5 Financial Instruments

5.1 Accounting classification

The following table shows the carrying amounts of financial assets and financial liabilities.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which FMO has access at that date.

At June 30, 2023	FVPL - mandatorily	Fair value hedging instruments	FVOCI-equity instruments	Amortized cost	Financial liabilities used as hedged items	Total
Financial assets measured at fair value
Short-term deposits	577,485	-	-	-	-	577,485
Derivative financial instruments	180,710	7,252	-	-	-	187,962
Loans to the private sector	458,459	-	-	-	-	458,459
Equity investments	2,146,779	-	155,728	-	-	2,302,507
Total	3,363,433	7,252	155,728	-	-	3,526,413
Financial assets not measured at fair value
Banks	-	-	-	61,013	-	61,013
Current accounts with state funds and other programs	-	-	-	1,752	-	1,752
Short-term deposits	-	-	-	915,364	-	915,364
Interest-bearing securities	-	-	-	553,273	-	553,273
Loans to the private sector	-	-	-	4,557,477	-	4,557,477
Other receivables	-	-	-	16,324	-	16,324
Total	-	-	-	6,105,203	-	6,105,203
Financial liabilities measured at fair value
Derivative financial instruments	323,973	286,904	-	-	-	610,877
Other financial liabilities	81,275	-	-	-	-	81,275
Total	405,248	286,904	-	-	-	692,152
Financial liabilities not measured at fair value
Short-term credits	-	-	-	69,762	-	69,762
Debentures and notes	-	-	-	880,778	4,750,129	5,630,907
Current accounts with state funds and other programs	-	-	-	77	-	77
Accrued liabilities	-	-	-	48,012	-	48,012
Other liabilities	-	-	-	21,390	-	21,390
Total	-	-	-	1,020,019	4,750,129	5,770,148

December 31, 2022	FVPL - mandatory	Fair value hedging instruments	FVOCI-equity instruments	Amortized cost	Financial liabilities used as hedged items	Total
Financial assets measured at fair value
Short-term deposits	223,575	-	-	-	-	223,575
Derivative financial instruments	177,554	17,685	-	-	-	195,239
Loans to the private sector	486,067	-	-	-	-	486,067
Equity investments	2,130,903	-	150,733	-	-	2,281,636
Total	3,018,099	17,685	150,733	-	-	3,186,517
Financial assets not measured at fair value
Banks	-	-	-	26,807	-	26,807
Current accounts with state funds and other programs	-	-	-	956	-	956
Short-term deposits	-	-	-	1,144,801	-	1,144,801
Interest-bearing securities	-	-	-	537,825	-	537,825
Loans to the private sector	-	-	-	4,623,568	-	4,623,568
Other receivables	-	-	-	17,251	-	17,251
Total	-	-	-	6,351,208	-	6,351,208
Financial liabilities measured at fair value
Derivative financial instruments	335,045	275,931	-	-	-	610,976
Other financial liabilities	82,328	-	-	-	-	82,328
Total	417,373	275,931	-	-	-	693,304
Financial liabilities not measured at fair value
Short-term credits	-	-	-	52,156	-	52,156
Debentures and notes	-	-	-	877,005	4,695,248	5,572,253
Current accounts with state funds and other programs	-	-	-	1,058	-	1,058
Accrued liabilities	-	-	-	24,466	-	24,466
Other liabilities	-	-	-	52,263	-	52,263
Total	-	-	-	1,006,948	4,695,248	5,702,196

5.2 Short-term deposits

	June 30, 2023	December 31, 2022
Collateral delivered (related to derivative financial instruments)	529,905	521,575
Dutch central bank	357,382	598,369
Mandatory reserve deposit with Dutch central bank	5,220	2,324
Collateral delivered to European Central Bank	2,946	2,130
Other short-term deposits	19,911	20,403
Short term deposits measured at AC	915,364	1,144,801
Commercial paper	531,691	200,203
Money market funds	45,794	23,372
Short term deposits measured at FVPL	577,485	223,575
Balance at December 31	1,492,849	1,368,376

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

5.3 Derivatives

FMO uses various derivatives to hedge it's assets and liabilities against interest rate risk and market risk. During the first half of 2023, the derivatives position has decreased and is related to maturing or termination of interest rate swaps and cross - currency interest swaps (see tables below).

