Fair value of financial assets and liabilities

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 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 its methods includes a number of controls and other procedures to ensure appropriate safeguards are in place to ensure its 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 Financial Risk Committee (FRC). The FRC approves the fair values measured including the valuation techniques and other significant input parameters used.

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:

  1. Recent broker/price quotations;

  2. Discounted cash flow models;

  3. 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 not market observable (level 3). A substantial part of fair value (level 3) is based on net asset values.

FMO uses internal valuation models to value all (derivative) financial instruments. Due to model imperfections, there are initial differences between the transaction price and the calculated fair value. These differences are not recorded in the profit and loss at once, but are amortized over the remaining maturity of the transactions. 

Equity 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 equity 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, multiples are applied as input for the valuation. For the valuation process of the equity investments we further refer to the accounting policies and related notes within these financial statements. The determination of the timing of transfers is embedded in the quarterly valuation process, and therefore recorded at the end of each reporting period.

Other financial liabilities carried at FVPL represent amounts attributable to the Dutch State in return for their co-investment in the FMO Ventures Program (refer to the 'Group accounting and consolidation section' of the 'Accounting policy' chapter). The management of FMO's Ventures Program has the mandate to engage in transactions and also to realize any positions at a given time and call out the Program at reporting date. The amount attributable to co-investors is based on a predefined value sharing waterfall which utilizes the values of the underlying investments in the program. The underlying investments in the program are valued using the existing equity investment fair valuation techniques described in the paragraphs above. The waterfall calculation defines the timing and amount of distributions to respective co-investors and is therefore applied to estimate the fair values of the related financial liabilities.

IFRS 9 requires the adjustments in the valuation of FVPL financial liabilities related to FMO's own credit risk to be recorded in the statement of other comprehensive income. The impact of this treatment is however negligible due to the Support Agreement between the Dutch State and FMO.

The table below presents the carrying value and estimated fair value of FMO’s financial assets and liabilities, not measured at fair value.

The carrying values of the financial asset and liability categories in the table below are measured at AC except for the funding in connection with hedge accounting. The underlying changes to the fair value of these assets and liabilities are therefore not recognized in the balance sheet.

The valuation technique we use for the fair value determination of these financial instruments is the discounted cash-flow method. The discount rate we apply is a spread curve based on the average spread of the portfolio. The fair value calculation is mainly based on level 3 inputs.

Financial assets and liabilities not measured at fair value

At December 31

2023

2022

Carrying amount

Fair value

Carrying amount

Fair value

Financial assets not measured at fair value

Short term deposits at AC

1,220,359

1,220,359

1,144,801

1,144,801

Banks

49,273

49,273

26,807

26,807

Interest-bearing securities

539,708

522,820

537,825

504,720

Loans to the private sector at AC

4,295,723

3,790,288

4,623,568

4,662,490

Current accounts with state funds and other programs

488

488

956

956

Other receivables

33,677

33,677

17,251

17,251

Total financial assets not measured at fair value

6,139,228

5,616,905

6,351,208

6,357,025

Financial liabilities not measured at fair value

Short-term credits

97,114

97,114

52,156

52,156

Debentures and notes

6,060,683

5,986,337

5,572,253

5,530,569

Current accounts with state funds and other programs

43

43

1,058

1,058

Accrued liabilities

29,498

29,498

24,466

24,466

Other liabilities

35,821

35,821

52,263

52,263

Total financial liabilities not measured at fair value

6,223,159

6,148,813

5,702,196

5,660,512

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

December 31, 2023

Level 1

Level 2

Level 3

Total

Financial assets mandatorily at FVPL

Short-term deposits

170,901

442,130

-

613,031

Derivative financial instruments

-

197,150

-

197,150

Loans to the private sector

87,482

-

500,458

587,940

Equity investments

32,965

-

2,160,806

2,193,771

Financial assets at FVOCI

Equity investments

-

-

167,074

167,074

Total financial assets at fair value

291,348

639,280

2,828,338

3,758,966

Financial liabilities mandatorily at FVPL

Derivative financial instruments

-

407,968

10,871

418,839

Financial liabilities designated at FVPL

Other financial liabilities

-

-

74,003

74,003

Total financial liabilities at fair value

-

407,968

84,874

492,842

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

The following table shows the movements of financial assets measured at fair value based on level 3. All other financial liabilities are level 3 positions (refer to other financial liabilities note 15).

Movements in financial instruments measured at fair value based on level 3

Derivative financial instruments

Loans to the private sector

Equity investments

Total

Balance at December 31, 2021

-

562,147

1,947,116

2,509,263

Total gains or losses

-In profit and loss (changes In fair value)

-

-21,252

6,045

-15,207

-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

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

Transfers into level 3

-

-

-

-

Transfers out of level 3

-

-

-

-

Other changes

-

-

47,459

47,459

Balance at December 31, 2022

-

432,150

2,247,785

2,679,935

Total gains or losses

-In profit and loss (changes In fair value)

-

48,772

13,533

62,305

-In other comprehensive income (changes in fair value)

-

-

16,341

16,341

Purchases /disbursements

-

117,126

333,825

450,951

Sales/repayments

-

-50,729

-224,513

-275,242

Interest capitalization

-

4,964

-

4,964

Write-offs

-

-42,200

-

-42,200

Accrued income

-

6,010

-

6,010

Exchange rate differences

-

-13,058

-60,970

-74,028

Derecognition and/or restructuring FVPL versus AC

-

-698

-

-698

Conversion from loans to equity

-

-1,879

1,879

-

Conversion associate/FVPL

-

-

-

-

Transfers into level 3

-

-

-

-

Transfers out of level 3

-

-

-

-

Other changes

-

-

-

-

Balance at December 31, 2023

-

500,458

2,327,880

2,828,338

Other changes relate to consolidation of FMO's Ventures Program (refer to section 'Group accounting and consolidation' in the 'Accounting policies' chapter).

Type of debt investment

Fair value at December 31, 2023

Valuation technique

Range (weighted average) of significant unobservable inputs

Fair value measurement sensitivity to unobservable inputs

Loans

73,170

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 €2.6 million

113,596

ECL measurement

Based on client rating

An improvement / deterioration of the Client Rating with 1 notch wil result 0.4% increase/decrease

42,173

Credit impairment

n/a

n/a

Debt Funds

271,519

Net Asset Value

n/a

n/a

Total

500,458

Type of equity investment

Fair value at December 31, 2023

Valuation technique

Range (weighted average) of significant unobservable inputs

Fair value measurement sensitivity based on the significant unobservable inputs

Private equity fund investments

1,319,228

Net Asset Value

n/a

n/a

Private equity direct investments

22,182

Recent transactions

Based on at arm’s length recent transactions

n/a

651,617

Book multiples

1.0 – 1.9

A decrease/increase of the book multiple with 10% will result in a lower/higher fair value of €65 million.

182,160

Earning Multiples

Depends on several unobservable data such as EBITDA multiples (range 1.0 - 12.7)

A decrease/increase of the used unobservable data with 10% will result in a lower/higher fair value of €18million.

51,115

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 €5 million.

32,449

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 €3 million.

69,129

Firm offers

Based on offers received from external parties

n/a

Total

2,327,880

Transfers between levels 1 and 2 

There were no material transfers between levels 1 and 2.

Transfers from levels 1 and 2 to level 3 

There were no material transfers between level 1 and 2 to level 3.

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