Financial performance
Financial results
For the financial year ending on 31 December 2023, our net profit increased to €65 million compared to a net profit of €1 million we reported for the same period last year. Despite ongoing political tension within several of the regions in which we operate, FMO’s markets and customers have shown resilience. Loan impairments and revaluations34 recognized in the current year amount to a €23 million loss, compared to a €176 million loss in 2022. Last year, the impairments were significantly impacted by the war in Ukraine and political unrest in Myanmar and Sri Lanka.
In 2023, interest rates continued to increase in the United States, the Euro area and other parts of the world, with signs that rates may be stabilizing towards the last quarter of the year. The increasing interest rates resulted in an increase in interest income amounting to €533 million (2022: €351 million) and interest expenses amounting to €311 million (2022: €116 million). Overall, net interest and fee income decreased by €18 million, from €233 million to €215 million. This was partly driven by increases in the funding portfolio, which was subject to floating interest rates, whereas part of the lending portfolio contains fixed rate loans with rates derived in periods when interest rates were lower. The increase in short-term deposits, along with the additional floating rate funding for the year, further contributed to the overall net interest income. FMO's regular income34 decreased from €310 million to €293 million, primarily as a result of the decrease in net interest and fee income, partly offset by higher dividend income.
A large share of FMO’s equity portfolio is denominated in US Dollars. The overall trend in the EUR/USD exchange rate for 2023 showed a weakening of the US Dollar versus the Euro. This resulted in a negative impact on the investment portfolio, where a €46 million foreign exchange loss was recorded on the private equity portfolio, next to this local currencies showed a loss of €16 million (2022: EUR/USD €90 million gain, local currencies €7 million loss).
The revaluation of equity investments34 amounted to a gain of €62 million (2022: €128 million loss), mostly driven by the following movements:
Unrealized fair value gains on the equity portfolio of €13 million (2022: €33 million loss).
Gains from associates of €14 million (2022: € 61 million loss).
Realized gains on the sale of investments of €9 million (2022: €1 million loss).
Gains associated with accounting for FMO's participation in the Venture Capital program of €27 million (2022: € 33 million loss).
The results for other pertinent line items were as follows:
The results on derivatives34 showed a loss of €21 million on treasury derivatives (2022: €47 million gain).
Operating expenses increased to €178 million (2022: €152 million), mostly resulting from an increase in staff-related costs.
The NPE ratio34 for the lending portfolio on 31 December 2023 was 9.8 percent, which decreased from 11.9 percent in 2022 due to write-offs on long outstanding exposures.
Cash flow
The net cash flow for the year was an inflow of €546 million. Net cash flows from operating activities amounted to an inflow of €82 million. Cash outflows from new investments in the PE portfolio were offset by cash receipts from the lending portfolio.
Capital position
For the year ending 31 December 2023, FMO’s capital position remained above the minimum levels required by the Dutch Central Bank as well as the requirements of FMO’s own internal risk appetite framework. The total capital ratio decreased to 23.0 percent (2022: 24.9 percent). The CET–1 ratio decreased to 22.0 percent (2022: 23.8 percent).34 The movement in both ratios was driven primarily by regulatory changes impacting the calculation capital requirements.
FMO’s liquidity ratios remained within the predefined limits with a liquidity funding ratio (LCR) of 686 percent for the current financial year. The survival period was more than 12 months (2022: more than 12 months). The net stable funding ratio (NSFR) was 114 percent at the end of the financial year (2022: 114 percent).
FMO maintained its AAA ratings from both Fitch and Standard & Poor's during the financial year. FMO’s funding portfolio increased by €489 million, where redemptions were offset by new bond issuances totaling approximately €1,536 million.
Proposal for appropriation of the net result
Taking into account the conditions set out in the State-FMO Agreement of November 16, 1998, the Management Board and Supervisory Board propose allocating the net profit as follows: distribution of €2.1 million as a cash dividend (€5.38 per share) and allocating the remaining net profit of €62.8 million to the contractual reserve.
Risk and uncertainties
FMO’s primary risk exposures are investment risk (credit risk, equity risk, concentration risk and counterparty credit risk), market risk and liquidity risk. FMO monitors developments in these areas on an ongoing basis. This includes assessments of the impact of broader global macro-economic trends, such as increasing interest rates and foreign exchange rate movements, as well as more acute impacts arising from country or region-specific political events or environmental events. Risk levels are continuously measured against predefined risk tolerances and proactive measures are taken when challenging events take place.
Risks and uncertainties also arise in the financial reporting processes related to investment valuations, the estimation of expected credit losses and impairments on the lending portfolio and the treatment of large, structured transactions. These processes rely on professional judgement, therefore there is an inherent amount of uncertainty that arises in accounting for these items. FMO embeds controls in the financial reporting and valuation processes to ensure all estimates are reasonable and free from bias.
Further information
For more details and analysis on the financial performance, please refer to the 'Consolidated statement of profit or loss' in the 'Consolidated 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.