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 2025 Annual Report. The risk developments in the first half year of 2026 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 'Environmental, social and governance financial risk', ‘Capital adequacy', 'Credit Risk', 'Equity investment risk', 'Concentration risk', 'Liquidity risk' and 'Market risk'.

Environmental, social and governance financial risk

FMO defines environmental, social and governance (ESG) financial risk as the risk of any negative financial impact on FMO stemming from the current or prospective impact of ESG factors on FMO 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).ESG financial risks are not a separate risk category, but drivers of FMO’s existing risk types, including investment, liquidity, market, reputational, strategic/business model and operational risks.

Since 2021, FMO has been embedding climate-related and environmental (C&E) financial risks in the organization based on the European Central Bank Guide on climate-related and environmental risks. This includes quarterly portfolio scans, annual C&E financial risk materiality assessments and the integration of relevant outcomes into the Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP).

In the first six months of 2026, FMO continued to broaden its approach from C&E financial risks to ESG financial risks, in line with the European Banking Authority (EBA) Guidelines on the management of ESG risks. During this period, FMO focused on updating its 2026 ESG financial risk materiality assessment drawing on the 2025 C&E financial risk materiality assessment that 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 but they were assessed as not material risk for FMO’s market risk, business continuity risk or litigation risk across the different time horizons. FMO also continued to refine its tools and data sources to support the identification and monitoring of ESG-related financial risks.

Capital adequacy

Under the Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD), banks are required to hold sufficient capital to cover the risks they face. FMO reports its capital ratio to the DNB on a quarterly basis, applying the standardized approach for all risk types.

As of June 30, 2026, FMO’s Total Capital Ratio (TCR) stands at 21.8 percent. The Common Equity Tier 1 (CET1) ratio is also 21.8 percent, as FMO has no Additional Tier 1 capital and its Tier 2 capital is fully absorbed through regulatory capital deduction adjustments.

FMO’s Total Capital Ratio decreased from 22.3 percent on December 31, 2025, to 21.8 percent on June 30, 2026, while the CET-1 ratio declined from 22.2 percent to 21.8 percent in the same period.

The observed evolution in the regulatory ratios for 2026 is attributable to a combination of factors. From a risk‑weighted assets (RWA) perspective, the decline in the TCR is mainly driven by the growth of FMO’s investment portfolio-reflecting the institution’s business initiatives, primarily on the debt side-and by foreign‑exchange movements, including a 3 percent appreciation of the USD position against the EUR.

On the capital side, these effects were partially offset by an increase in regulatory own funds, resulting from the incorporation of the 2025 year-end results and adjustments to fair-value reserves.

The higher RWA, combined with a partial off-set from increased regulatory own funds, resulted in an overall decrease of - 0.4 percentage points (pp) in the Total Capital Ratio and -0.5 pp in the CET-1 ratio.

FMO’s Total Capital Ratio and CET-1 ratio remained above the Supervisory Review and Evaluation Process (SREP) minimum, other applicable regulatory requirements, as well as FMO’s internal appetite level throughout the first half-year 2026.

Following specific provisions in the CRR, FMO is required to deduct from its regulatory capital significant and insignificant stakes for subordinated loans and (in)direct holdings of financial sector entities above certain thresholds. Exposures below the thresholds are risk-weighted accordingly and included in the risk-weighted assets.

Credit risk

During the first half of 2026, global geopolitical uncertainty remained elevated, including ongoing developments in the Middle East, notably the Iran‑US conflict, as well as the continued war in Ukraine. FMO continues to closely monitor these developments. While macroeconomic pressures are increasing, no material adverse impact on overall asset quality and clients’ risk profiles have been observed to date.

The evolving Iran‑US conflict confirms a duration‑driven shock, with second‑order effects gradually becoming more visible across multiple markets, including through inflationary pressures, FX and liquidity constraints, and supply chain disruptions. While these effects are expected to build over time, they have not yet translated into material  deterioration of asset quality and clients' risk profiles.

FMO’s asset quality remained resilient, with the non‑performing exposure (NPE) ratio slightly increasing to 5.8 percent as of June 2026 (December 2025: 5.5 percent). NPE volumes increased modestly during the first 6 months of 2026 from €362 million to €411 million. Despite the slight increase during the first six months of 2026, the longer‑term trend since December 2022, when the NPE ratio was at 11.9 percent, is positive. 

At portfolio level, early warning signals and financial difficulty cases remain limited and largely consistent with previously identified risk channels. Only a limited number of cases have been explicitly linked to geopolitical developments, supporting the current assessment that impact will be emerging gradually.

