Notes to the consolidated balance sheet: assets

1. Banks

The cash on bank accounts can be freely disposed of. All bank accounts are classified as Stage 1

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

Current accounts can be freely disposed of and are classified as stage 1

3. Short-term deposits

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

Fair value results on money market funds and commercial paper portfolio recorded in the profit and loss amounts to a profit of €72k (2020: €59k loss). The amount attributable to change in credit risk is limited.

Short term deposits have a maturity of less than three months except for a part of commercial paper. 

Short term deposits at amortized cost are classified as Stage 1. ECL for interest bearing instruments amounts to €8k

4. Other receivables

Other receivables are classified as Stage 1.

5. Interest-bearing securities

This portfolio contains marketable bonds with fixed interest rates. All interest-bearing securities (credit quality of AA+ or higher) are classified as Stage 1. An amount of €44k (2020: €101k) is calculated for the ECL as per December 31, 2021.

All interest-bearing securities are classified as amortized cost. The movements can be summarized as follows:

6. Derivative financial instruments and hedge accounting

Use of derivatives and hedge accounting

Derivatives are held for both economic hedging purposes and for hedge accounting. FMO uses derivatives for hedging purposes in the management of its asset and liability portfolios and structural risk positions. These risks are hedged with interest rate swaps, cross currency swaps and cross currency interest rate swaps. The objective of 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 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 applies fair value hedge accounting to the funding portfolio with interest rate swaps as hedging instruments. 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; however they do not represent amounts at risk.

For the year ended December 31, 2021, FMO recognized net gain for €1.1 million for hedge ineffectiveness on the micro fair value hedges (2020: €2.8 million net gain). The loss on the hedging instruments amounts to €124.3 million (2020: €72.4 million gain). The profit on hedged items attributable to the hedged risk amounts to €125.4 million (2020: €69.6 million loss). The result is mainly attributed to higher USD average libor rates.

Micro fair value hedge accounting

FMO only applies micro-hedging strategy, hence at hedge inception the 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.

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

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

Derivatives other than hedge accounting instruments

The following table summarizes the notional amounts and the fair values of the ‘derivatives other than hedge accounting 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.

7. Loans to the private sector

These loans to the private sector include:

• 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 Government 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 tables summarize the loans segmented by sector and areas of geography.

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

8. ECL allowances - assessment

FMO calculates ECL allowances for Interest bearing Securities, Loans at private sector at AC (including off balance loan commitments) and Guarantees Given to customers. The movement in ECL allowances for each of these items is presented in their relevant notes. 

To demonstrate the sensitivity of the SICR criteria, the tables below presents the distribution of stage 2 impairments by the criteria that triggered the migration to stage 2.

The table show the values of the IMF GDP forecasts used in each of the economic scenarios for the ECL calculations for 2020 and 2021. 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 macroeconomic scenarios’ model was updated following the publication of the new macroeconomic outlook data by the International Monetary Fund (IMF) in 2021. The updates of the model based on more optimistic GDP forecast, caused new point-in-time adjustments to probability of defaults in the impairment model, leading to a release in combined stage-1 and stage-2 impairment charge.

The following tables outline the impact of multiple scenarios on the ECL allowance. Given the developments due to COVID -19 in 2020 leading to modified macroeconomic forecasts, the probabilities of macroeconomic scenarios (making point-in-time adjusted probability of default) were updated using the data provided by the International Monetary Fund (IMF).

Note that macroeconomic scenarios have been updated by using the latest available information by the IMF, as published in October 2021. Considering that no update has been made available after Russia invaded Ukraine on February 21, 2022, the impact following current events in Ukraine cannot be assessed at this stage.

• 1 The total unweighted amount for the base case scenario of €210 million is an aggregation of €206 million (ECL amount - note 7), €4 million (ECL off balance items including loan commitments - note 31)
• 2 Loans to private sector in this table include amounts related to ECL allowances for off balance loan commitments (refer to note 31)

• 1 The total unweighted amount for the base case scenario of €242 million is an aggregation of €233 million (ECL Note 7), 10 million (ECL off balance items including loan commitments - Note 3).
• 2 Loans to private sector in this table include amounts related to ECL allowances for off balance loan commitments (refer to note 31

Refer to the 'Accounting policies' chapter on macro-economic scenarios on PD estimates.

9. Equity investments

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 at FVOCI.

The following table summarizes the equity investments segmented by sector:

FMO has designated the investments shown in the following table as equity investments at FVOCI.  The FVOCI designation was made because the investments are expected to be held for long-term strategic purposes.

In 2021, the investment in TCX Investment Company has been disposed off to The Currency Exchange Fund N.V. with no result recognized in the profit and loss.

Amount recognized on fair value reserve related to TCX Investment Company is reclassified to other reserves in FMO's Shareholders' equity.
 

10. Investments in associates

The movements in the carrying amounts of the associates are summarized in the following table.

All investments in associates from FMO are measured based on the equity accounting method. Cash dividend for associates amounts to €2.7 million (2020: €7.8 million).

The following tables summarize FMO’s share in the total assets, liabilities, total income and total net profit/loss of the associates and segments the associates by sector.

Invest International is a new associate, established on July 28, 2021. Share capital is split between A-shares where the Dutch Government owns 51% and FMO 49% and B-shares which are owned for 100% by the Dutch Government.

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%.

In 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. FMO's initial commitment amounts to US$211 million. As of 31 December 2021 our remaining commitment towards Arise B.V. amounts to US$17 million.

11. Property, plant and equipment

Property, plant and equipment (PP&E) includes tangible assets which are used by FMO. These assets include buildings, office equipment and vehicles which are rented by FMO from third parties. These leases have been recognized on the balance sheet following the implementation of IFRS 16.

Furthermore, PP&E includes furniture owned by FMO and expenses related to leasehold improvements.

Right-of-use assets consists of operational leases and include building, vehicles and office equipment. 

The following table presents the maturity breakdown of the leases

12. Intangible assets

Intangible assets include expenditures associated with identifiable and unique software products or internally developed software, controlled by FMO. For internally developed software, only expenses related to development phase are capitalized. Expenses related to research phase are immediately recognized in the P&L under 'Temporary Staff Expenses'.

Impairment relates to software which is not in use anymore.