Risk developments

For a detailed overview of FMO’s risk governance and risk management approach please refer to the 'Risk Management' section in FMO’s 2024 Annual Report. The risk developments in the first half year of 2025 are described below.

IFRS Reporting Requirement

Certain disclosures in this ‘Risk Developments’ section are an integral part of the ‘Condensed consolidated interim financial statements. These sections include risk disclosures of financial instruments (IFRS 7) and capital disclosures (IAS 1). The specific sections include this introductory section and sections labelled 'Climate-related and environmental financial risk', ‘Capital adequacy', 'Credit Risk', 'Equity investment risk', 'Concentration risk' and 'Market risk'.

Climate-related and environmental financial risk

FMO defines climate-related and environmental (C&E) financial risk as the risk of any negative financial impact on FMO stemming from the current or prospective impact of climate-related and environmental factors on FMO either directly (e.g. on FMO’s own operations and policies regarding its aggregate investment portfolio) or indirectly (e.g. through FMO’s customers and invested assets).

In 2021, FMO began a project to embed C&E financial risks within the organization based on the European Central Bank (ECB) Guide on Climate-Related and Environmental Risks. Throughout 2024 and in 2025 as well, FMO reported quarterly portfolio scans to its Financial Risk Committee (FRC). The portfolio scan is an aggregated overview of C&E financial risks in FMO’s investment portfolio (i.e. all loans and private equity exposures) and provides an initial assessment of C&E financial risk exposures in industries and geographies, offering a view of risk concentrations in the portfolio.

In 2023, FMO developed an application to operationalize climate risk assessments as part of the investment process, which supports FMO's deal teams in carrying out the climate risk assessments step by step. As of the beginning of 2024, the application has been rolled out to investment departments, enabling improved data collection and granular identification of climate-related and environmental financial risks. FMO continues to work on improving the application using an iterative approach.

As part of our supervisory discussions, De Nederlandsche Bank (DNB) has been assessing FMO’s progress in managing C&E financial risks. In 2024, FMO conducted an additional materiality assessment and assessment on alignment with ECB's C&E sub-expectations. DNB provided feedback and indicated that FMO had progressed in an adequate manner. DNB expects FMO to continue advancing with regard to the integration of C&E financial risks within its risk management framework and strategy, with an expectation of reaching full compliance with the ECB Guide by 31 December 2025. FMO is also expected to periodically review, update and improve the C&E financial risk materiality assessment and to include the outcomes in its Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP).

In early 2025, FMO updated its materiality assessment and concluded that C&E financial risks are material to FMO’s investment risk (credit and equity), liquidity risk, strategic/business model risk and reputation risk over the short, medium and long term. Based on current insights and the profile of FMO, it further concluded that C&E financial risks do not pose a material risk for FMO’s market risk, business continuity risk or litigation risk across the different time horizons. FMO has mitigants in place for all its risk types to manage the risks within appetite. For further information, please refer to the paragraphs of the respective risk types.

In May 2025, FMO has organized a climate risk symposium, with attendance from both the Development Finance Institutions (DFI) and Multilateral Development Bank (MDB) community and the Dutch banking sectors. Representatives of over 30 organizations met at our The Hague office for a day of discussions and presentations around the topic. Keynotes were provided by our CEO Michael Jongeneel, Maarten van Aalst, Director General and Chief Science Officer of the Royal Netherlands Meteorological Institute (KNMI) and Irene Heemskerk, head of the European Central Bank’s climate change center.

Capital adequacy

FMO complies with Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD) requirements and reports its capital ratios to the DNB every quarter. FMO calculates the capital requirement for its entire portfolio based on the standardized approach. As per 30 June 2025, the total capital ratio was 24.69%.

The reduction in risk-weighted assets (RWA) and the increase in deductions from own funds were primarily driven by two major factors: (i) foreign exchange movements, notably a 12% depreciation in the USD position, and (ii) the implementation of the new CRR 3 regulatory framework commonly referred to as Basel IV standards. The latter had a significant impact due to revised treatments of off-balance sheet exposures and collective investment undertakings (CIUs).