NPEs remain concentrated in a limited number of countries, with South Africa (13 percent), Ukraine (11 percent) and Ghana (11 percent) representing the largest percentages within the NPE portfolio. NPE levels are higher in the Agribusiness and Energy portfolios partially due to the nature of the underlying exposures. These portfolios consist primarily of loans to individual companies and projects, making them more vulnerable to idiosyncratic risks. In contrast, Financial Institutions typically have diversified underlying portfolios, which helps reduce concentration risk and supports lower NPE levels. 

The modelling methodologies applied in determining expected credit losses (ECL) are consistent with those applied in the financial year ending 31 December 2025. Macroeconomic scenarios and related model parameters were updated based on the latest available outlooks, resulting in limited impact on impairment levels compared to the previous reporting period.

In this context, FMO continues to focus on enhanced monitoring of early warning indicators, including NPE developments, FX and liquidity pressures, and sector‑specific vulnerabilities. A transition from monitoring to structural intervention (such as changing the Investment Regime for certain countries or sectors within a country) will be considered if clearer signs of portfolio‑level deterioration or more widespread stress across markets emerge.

Non-performing exposures

Past due data for FMO’s loans to the private sector is shown below.

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 €4k is calculated for the ECL of both asset classes as per June 30, 2026 (as per December 31, 2025 €51k). Short-term deposits and other receivables are also classified as Stage 1. 

Credit quality analysis

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 June 30,2026.

The decrease in the Stage 2 gross carrying amount should not be interpreted as being mainly attributable to credit improvement. The movement is the result of both entries into and exits from Stage 2. The key drivers versus June 2025 were partial repayments and some positions transfers to Stage 3 due to exposures becoming non-performing (NPE).

The following table shows the credit quality and exposure to credit risk of the financial guarantees on June 30, 2026.

Financial guarantees represent €217 million (2025: €219 million) classified as contingent liabilities and €112 million (2025: €119 million) classified as irrevocable facilities.

Additionally, irrevocable facilities represent commitments to extend finance to customers and consist of contracts signed but not disbursed, which are usually not immediately and fully drawn.

The following table shows the credit quality and exposure to credit risk of the loan commitments to the private sector on June 30, 2026. These represent contracts signed but not yet disbursed.

The "Other" category relates to loan commitments for which no expected credit loss (ECL) is calculated (fair value loans).

ECL methodology and key parameters

The modelling methodologies applied in determining expected credit loss (ECL) in the current period are consistent with those applied in the financial year ending December 31, 2025.

The macroeconomic scenarios model parameters were updated following the publication of new macroeconomic outlooks by the International Monetary Fund (IMF) in April 2026 (October 2025).

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.

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

Modified financial assets

The following table provides an overview of the total portfolio of Loans to the private sector, including FMO’s forborne assets, both classified as performing and non-performing.

Equity investment risk

Equity investment risk comprises both valuation risk and exit risk. Valuation risk refers to the risk that the fair value of equity investments decreases, while exit risk reflects the risk that FMO’s stake cannot be realized at a reasonable price or within a sufficiently liquid market. FMO actively takes equity risk as part of its development mandate, while maintaining a structured risk management framework to manage this exposure. This framework includes defined origination and monitoring processes, periodic fair value assessments, and governance through Credit, Finance and relevant committees to ensure that risks are consistently identified, assessed and managed throughout the investment lifecycle.

The private equity portfolio delivered a positive contribution to net profit, supported by the appreciation of the US dollar against the euro during the first half of 2026. The overall Net results from fair value re-measurements are positive for the first half of 2026. This is shown mainly in the positive unrealized results from FX movements compared to prior period (while being offset by some downwards development in unrealized results from FV movements). Refer also to note 10 in the financial statements.

While geopolitical developments in the Middle East continued to be monitored closely, the direct impact on the portfolio remained limited. Paid-in capital levels showed a slower pace in less new investments. Exits remained broadly stable compared to the first half of 2025. Net results from sales also resulted in a profit compared to a loss in the prior period.

Taking the above, the overall developments point to a relatively resilient portfolio operating in a market environment characterized by lower transaction activity and continued uncertainty.

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 FMO's financial stability. FMO ensures strong diversification within FMO’s 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 2 percent to 25 percent of FMO’s shareholders’ equity, depending on the country's rating, with higher limits in less risky countries. Sectoral exposures are limited to 50 percent of the country's limit for each sector in any given country.

