At the end of 2021, we reported a net profit of €491 million. This is a significant improvement compared to the end of 2020 when we reported a loss of €205 million as a result of unfavorable global market conditions, following the COVID-19 pandemic. Given the uncertainty about economic effects at that time, this resulted in a substantial depreciation of FMO’s PE portfolio and higher impairment levels.
In 2021, global equity prices recovered across FMO’s markets and geographies. In addition, the appreciation of the US dollar increased the value of our assets. Furthermore, most of our customers were able to meet their financial obligations, despite the initial negative outlook in 2020, which has led to a net release in our impairment levels. These three factors have led to a record high profit in 2021.
The NPL ratio increased to 9.5% (2020: 9.3%). Despite the COVID-19 pandemic, the ratio did not increase substantially as a result of calling of guarantees and write-offs of impaired assets.
The following diagram presents the changes in FMO's net result during 2021 in comparison with 2020.
The financial results can be explained in more detail as follows:
Regular income, consisting of net interest income, net fee and commission income, dividend income and remuneration for services rendered, decreased by €17 million. This is mainly due to a decrease of the dividend income by €11 million. Lower dividends were received from our investees in the financial sector. Net interest income declined slightly compared to last year due to lower LIBOR rates, higher number of prepayments and relatively fewer contracted loans.
Results from our equity investments (including associates), amount to a €359 million gain that is the result of:
Appreciation of the portfolio resulting in a €252 million gain (2020: €159 million loss);
FX effects resulting in a €107 million gain (2020: €118 million loss).
Loan impairments and revaluations improved significantly by €69 million compared to 2020. This was largely driven by the net release of impairments following improved GDP forecasts and higher recoveries of the written-off loan portfolio. Impairments amounted to €9 million gain (2020: €78 million loss). Revaluations from the fair value loan portfolio amounted to a €27 million loss (2020: €9 million loss). Fair values deteriorated further for specific loans, identified as default during prior years.
Operating expenses decreased by €30 million, mostly driven by reduction of the past service cost on the pension plan. This is a result of remeasurement of the present value of the defined benefit obligation following from the new pension plan and indexation. Operating expenses amounted to €114 million (2020: €144 million).
Tax expense increased by €27 million, due to higher income tax payable following the substantial increase of the net profit in 2021. Total income tax expense amounted to €33 million (2020: €4 million).
FMO’s capital and liquidity buffers exceed the minimum required by the Dutch Central Bank and the higher requirements defined by our internal risk appetite. The total capital ratio decreased to 23.7% (2020: 24.9%). The CET–1 ratio amounted to 22.5% (2020: 23.3%). This change is a result of an increase in risk weighted assets driven by appreciation of the US dollar and Look Through requirements leading to increased deductions of financial sector exposures from own funds. FMO’s regulatory liquidity position remains robust, with consolidated liquidity coverage ratio (LCR) in accordance with the delegated act never falling below 384%. Furthermore, FMO has a survival period exceeding 8 years (2020: more than 8 years). Net stable funding ratio (NSFR) amounted to 117% (2020: 120%).
Net cashflow position amounted to -€47 million (2020: €16 million). The change is mainly driven by change in net cashflow from investment activities following higher amount of purchases of interest bearing securities and investments in associates.
FMO’s diversification strategy, with exposures diversified across sectors and countries, has proven effective during the pandemic as some economies and sectors were affected less than others. FMO continues to receive an AAA rating with a stable outlook from both Fitch and Standard & Poor's. During 2021, the funding position remained stable and FMO issued a US$ 500 million bond. Furthermore, ESG bonds being an important part of FMO's funding strategy amounted for 31% of the funding portfolio in 2021.
In accordance with Article 6 (2) of the State-FMO Agreement of November 16, 1998 and the current dividend policy, the MB and SB propose the AGM to approve the allocation of €491 million net profit (2020: €205 million net loss) as follows: distribution of €12.8 million as cash dividend equal to €32.08 per share A and B and add the remaining net profit of €478 million to the contractual reserve.
For more details and analysis on the financial performance, please refer to the 'Consolidated profit and loss account' in the financial statements. For more information about developments related to equity investments, ECL allowances and impairments, funding and liquidity refer to the Equity Risk, Credit Risk and Liquidity Risk sections in the Risk Management chapter.
- 1 This is an alternative performance measure (APM) that is not included in the financial statements. For a definition of this APM, please refer to the chapter ‘How we report’.