Additionally, the incorporation of the half-year financial result—partially offset by the issuance of Tier 2 capital instruments—contributed to a further decline in total own funds. The lower RWA, combined with a partial off-set by a reduced own funds, led to an increase in the total capital ratio of 3.4%.

FMO’s capital ratio remains above the combined ratio of both the supervisory review and evaluation process (SREP) minimum, and FMO’s internal requirements.

FMO’s Total Capital Ratio increased from 21.25% percent on 31 December 2024 to 24.69% on 30 June 2025, well above the SREP, minimum and other regulatory requirements.

Under CRR provisions, FMO must deduct from regulatory capital any significant or insignificant stakes in subordinated loans and (in)direct holdings in financial sector entities exceedingly approximately 10% of regulatory capital. Exposures below this threshold are subject to risk-weighting.

Credit risk

During the first half of 2025, there were several geopolitical developments, including the (threat of) US tariffs, unrest at the India - Pakistan border and the increasing turmoil in the Middle East. FMO is closely monitoring these developments, however until now they have not had a material impact on FMO's asset quality. In addition, the conflict between Ukraine and Russia continued.

FMO’s non-performing exposure (NPE) ratio slightly declined in HY2025 from 7.0% to 6.9%, with the portfolio dropping from €428 million to €378 million. Key drivers included €39 million in new NPEs, €17 million in repayments, €9 million reclassified as performing, €16 million in write-offs, and €47 million due to other movement including FX effects. The largest new NPE (€26 million) was in Mozambique’s Energy sector. As in 2024, NPEs remain concentrated in Energy (€207 million) and Agribusiness (€93 million), with relatively low NPEs in Financial Institutions (€55 million) and Diverse Sectors (€23 million).

In terms of countries, NPEs are concentrated in Ukraine, Honduras and Ghana, which represented 18%, 13% and 12% of the total NPE portfolio respectively. Other countries with high NPEs are Mozambique, Nepal, Uganda and Myanmar, each representing 5%-7% of total NPEs.

Past due data for FMO’s portfolio loans and receivables is shown below. This classification excludes financial assets other than loans, including interest-bearing securities and short-term deposits.

All interest-bearing securities (credit quality of AA or higher) and cash balances with banks (credit quality of BBB- or higher) are classified as Stage 1. An amount of €61k is calculated for the ECL of both asset classes as per 30 June 2025 (as per 31 December 2024 €60k).

The following table shows the credit quality and exposure to credit risk of the loans to the private sector at amortized cost and fair value on 30 June 2025.

The following table shows the credit quality and exposure to credit risk of the financial guarantees on 30 June 2025.

The following table shows the credit quality and exposure to credit risk of the loan commitments to the private sector on 30 June 2025. These represent contracts signed but not yet disbursed.

The following tables show the changes in loans, financial guarantees and loan commitments. Additions in the tables include newly originated exposures, as well as drawdowns on existing exposures.

The full contractual amount of assets that were written off during the current and prior reporting period are still subject to enforcement activity.

The modelling methodologies applied in determining expected credit loss (ECL) in the current period are consistent with those applied in the financial year ending 31 December 2024.

The macroeconomic scenarios model parameters were updated following the publication of new macroeconomic outlooks by the International Monetary Fund (IMF) in April 2025 (October 2024). The updates of the model parameters based on GDP forecast caused new point-in-time adjustments to the probability of defaults in the impairment model, leading to a decrease of €0.6 million in combined stage-1 and stage-2 impairment charges.

The following tables outline the impact of various scenarios on the ECL allowance.