Country and sector concentration limits remained within FMO's approved risk appetite throughout the first six months of 2026. No country or sector concentration limit breaches were observed during the reporting period, reflecting a well-diversified portfolio and continued adherence to the concentration risk framework.

During the first half of 2026, FMO implemented an updated concentration risk framework following a broader review requested by the Financial Risk Committee and in support of Strategy 2030 objectives. The update aims to establish a more consistent, risk-based and future-proof framework, while reducing reliance on ad-hoc exceptions. As part of this update, the previous Strategic Country Approach, which provided country-specific uplifts for selected countries, was discontinued and replaced by a more structural methodology. The main changes relate to country concentration limits, where economic size (GDP) was introduced as an additional risk driver and the limit calibration base was expanded from shareholders’ equity to shareholders’ equity plus 50% of Tier 2 capital. These enhancements recognize differences in countries’ diversification and shock-absorption capacity and further align concentration limits with the underlying risk profile of the portfolio. The revised framework differentiates between small, medium and large economies, reflecting that larger and more diversified economies generally have greater capacity to absorb economic and financial shocks than smaller economies. While the sector limit methodology remained unchanged, sector limits were recalibrated because of the revised country limit framework, as they continue to be defined as a percentage of country limits. No structural changes were made to the single client limit framework.

Liquidity risk

Liquidity risk is the risk that FMO cannot meet its financial obligations because it does not have sufficient liquid resources available. FMO’s risk appetite levels are set to maintain a minimum buffer above the seven-month minimum survival period under stress, keep the Liquidity Coverage Ratio (LCR) above 135 percent and the Net Stable Funding Ratio (NSFR) above 107 percent, and limit failed funding periods and wholesale funding costs relative to peers. Additional thresholds, including matching funding, funding diversification, and liquidity in specific currencies, are also used to manage and monitor FMO's risk profile.

FMO’s liquidity position remained above regulatory requirements and internal risk appetite levels throughout the first half of 2026. As of the reporting date, FMO had a survival period exceeding 12 months, an LCR of 501 percent (2025: 294 percent), and an NSFR of 118 percent (2025: 110 percent). In the first half of the year, FMO maintained uninterrupted access to funding markets, including issuances in local currency frontier markets, in line with its commitment to developing capital markets.

Market risk

Market risk is the risk that the value and/or earnings of FMO declines because of unfavorable market movements. At FMO, this includes interest rate risk (including credit spread risk) and currency risk.

Currency risk

FMO’s appetite for currency risk is cautious, 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 purpose of making a profit. Each individual currency is managed within a strict position limit, and an overall appetite level is set at 1 percent 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 this 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 2026.

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 FMO's earnings by altering interest-rate-sensitive income and expenses, which in turn affects FMO's net interest income (NII). FMO's appetite for interest rate risk is cautious and FMO does not take any active interest rate positions for the purpose of making a profit.

Credit spread risk is the risk driven by changes to the market price for credit risk, for liquidity, and potentially for other characteristics of credit-risky instruments, which is not captured by any other existing prudential framework, such as Interest Rate Risk in the Banking Book (IRRBB) or by expected credit/(jump-to) default risk. FMO considers the securities held in the liquidity buffer, assets accounted at fair value and amortized cost and the funding portfolio as the main balance sheet items sensitive to credit spread risk. For liabilities, credit spread risk would relate to FMO’s own credit risk.

The interest rate gap and basis point value exposure are monitored each week against limits set by the Financial Risk Committee (FRC). The delta of the economic value of equity appetite breach limit is defined in the risk appetite framework and set at 5 percent of Tier I. The NII-at-Risk limit is defined in the risk appetite framework, with the appetite breach limit set at 1 percent of Tier I. Credit spread risk is measured under both economic value and NII, in line with IRRBB. Interest rate risk positions were within risk appetite during the first six months of 2026.

Regulatory compliance risk

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 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 June 19, 2024, with a phase-in approach starting on January 1, 2025.

FMO continues to maintain a bank-wide implementation program to ensure timely and compliant implementation of the CRR3/ CRD VI requirements, which required changes to FMO’s internal policies, systems and processes to comply with the new legislative package. Under this framework, FMO is required to apply higher capital charges for certain types of credit risk exposures, which have been implemented, as well as potential future charges for market risk. In addition, the legislative package introduced new rules requiring banks to systematically identify, disclose and manage sustainability risks (ESG risks), along with stronger enforcement tools for the supervision of EU banks. 