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

		Carrying amount
June 30, 2023	Notional amount	Assets	Liabilities	Change in fair value used for calculating hedge ineffectiveness	Ineffectiveness recorded in profit or loss	Line item in P&L that includes hedge ineffectiveness
Interest rate swaps	5,049,738	7,252	286,904	-1,741	-3,306	Results from financial transactions

December 31, 2022
Interest rate swaps	5,004,270	17,685	275,931	-339,323	2,573	Results from financial transactions

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

June 30, 2023	Carrying amount of the hedged item	Accumulated amount of fair value hedge adjustments on the hedged item included in the carrying amount of the hedged item
Balance sheet line item	Liabilities	Assets	Liabilities	Change in fair value used for calculating hedge ineffectiveness	Accumulated amount remaining in the balance sheet for any hedged items that have ceased to be adjusted for hedging gains and losses
Debentures and notes	4,750,129	-	-	-1,565	-

December 31, 2022
Debentures and notes	4,695,248	-	-	341,896	-

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.

June 30, 2023	Notional amounts	Fair value assets	Fair value liabilities
Derivatives other than hedge accounting instruments:
ˑ Currency swaps	89,926	460	388
ˑ Interest rate swaps	1,243,828	65,649	709
ˑ Cross-currency interest rate swaps	3,375,953	114,601	310,366
Subtotal	4,709,707	180,710	311,463
Derivatives related to asset portfolio	-	-	12,510
Total derivative assets /(liabilities) other than hedge accounting instruments	4,709,707	180,710	323,973

December 31, 2022	Notional amounts	Fair value assets	Fair value liabilities
Derivatives other than hedge accounting instruments:
ˑ Currency swaps	69,999	550	402
ˑ Interest rate swaps	950,141	56,697	3,611
ˑ Cross-currency interest rate swaps	3,626,236	120,307	317,144
Subtotal	4,646,376	177,554	321,157
Derivatives related to asset portfolio	-	-	13,888
Total derivative assets /(liabilities) other than hedge accounting instruments	4,646,376	177,554	335,045

5.4 Equity Investments

The negative change in fair value as per June 2023 is mainly driven by FX exchange results. Unrealized results from capital movement for FVPL positions is €21 million, please also refer to note 12.

	Equity measured at FVOCI	Equity measured at FVPL	Total
Net balance at January 1, 2023	150,733	2,130,903	2,281,636
Purchases and contributions	-	180,965	180,965
Conversion of loans to equity	-	-	-
Conversion Associate/FVPL	-	-	-
Return of Capital (including sales)	-	-149,749	-149,749
Changes in fair value	4,995	-15,340	-10,345
Total balance at June 30, 2023	155,728	2,146,779	2,302,507

1 ^{1 Other changes relate to consolidation of FMO's Ventures Program (refer to the section group accounting and consolidation in the accounting policies chapter).}

	Equity measured at FVOCI	Equity measured at FVPL	Total
Balance at January 1, 2022	140,425	1,876,825	2,017,250
Purchases and contributions	-	279,815	279,815
Conversion of loans to equity	-	938	938
Transfer associate/FVPL	-	-18,923	-18,923
Return of capital (including sales)	-	-105,019	-105,019
Changes in fair value	10,308	49,808	60,116
Other changes¹	-	47,459	47,459
Total balance at December 31, 2022	150,733	2,130,903	2,281,636

1 ^{1 Other changes relate to consolidation of FMO's Ventures Program (refer to the section group accounting and consolidation in the accounting policies chapter).}

5.5 Associates

	June 30, 2023	December 31, 2022
Net balance	297,960	298,737
Purchases and contributions	2,058	14,715
Conversion from loans to equity	-	16,770
Conversion Associates/FVPL	-	18,924
Return of capital (including sales)	-6,657	-10,929
Share in net results	32,102	-58,597
Exchange rate differences	-17,256	18,340
Total	308,207	297,960

5.6 Other Financial Liabilities

Net balance at January 1, 2023	82,328
Purchases and contributions	1,445
Return of Capital (including sales)	-
Changes in fair value	-2,498
Total balance at June 30, 2023	81,275

5.7 Fair values

Fair value hierarchy

All financial instruments for which fair value is recognized or disclosed are categorized within the fair value hierarchy, based on lowest level input that is significant to the fair value measurement as a whole, as follows:

Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3 – Valuation technique for which the lowest level input that is significant to the fair value measurement is unobservable.