Equity investment risk

The first half of 2025 was marked by continued global uncertainty, driven by geopolitical tensions, fluctuating commodity prices and changing trade policies, which significantly impacted fiscal and monetary policies. This uncertainty also affected the flow of foreign direct investment (FDI) to our geographies. Despite some reduction in inflation rates compared to the peaks of 2022/23, inflationary pressures persisted, and interest rates remained elevated as central banks continued their efforts to control inflation and stabilize their economies. Despite a weaker USD impacting our financial performance in HY2025 negatively, the Private Equity portfolio’s diverse geography and sectors supported a slight increase in underlying value.

Concentration risk

Concentration risk is the risk that FMO’s exposures are overly concentrated within or across different risk categories. Concentration risk could trigger losses large enough to threaten our financial stability. We ensure strong diversification within FMO’s Emerging Market portfolio through stringent limits on individual counterparties, sectors, countries and regions.

Country risk

Country risk arises from country-specific events that adversely impact FMO’s exposure to a specific country. They include any factors that can impact FMO’s portfolio within a country. These include economic, banking or currency crises, sovereign defaults and political-risk events. To ensure FMO’s Emerging Market portfolio is sufficiently diverse, we use a country- and sector-limit framework. Country limits range from 8% to 22% of FMO’s shareholders’ equity, depending on the country rating, with higher limits in less risky countries. Sectoral exposures are limited to 50% of the country limit for each sector in any given country.

Country and sector concentration limits were within the risk appetite during the first six months of 2025.

In 2025, to support dynamic and selective country risk management, FMO introduced the possibility of increasing country limits by up to 2% of shareholder equity for a maximum of five countries—subject to a request from the Investment Departments and FRC approval and without exceeding the overall 22% cap. Criteria for defining a country as 'strategic' were also refined. In June 2025, the FRC approved limit increases for Türkiye, Egypt and Argentina.

Market risk

Currency risk

FMO’s appetite for market risk is low and direct currency risk is largely hedged to remain within conservative boundaries. Exposures are hedged through matching currency characteristics of assets with liabilities, or through derivative transactions such as cross-currency swaps and FX forwards conducted with either commercial parties or The Currency Exchange Fund (TCX Fund). Most currency exposures are micro-hedged to US dollars, with the USD position managed on a portfolio basis. Given that FMO operates in both EUR and USD simultaneously, a more tailored approach is required for USD FX position compared to other foreign currencies.

FMO does not take active positions in any currency for the purposes of making a profit. Each individual currency is managed within a strict position limit and an overall appetite level is set at 1% of shareholders' equity for the total open position across all currencies. Additionally, FMO deliberately maintains an unhedged foreign currency position in equity investments in order to manage the volatility of the capital ratio. By managing a structural open currency position, FMO can stabilize the capital ratio, but simultaneously increases the sensitivity of P&L (and thus shareholders’ equity) towards currency movements.   Individual and total open currency positions were within risk appetite during the first six months of 2025.

Interest Rate Risk in the banking book

Interest rate risk is the risk of potential loss due to adverse changes in interest rates. Changing interest rates mainly influence the fair value of fixed interest balance sheet items, and affect our earnings by altering interest-rate-sensitive income and expenses, which in turn affects our net interest income (NII). FMO's appetite for interest rate risk is low and we do not take any active interest rate positions for the purposes of making a profit.

The interest rate gap and basis point value exposure are monitored each week against limits set by the FRC. The delta of the economic value of equity appetite breach limit is defined in the risk appetite framework and set at 5% of Tier I. The NII-at-Risk limit is defined in the risk appetite framework, with the appetite breach limit set at 1% of Tier I. Despite volatile rates in the United States, Europe and globally, our positions have remained within limits during the first half year of 2025.

Regulatory compliance risk

Regulatory compliance risk is the risk that FMO does not operate in accordance with the applicable rules and regulations, either by not identifying applicable regulations (or not doing so in time), or not adequately implementing and adhering to applicable regulations and related internal policies and procedures. As a licensed bank, FMO is subject to regulations across a wide range of topics. This section covers certain material regulatory updates relevant to FMO for this and upcoming years.