EBA Guidelines on the management of ESG risks and on environmental scenario analysis

As part of the Basel IV, the EBA Guidelines on ESG risk management (EBA/GL/2025/01) and the EBA Guidelines on Environmental scenario analysis (EBA/GL/2025/04) were published and will apply from 2026 and 2027, respectively. These guidelines clarify what is expected from banks, particularly in terms of integrating ESG risks into governance, risk management processes and forward-looking analysis. In response, FMO has continued to build on its existing framework, with a focus on gradually embedding ESG risks into internal processes and developing its approach to scenario analysis and stress testing.

Corporate Sustainability Reporting Directive

FMO was among the first institutions required to implement the EU Corporate Sustainability Reporting Directive (CSRD), in line with the European Sustainability Reporting Standards (ESRS), as it was subject to the NFRD as a ‘large public-interest entity’. Although the CSRD has not yet been transposed into Dutch law, FMO has chosen to continue reporting voluntarily in line with the CSRD and ESRS. In March 2026, FMO issued its second CSRD report applying the available ‘quick fix’ reliefs where relevant, and began preparations to perform its double materiality assessment (DMA) for the second time. On February 26, 2026, the revised CSRD under the European Commission’s 2025 Omnibus package was published in the Official Journal of the EU and will apply to all in-scope companies from July 26, 2029. FMO has started assessing how to approach the amended CSRD considering that it is no longer in scope under the revised thresholds.

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 most 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 AMLR will enter into force on July 10, 2027. FMO is conducting an impact assessment and will assess which implementation actions are required to ensure timely compliance.

Dutch International Sanctions act

The Dutch Sanctions Act 1977 will be replaced by the Dutch International Sanctions Act (Wet internationale sanctiemaatregelen) (WIS). The first tranche was submitted to Parliament on February 19, 2026, and a second tranche, focused on strengthening and clarifying supervisory oversight of sanctions compliance, was launched for consultation on April 15, 2026. The Dutch Banking Association (NVB) has emphasized that WIS obligations should align as closely as possible with the new EU Regulation on AML/CFT (AMLR), which already sets out detailed requirements for customer and UBO due diligence, including checks against targeted financial sanctions. Banks expect that no additional information-gathering obligations will be imposed beyond AMLR, to preserve a level playing field within the EU. The WIS is expected to be adopted in 2026 or 2027, with timing likely to be aligned with the AMLR’s entry into force in 2027.

EU Pay Transparency Directive

The EU Pay Transparency Directive aims to strengthen the principle of equal pay for equal work or work of equal value with a strong focus on avoiding pay discrimination and closing the gender pay gap across the European Union. While Member States are required to transpose the Directive by June 7, 2026, the Dutch implementation act is currently expected to enter into force on January 1, 2027.

FMO has been reporting on the (un-)adjusted gender pay gap for several years and is preparing for implementation to ensure timely compliance with the EU Pay Transparency Directive. The gender pay gap 2025 (with reference date April 1, 2025) is disclosed in the S1-16 Section of the Annual Report 2025.

EMIR 3.0

EMIR 3.0 came into force on December 24, 2024, and as from February 20, 2026 FMO exceeded the €3 billion threshold for the relevant interest rate categories, on an ongoing monthly and rolling 12-month basis, resulting in the Active Account Requirement (AAR) becoming applicable to FMO. FMO ensures compliance with the relevant EMIR 3.0 requirements at their effective dates.

Financial Data Access Regulation

The Financial Data Access (FIDA) Regulation, proposed by the European Commission in June 2023, is expected to be adopted in mid-2026 with a phased implementation starting in 2027. It aims to expand Open Finance by allowing consumers and businesses to securely share, with explicit consent, a broad range of financial data - such as loans, savings, investments, pensions, insurance, and mortgages - with authorized third-party providers. FIDA builds on PSD2’s open banking framework, promotes innovation and competition, while ensuring robust, consent-based data protection.

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 FMO's ongoing efforts to incorporate learnings, FMO conducts regular reviews of its FEC policies and framework. The reviews incorporate insights from monitoring outcomes, risk analyses, incidents and developments in regulatory requirements and industry's best practices.

The Compliance department continues to monitor Know Your Customer (KYC) files, using a sample-based approach. 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 will validate its organization-wide (FEC) risks in line with regulatory requirements later this year, reassessing the risk landscape and the adequacy of mitigation measures.

In August 2023 FMO reported that, because 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.