Notes to the consolidated statement of financial position: assets

1. Banks

The cash on bank accounts can be freely disposed of. All bank accounts are classified as Stage 1.

2. Current accounts with State funds and other programs (assets)

Current accounts can be freely disposed of and are classified as Stage 1.

3. Short-term deposits

Mandatory reserve deposits are not available for use in FMO’s day-to-day operations.

Fair value results on money market funds and commercial paper portfolio recorded in the statement of profit or loss amounts to a loss of €13k (2021: €72k profit). The amount attributable to change in credit risk is limited.

Short-term deposits have a maturity of less than three months. Other short-term deposits consist of an amount FMO provided to Invest International with a maturity of 1 year. FMO holds an equity stake in Invest International that has been recorded as an associate.

Short term deposits at amortized cost are classified as Stage 1. ECL for interest bearing instruments amounts to €78k.

4. Other receivables

Other receivables are classified as Stage 1.

5. Interest-bearing securities

This portfolio contains marketable bonds with fixed interest rates. All interest-bearing securities (credit quality of AA+ or higher) are classified as Stage 1. An amount of €78k (2021: €44k) is calculated for the ECL as per December 31, 2022.

All interest-bearing securities are measured at amortized cost. The movements can be summarized as follows:

6. Derivative financial instruments and hedge accounting

Use of derivatives and hedge accounting

Derivatives are held for both economic hedging purposes and for hedge accounting. FMO uses derivatives for hedging purposes in the management of its asset and liability portfolios and structural risk positions. These risks are hedged with interest rate swaps, cross currency swaps and cross currency interest rate swaps. The objective of hedging is to enter into positions with an opposite risk profile to an identified exposure to reduce that exposure. The objective of FMO hedging activities is to optimize the overall cost to the bank of accessing debt capital markets and to mitigate the risk that would otherwise arise from structural imbalances in the duration and other profiles of its assets and liabilities. The accounting treatment of hedge transactions varies according to the nature of the instrument hedged and whether the hedge qualifies under the IFRS hedge accounting rules.

Derivatives that qualify for hedge accounting under IFRS are classified and accounted for in accordance with the nature of the instrument hedged and the type of IFRS hedge model that is applicable. FMO applies fair value hedge accounting to the funding portfolio with interest rate swaps as hedging instruments. To qualify for hedge accounting under IFRS, strict criteria must be met. Certain hedges that are economically effective from a risk management perspective do not qualify for hedge accounting under IFRS. The fair value changes of derivatives relating to such non-qualifying hedges are taken to the statement of profit or loss and recorded under the line results from financial transactions. If hedge accounting is applied under IFRS, it is possible that during the hedge a hedge relationship no longer qualifies for hedge accounting and hedge accounting cannot be continued, even if the hedge remains economically effective. As a result, the volatility arising from undertaking economic hedging in the statement of profit or loss may be higher than would be expected from an economic point of view. With respect to exchange rate and interest rate derivative contracts, the notional or contractual amount of these instruments is indicative of the nominal value of transactions outstanding at the statement of financial position date. However, they do not represent amounts at risk.

For the year ended December 31, 2022, FMO recognized net gain of €2,6 million for hedge ineffectiveness on the micro fair value hedges (2021: €1.1 million net gain). The loss on the hedging instruments amounts to €339.4 million (2021: €124.3 million gain). The profit on hedged items attributable to the hedged risk amounts to €341.9 million (2021: €125.4 million profit). The result is mainly attributed to the mismatch in the valuation curves (e.g. USD SOFR for the hedging instruments and USD LIBOR for hedged items.

Micro fair value hedge accounting

FMO only applies micro-hedging strategy, hence at hedge inception the test is conducted. FMO’s micro fair value hedges consist of interest rate swaps that are used to protect against changes in the fair value of fixed-rate instruments due to movements in market interest rates. Gains and losses on derivatives designated under fair value hedge accounting and hedged items are recognized in the statement of profit or loss.

The amounts relating to derivatives designated as fair value hedging instruments and hedge ineffectiveness were as follows:

The amounts relating to items designated as hedged items were as follows:

Derivatives other than hedge accounting instruments

The following table summarizes the notional amounts and the fair values of the ‘Derivatives other than hedge accounting instruments’. These derivatives are held to reduce interest rate risks and currency risks but do not meet the specified criteria to apply hedge accounting for the reporting period. The following table also includes derivatives related to the asset portfolio. These derivatives are used to manage FMO interest rate and foreign exchange risks within the risk appetite and are subject to risk governance and policy framework

7. Loans to the private sector

These loans to the private sector include:

• Loans to the private sector in developing economies are for the account and risk of FMO;

• Loans in developing economies that are individually guaranteed by the Dutch Government for 80 percent to 95 percent or other financial guarantors. Any losses will be compensated by the guarantors up to the guaranteed amount. Refer to our 'Credit risk management' chapter for details of these guarantees received. 