Basel IV

The new EU legislative package on the Capital Requirements Regulation (CRR3) and Capital Requirements Directive (CRD6) implementing the Basel IV standards within the EU was published on 19 June 2024. The CRR3 largely applies to FMO with effect from 1 January 2025, with a phase-in approach. The CRD6 will enter into force following its transposition in January 2026. The market risk framework under the new legislative package might also enter into force on 1 January 2026, with the possibility of one additional year postponement following the proposal of the EC.

In addition to the implementation of Basel IV standards, the legislative package introduced new rules requiring banks to systematically identify, disclose and manage sustainability risks (ESG risks), and stronger enforcement tools for supervision of EU banks. FMO has set up a bank-wide project for the timely and compliant implementation of the CRR3/CRD6 amendments that required changes to FMO’s internal policies, systems and processes, ensuring compliance with the new legislative package. Under the new regulatory framework, FMO is required to apply a higher capital charge for some types of credit risk exposures, which has already been implemented, and potential future charges for market risk. You can find a more detailed description of the changes that will have an impact on FMO in our 2024 Annual Report.

Corporate Governance Code

In March 2025, the Dutch Corporate Governance Code was amended with a statement on Risk Management (‘Verklaring omtrent Risicobeheersing’, or VOR). The VOR implies a broader statement by the Management Board on FMO's operational and compliance risks and on its sustainability reporting. It is applicable for the first time (as part of the ‘In control statement’) for the 2025 Annual Report.

Digital Operational Resilience Act

The Digital Operational Resilience Act (DORA) is a European regulation aimed at establishing a uniform and comprehensive framework for digital operational resilience across the EU financial sector. DORA provides a single set of rules for the use of ICT systems by financial institutions, focusing on governance and board responsibilities, ICT risk management, security and business continuity, resilience testing, and third-party risk management. DORA (including underlying applicable rules) applies from 17 January 2025. Implementation of the DORA project within FMO has progressed significantly with the majority of the controls integrated into the Internal control framework. With the support of an external party, FMO is reviewing implementation of DORA. FMO aims to have implemented the remaining items by the end of 2025.

Corporate Sustainability Reporting Directive

The Corporate Sustainability Reporting Directive (CSRD) entered into force in 2023. It revises and extends the requirements of its predecessor, the Non-Financial Reporting Directive (NFRD). As a large public- interest entity, FMO falls under the scope of the NFRD and will be among the first tranche of institutions required to implement the CSRD. The CSRD will require organizations to report in line with the European Sustainability Reporting Standards (ESRS). FMO issued its first report following the ESRS in 2025, covering the financial year 2024. FMO plans to publish its second report in 2026, covering the financial year 2025, while taking into account potential regulatory changes stemming from the EU Omnibus proposal.

EU Taxonomy

In 2020, the European Commission introduced a taxonomy for sustainable activities. This is a classification system that defines criteria for economic activities that are aligned with a net-zero trajectory by 2050, and with broader environmental goals beyond climate alone. Since 2023, banks have been required to report their level of taxonomy alignment with the first two environmental objectives (climate change mitigation and climate change adaptation), and their taxonomy eligibility on all six environmental objectives (the two above, plus sustainable use and protection of water and marine resources; transition to a circular economy; pollution prevention and control; and protection and restoration of biodiversity and ecosystems). FMO reported these rules in our 2023 and 2024 Annual Report and plans to continue reporting in line with the framework as it evolves, taking into account potential regulatory changes stemming from the EU Omnibus proposal. A more detailed description of our compliance with EU Taxonomy, along with its applicability to our activities, can be found in the FMO 2024 Annual Report.

EU AML/CFT Legislative package

In July 2021, the EU published its AML/CFT (Anti-Money Laundering and Countering the Financing of Terrorism) Legislative package, which included four legislative proposals: (i) a regulation establishing the new EU AML Authority, (ii) the revision of the 2015 Regulation on Transfers of Funds, (iii) the 6th Directive on AML/CFT and (iv) a new Regulation on AML/CFT. The Regulation on AML/CFT is relevant for FMO as it contains the majority of legal requirements currently contained in the 5th AML/CFT Directive (e.g. requirements on CDD, FIU reporting, UBO and PEP), as well as certain new legal requirements. The package was adopted in May 2024 and is expected to enter into force in 2027.