Valuation processes

For recurring and non-recurring fair value measurements categorized within Level 3 of the fair value hierarchy, FMO uses the valuation processes to decide its valuation policies and procedures and analyze changes in fair value measurement from period to period.

FMO’s fair value methodology and governance over applied methods includes a number of controls and other procedures to ensure appropriate safeguards are in place to ensure quality and adequacy. The responsibility of ongoing measurement resides with the relevant departments. Once submitted, fair value estimates are also reviewed and challenged by the Investment Risk Committee (IRC). The IRC approves the fair values measured including the valuation techniques and other significant input parameters used. The appropriateness of the valuation techniques applicable to the underlying instruments is assessed as part of the valuation process and any potential changes between levels in the fair value hierarchy are considered.

Valuation techniques

When available, the fair value of an instrument is measured by using the quoted price in an active market for that instrument (level 1). A market is regarded as active if transactions of the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

If there is no quoted price in an active market, valuation techniques are used that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. Valuation techniques include:

Recent broker/ price quotations
Discounted cash flow models
Option-pricing models

The techniques incorporate current market and contractual prices, time to expiry, yield curves and volatility of the underlying instrument. Inputs used in pricing models are market observable (level 2) or are not market observable (level 3). A substantial part of fair value (level 3) is based on net asset values.

Investments are measured at fair value when a quoted market price in an active market is available or when fair value can be estimated reliably by using a valuation technique. The main part of the fair value measurement related to investments (level 3) is based on net asset values of investment funds as reported by the fund manager and are based on advanced valuation methods and practices. When available, these fund managers value the underlying investments based on quoted prices, if not available multiples are applied as input for the valuation.

The table below presents the carrying value and estimated fair value of FMO’s non fair value financial assets and liabilities.

The carrying values in the financial asset and liability categories are valued at amortized cost except for the funding in connection with hedge accounting.

Financial assets-liabilities not measured at fair value	June 30, 2023		December 31, 2022
	Carrying value	Fair Value	Carrying value	Fair value

Short term deposits at AC	915,364	915,364	1,144,801	1,144,801
Banks	61,013	61,013	26,807	26,807
Interest-bearing securities	553,273	523,384	537,825	504,720
Loans to the private sector at AC	4,557,477	4,619,101	4,623,568	4,662,490
Financial assets not measured at fair value	6,087,127	6,118,862	6,333,001	6,338,818

Short-term credits	69,762	69,762	52,156	52,156
Debentures and notes	5,630,907	5,594,799	5,572,253	5,530,569
Financial liabilities not measured at fair value	5,700,669	5,664,561	5,624,409	5,582,725

The valuation technique we use for the fair value determination of loans to the private sector and non-hedged funding is based on the discounted cash-flow method. The discount rate we apply is a spread curve based on the average spread of the portfolio.

The following table gives an overview of the financial instruments valued at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.

At June 30, 2023	Level 1	Level 2	Level 3	Total

Financial assets mandatorily at FVPL
Short-term deposits	577,485	-	-	577,485
Derivative financial instruments	-	187,962	-	187,962
Loans to the private sector	54,393	-	404,066	458,459
Equity investments	53,947	-	2,092,832	2,146,779

Financial assets at FVOCI
Equity investments	-	-	155,728	155,728
Total financial assets at fair value	685,825	187,962	2,652,626	3,526,413

Financial liabilities mandatorily at FVPL
Derivative financial instruments	-	598,367	12,510	610,877

Financial liabilities designated at FVPL
Other financial liabilities	-	-	81,275	81,275
Total financial liabilities at fair value	-	598,367	93,785	692,152

December 31, 2022	Level 1	Level 2	Level 3	Total

Financial assets mandatorily at FVPL
Short-term deposits	223,575	-	-	223,575
Derivative financial instruments	-	195,239	-	195,239
Loans to the private sector	53,917	-	432,150	486,067
Equity investments	33,851	-	2,097,052	2,130,903

Financial assets at FVOCI
Equity investments	-	-	150,733	150,733
Total financial assets at fair value	311,343	195,239	2,679,935	3,186,517

