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 derivative financial instruments. Due to model imperfections, there can be 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

2024

2023

Carrying amount

Fair value

Carrying amount

Fair value

Financial assets not measured at fair value

Short term deposits at AC

1,111,886

1,111,886

1,220,359

1,220,359

Banks

43,087

43,087

49,273

49,273

Interest-bearing securities at AC

481,798

470,770

539,708

522,820

Loans to the private sector at AC

5,190,518

5,027,228

4,295,723

3,790,288

Current accounts with state funds and other programs

1,336

1,336

488

488

Other receivables

18,321

18,321

33,677

33,677

Total financial assets not measured at fair value

6,846,946

6,672,628

6,139,228

5,616,905

Financial liabilities not measured at fair value

Short-term credits

216,912

216,912

97,114

97,114

Debentures and notes

6,335,981

6,431,967

6,060,683

5,986,337

Current accounts with state funds and other programs

93

93

43

43

Accrued liabilities

38,683

38,683

29,498

29,498

Other liabilities

18,861

18,861

35,821

35,821

Total financial liabilities not measured at fair value

6,610,530

6,706,516

6,223,159

6,148,813

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, 2024

Level 1

Level 2

Level 3

Total

Financial assets mandatorily at FVPL

Short-term deposits

128,755

240,726

-

369,481

Derivative financial instruments

-

126,339

-

126,339

Loans to the private sector

99,857

-

552,204

652,061

Equity investments

23,881

-

2,331,745

2,355,626

Financial assets designated at FVPL

Interest-bearing securities at FVTPL

107,596

-

-

107,596

Financial assets at FVOCI

Equity investments

-

-

201,287

201,287

Total financial assets at fair value

360,089

367,065

3,085,236

3,812,390

Financial liabilities mandatorily at FVPL

Derivative financial instruments

-

459,144

12,242

471,386

Financial liabilities designated at FVPL

Other financial liabilities

-

-

121,715

121,715

Total financial liabilities at fair value

-

459,144

133,957

593,101

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

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, 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

Total gains or losses

-In profit and loss (changes In fair value)

-

2,863

51,875

54,738

-In other comprehensive income (changes in fair value)

-

-

34,093

34,093

Purchases /disbursements

-

56,064

329,945

386,009

Sales/repayments

-

-55,088

-326,091

-381,179

Interest capitalization

-

2,252

-

2,252

Write-offs

-

-1,603

-

-1,603

Accrued income

-

4,397

-

4,397

Exchange rate differences

-

28,217

115,041

143,258

Derecognition and/or restructuring FVPL versus AC

-

11,203

-

11,203

Conversion from loans to equity

-

-289

289

-

Conversion associate/FVPL

-

-

-

-

Transfers into level 3

-

3,730

-

3,730

Transfers out of level 3

-

-

-

-

Other changes

-

-

-

-

Balance at December 31, 2024

-

552,204

2,533,032

3,085,236

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, 2024

Valuation technique

Range (weighted average) of significant unobservable inputs

Fair value measurement sensitivity to unobservable inputs

Loans

76,464

Discounted cash flow model

Based on client spread

A decrease/increase of the used spreads with 1 percent will result is a higher/lower fair value of approx. €2.4 million

93,719

Discounted cash flow model

Based on client rating

An improvement / deterioration of the Client Rating with 1 notch will result in 0.4 percent increase/decrease

50,275

Discounted cash flow model

n/a

n/a

Debt Funds

331,746

Net Asset Value

n/a

n/a

Total

552,204

Type of equity investment

Fair value at December 31, 2024

Valuation technique

Range (weighted average) of significant unobservable inputs

Fair value measurement sensitivity based on the significant unobservable inputs

Private equity fund investments

1,410,649

Net Asset Value

n/a

n/a

Private equity direct investments

60,035

Recent transactions

Based on at arm’s length recent transactions

n/a

684,116

Book multiples

1.0 – 1.90

A decrease/increase of the book multiple with 10 percent will result in a lower/higher fair value of €68 million.

141,078

Earning Multiples

Depends on several unobservable data such as EBITDA multiples (range 1.0 - 10.0)

A decrease/increase of the used unobservable data with 10 percent will result in a lower/higher fair value of €14million.

77,596

Discounted Cash Flow (DCF)

Based on discounted cash flows

A decrease/increase of the used unobservable data with 10 percent will result in a lower/higher fair value of €8 million.

9,879

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 percent will result in a lower/higher fair value of €1 million.

149,679

Firm offers

Based on offers received from external parties

n/a

Total

2,533,032

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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