EBA Guidelines on restrictive measures

On 14 November 2024, the European Banking Authority (EBA) published its final report regarding the Guidelines on ‘internal policies, procedures and controls to ensure the implementation of Union and national restrictive measures’. The aim of the Guidelines is to ensure the effective management of legal risks relating to the violation of Union restrictive measures. FMO has conducted an impact assessment and is in the process of implementing the Guidelines where required. The Guidelines will become applicable on 30 December 2025.

New fiscal qualification policy for legal forms (Wet Fiscale Kwalificatie rechtsvormen)

As of 2025 a change has been introduced in the Dutch Corporate income tax regulations (Wet VPB), changing the fiscal qualification of partnership-like vehicles, resulting in a change of fiscal qualification of a large number of FMO’s investments in Private Equity Funds. The effect of the change is that vehicles become tax transparent due to which FMO must report its pro rata share of the Funds’ balance sheet assets and income. Therefore, a smaller number of PE Fund investments will qualify for the participation exemption. FMO is in the process of fully assessing the impact of the new legislation and is developing a reporting framework to ensure accurate and consistent reporting of this impact. This is expected to be completed by the end of 2025. Based on a high-level estimate, the impact is considered to be immaterial for the 2025 condensed consolidated interim financial statements.

EMIR 3.0

EMIR 3.0 came into force on 24 December 2024, requiring FMO to begin preparations for implementation. FMO conducted a detailed impact assessment on its derivatives business, based on the draft Regulatory Technical Standards (RTS). The assessment revealed that FMO is below the €3 billion threshold for the relevant interest rate categories, on an ongoing monthly and rolling 12-month basis, making it exempt from the Active Account Requirement (AAR). Most action items, such as building a €3 billion threshold monitoring tool into the Treasury ALM, have been completed, while the remaining action items, such as data quality control and a new reporting system for all trades cleared through non-EEA clearing houses are on hold pending publication of relevant (draft) RTS.

Financial Economic Crime Risk

Financial Economic Crime (FEC) risk remains a critical area of focus for safeguarding the integrity of FMO and the financial system. Given this priority, FMO is committed to complying with applicable laws and regulations. Both internal and external monitoring along with auditing provide assurance that FMO is in control of its FEC risk. However, ongoing attention to the quality of the FEC framework is pivotal in further strengthening the framework, as well as being able to adapt to new and emerging risks. As part of our ongoing efforts to incorporate learnings, FMO conducts regular reviews of its FEC policies and framework.

Compliance department continues to monitor Know Your Customer (KYC) files, using a sample-based approach. The sample taken is random and consists of at least 5% of all finalized KYC files in a given quarter. In addition, risk-based thematic monitoring is conducted by Compliance on specific topics and processes. Thematic monitoring topics focus on FMO’s highest inherent risks according to the Systematic Integrity Risk Analysis (SIRA).

FMO is conducting a review of the organization-wide SIRA. The primary objective is to re-assess and re-validate the organization’s top inherent integrity risks and the effectiveness of existing mitigation measures. In addition, SIRA aims to identify emerging risks and evaluate FMO’s exposure to these developments. The SIRA process will assess whether current mitigation strategies are adequate or require enhancement.

In August 2023 we reported that, as a result of late notification of unusual transactions to the Dutch Financial Intelligence Unit (FIU-NL) in 2021 and 2022, DNB decided on enforcement measures. FMO is appealing these administrative measures.

General Data Protection Regulation

FMO has a strong data privacy framework. Employees increasingly recognize the importance of data privacy and their role in it. Processes have been streamlined, and privacy impact is assessed early on in projects and new applications. Our focus is on continuous improvement of our data protection framework taking into account the regulatory requirements and internal developments.