Percentage non-Dutch employees

31%

30%

Number of nationalities

57

57

Absenteeism

4.0%

4.1%

   

Number of external employees

137

114

Total number of internal and external employees

759

715

Higher Productivity

During the COVID-19 global pandemic, FMO has demonstrated it is resilient and can continue to carry out its mission while operating in a robust, effective and efficient way. The first half of the year has been focused on business continuity and further embedding KYC processes and governance in our organization.   

Business continuity

Following the outbreak of the COVID-19 pandemic, FMO quickly adapted to a new situation. Employees have been working from home and business continuity plans have been implemented and are working effectively. We adapted our governance structure to ensure quality, agility and multiple perspectives in decision-making. This entailed combining existing decision-making bodies and establishing new taskforces to monitor the impact of the coronavirus on 1) our markets and customers, so as to provide support where needed, and 2) on the liquidity and financial situation of FMO. In addition, we streamlined our processes by delegating approval authority to investment teams on providing moratoriums on principal and interest payments, by providing pricing guidance for new transactions that reflect new market realities and by providing guidance on which type of investments are eligible for digital ESG due diligence.

Know Your Customer

It is FMO’s mission to empower entrepreneurs in developing and emerging countries. FMO also plays a role as gatekeeper to help prevent Financial Economic Crime and preserve the integrity and reputation of the financial system. It is therefore key that FMO knows with whom it is establishing a business relationship. FMO only wants to deal with customers of good standing and reputation. 'Knowing' a customer means acquiring and monitoring all relevant information and documents concerning the identity of the customer, gaining insight into the business and its structure, and assessing the customer risk holistically.

In the first half of 2020, 30 training sessions on FEC and Know Your Customer were attended by an average of 30 participants per session. We have further improved the FEC / KYC policy and guidance notes. In addition, a Systemic Integrity Risk Assessment (SIRA) was conducted using an updated approach that included workshops to assess relevant risk scenarios. Stronger emphasis was made in the SIRA 2020 on risks related to financial economic crime. 

As part of the preparations to re-start work on file remediation, an assessment of high-risk triggers was performed by the investment teams in cooperation with the KYC team. This was done to ensure that the “risk buckets” we will use during file remediation fully reflect our updated FEC policies and guidance notes.

To strengthen FMO’s KYC capabilities and ensure a thorough governance of related processes, a new KYC department was formed per 1 July. The KYC department works closely with the investment teams to prepare in-depth Customer Due Diligence. The Compliance department maintains the second line of defense. We have significantly increased the number of FTEs in both the first and second lines of defense.

Financial performance


H1 2020 compared to H1 2019 financial results

FMO noted a net loss of €280 million for H1 2020. The net loss is mainly caused by the significant decline of fair value of FMO’s private equity portfolio (including investments in associates). The total fair value losses amounted to €255 million (H1 2019: loss of €1 million). The reduction in fair values can be seen across sectors and geographies and is the result of a global decline in emerging market equity prices. However, as FMO’s investees are still distributing dividends, FMO’s dividend income amounted to €20 million (H1 2019: €11 million).

The level of impairments on our loan portfolio amounted to €102 million (H1 2019: €15 million). The higher level of impairments is the result of a deterioration of the risk profiles of FMO’s sector portfolios in H1 2020. At this stage, the deterioration in risk profiles has not led to a significant increase in non-performing loans (NPLs). In H1 2020, the NPL ratio was 9.6%, which is in line with the year-end 2019 ratio of 9.8%.

The development of our interest and fee income remains stable in comparison with the same period last year.

While FMO’s total net loss is expected to have a negative effect on our capitalization, FMO’s capital ratio remains significantly above the combined ratio of the SREP minimum and FMO’s internal buffers. In the first half year of 2020, FMO raised additional capital by issuing a sustainability bond and performing a private placement of a bond in Swedish Crown. Supervisory guidance following the COVID-19 outbreak allows for the use of regulatory buffers to enable banks to support their clients and the economic recovery. 

FMO’s total capital ratio as per 30 June 2020 included €175 million of Tier 2 capital. FMO issued a new Tier 2 note in July 2020 to replace the current Tier-2 capital. The request for replacement of current Tier 2 capital in the second half year of 2020 is subject to approval from the Dutch Central Bank, our supervisor.

  • 1 United Nations (2015). Addis Ababa Action Agenda of the Third International Conference on Financing for Development. The Addis Ababa Action Agenda – endorsed by the United Nations General Assembly in July 2015 – provides a global framework for financing sustainable development by aligning all financing flows and policies with economic, social and environmental priorities.
  • 2 United Nations. Goal 10: Reduce Inequality within and among countries.
  • 3 United Nations. Goal 13: Take urgent action to combat climate change and its impacts.