Financial liabilities mandatorily at FVPL
Derivative financial instruments	-	597,088	13,888	610,976

Financial liabilities designated at FVPL
Other financial liabilities	-	-	82,328	82,328
Total financial liabilities at fair value	-	597,088	96,216	693,304

Movements in financial instruments measured at fair value based on level 3	Derivative financial instruments	Loans to the private sector	Equity investments	Total financial assets	Derivative financial instruments	Total financial liabilities

Balance at January 1, 2022	-	562,147	1,947,116	2,509,263	9,178	9,178
Total gains or losses						-
-In profit and loss (changes In fair value)	-	-21,252	6,045	-15,207	4,623	4,623
-In other comprehensive income (changes in fair value)	-	-	10,308	10,308	-	-
Purchases /disbursements	-	10,964	279,815	290,779	-	-
Sales/repayments	-	-139,741	-105,019	-244,760	-	-
Interest capitalization	-	6,746	-	6,746	-	-
Write-offs	-	-1,450	-	-1,450	-	-
Accrued income	-	3,822	-	3,822	-	-
Exchange rate differences	-	25,583	80,047	105,630	87	87
Derecognition and/or restructuring FVPL versus AC	-	2,570	-	2,570	-	-
Conversion from loans to equity	-	-17,239	938	-16,301	-	-
Conversion associate/FVPL	-	-	-18,924	-18,924	-	-
Other changes¹	-	-	47,459	47,459	-	-
Balance at December 31, 2022	-	432,150	2,247,785	2,679,935	13,888	13,888
						-
Total gains or losses						-
-In profit and loss (changes In fair value)	-	37,117	128	37,245	-1,326	-1,326
-In other comprehensive income (changes in fair value)	-	-	4,995	4,995	-	-
Purchases /disbursements	-	1,594	180,965	182,559	-	-
Sales/repayments	-	-22,571	-149,749	-172,320	-	-
Interest Capitalization	-	-	-	-	-	-
Write-offs	-	-40,281	-	-40,281	-	-
Accrued income	-	3,828	-	3,828	-	-
Exchange rate differences	-	-7,771	-35,564	-43,335	-52	-52
Balance at June 30, 2023	-	404,066	2,248,560	2,652,626	12,510	12,510

Valuation techniques and unobservable inputs used measuring fair value of loans to the private sector

Type of debt investment	Fair value at June 30, 2023	Valuation technique	Range (weighted average) of significant unobservable inputs	Fair value measurement sensitivity to unobservable inputs

Loans	61,286	Discounted cash flow model	Based on client spread	A decrease/increase of the used spreads with 1% will result is a higher/lower fair value of approx €2.0 million
	113,074	ECL measurement	Based on client rating	An improvement / deterioration of the Client Rating with 1 notch wil result 0.4% increase/decrease
	41,615	Credit impairment	n/a	n/a
Debt Funds	188,091	Net Asset Value	n/a	n/a
Total	404,066

Valuation techniques and unobservable inputs used measuring fair value of equity investments

Type of equity investment	Fair value at June 30, 2023	Valuation technique	Range (weighted average) of significant unobservable inputs	Fair value measurement sensitivity to unobservable inputs

Private equity fund investments	1,321,929	Net Asset Value	n/a	n/a
Private equity direct investments	41,946	Recent transactions	Based on at arm’s length recent transactions	n/a
	575,251	Book multiples	1.0 – 1.3	A decrease/increase of the book multiple with 10% will result in a lower/higher fair value of €51 million.
	198,414	Earning Multiples	Depends on several unobservable data such as EBITDA multiples (range 1.0 - 12.8)	A decrease/increase of the used unobservable data with 10% will result in a lower/higher fair value of €22million.
	41,015	Discounted Cash Flow (DCF)	Based on discounted cash flows	A decrease/increase of the used unobservable data with 10% will result in a lower/higher fair value of €4 million.
	57,729	Put option	The guaranteed floor depends on several unobservable data such as IRR, EBITDA multiples, book multiples and Libor rates	A decrease/increase of the used unobservable data with 10% will result in a lower/higher fair value of €8 million.
	12,276	Firm offers	Based on offers received from external parties	n/a
Total	2,248,560