The movements of these loans can be summarized as follows: 

The contractual amount of assets that were written off during the period are still subject to enforcement activity.

The following tables summarize the loans segmented by sector and areas of geography.

The movements in the gross carrying amounts and ECL allowances for loans to the private sector at AC are as follows:

The increase in ECL allowances from 2021 to 2022 relates primarily to increased risk associated with exposures in Ukraine, Sri Lanka and Myanmar. Refer to the Credit risk section in the Risk Management chapter for more details.

8. ECL allowances - assessment

FMO calculates ECL allowances for interest-bearing securities, loans to the private sector at AC (including off-balance loan commitments) and guarantees given to customers. The movement in ECL allowances for each of these items is presented in their relevant notes. 

To demonstrate the sensitivity of the 'Significant Increase in Credit Risk' criteria, the tables below presents the distribution of Stage 2 impairments by the criteria that triggered the migration to Stage 2.

The table show the values of the IMF GDP forecasts used in each of the economic scenarios for the ECL calculations for 2021 and 2022. The upside and downside scenario calculations are derived from the base case scenario, adjusted based on an indicator of public debt to GDP in emerging markets.

The macro-economic scenarios’ model was updated following the publication of the new macro- economic outlook data by the IMF in 2022. The updates of the model based on more recent GDP forecast, caused new point-in-time adjustments to probability of defaults in the impairment model, leading to a slight increase in combined Stage-1 and Stage-2 impairment charge.

The following tables outline the impact of multiple scenarios on the ECL allowance. Given that COVID-19 in 2020 lead to modified macro-economic forecasts, the probabilities of macro-economic scenarios (making point-in-time adjusted probability of default) were updated using the data provided by the IMF. 

Note that macro-economic scenarios have been updated by using the latest available information by the IMF, as published in October 2022.

• 1 The total unweighted amount for the base case scenario of €288 million is an aggregation of €279 million (ECL amount - Note 7), €9 million (ECL off balance items including loan commitments - Note 31).
• 2 Loans to private sector in this table include amounts related to ECL allowances for off balance loan commitments (refer to Note 31).

• 1 The total unweighted amount for the base case scenario of €210 million is an aggregation of €206 million (ECL Note 7), €4 million (ECL off balance items including loan commitments - Note 31).
• 2 Loans to private sector in this table include amounts related to ECL allowances for off balance loan commitments (refer to Note 31).

Reference is made to the 'Accounting policies' chapter on macro-economic scenarios on PD estimates.

9. Equity investments

Equity investments in developing countries are for FMO’s account and risk. The movements in fair value of the equity investments are summarized in the following table. Equity investments of FMO are measured at FVPL or at FVOCI.

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

The following table summarizes the equity investments segmented by sector:

FMO has designated the investments shown in the following table as equity investments at FVOCI.  The FVOCI designation was made because the investments are expected to be held for long-term strategic purposes.

10. Investments in associates

The movements in the carrying amounts of the associates are summarized in the following table.

All investments in associates from FMO are measured based on the equity accounting method. Cash dividends received from associates amount to €2.7 million (2021: €2.7 million).

The following tables summarize FMO’s share in the total assets, liabilities, total income and total net profit/loss of the associates and segments the associates by sector.

Invest International was established on July 28, 2021. Share capital is split between A-shares where the Dutch Government owns 51 percent and FMO 49 percent and B-shares which are owned 100 percent by the Dutch Government.

During the course of the year FMO placed a deposit of €20.4 million with Invest International. The deposit has a 1-year maturity and accrues interest at a market-based rate after adjusting for non-applicable internal costs. Expected credit loss is not expected to be material taking into account the support offered to Invest International from the Dutch State. The deposit is presented in the short-term deposits statement of financial position line item, refer to Note 3.

JCM Power Corporation was transferred from the equity investments to investments in associates in 2022. This is due to a reorganization of JCM Power Corporation in October 2022 in which FMO has acquired significant influence through a 24% economical ownership. The transfer took place at fair value.

In 2016 FMO signed an agreement to set up an investment vehicle, Arise B.V., together with Norfund and Rabobank. This investment vehicle is set up to invest in African financial institutions. FMO's commitment amounts to US$266 million. As of December 31, 2022, our remaining commitment towards Arise B.V. amounts to US$13.9 million.

Arise B.V. is a private limited liability company incorporated in the Netherlands whose statutory seat is registered at Croeselaan 18, 3521 CB Utrecht, the Netherlands and is registered in the Dutch commercial register under number 64756394. FMO’s share and voting rights in Arise B.V. is 27 percent .

11. Property, plant and equipment

Property, plant and equipment (PP&E) includes tangible assets that are used by FMO. These assets include buildings, office equipment and vehicles that are rented by FMO from third parties. These leases have been recognized on the statement of financial position following the implementation of IFRS 16.

Furthermore, PP&E includes furniture owned by FMO and expenses related to leasehold improvements.

Right-of-use assets consist of operational leases and include buildings, vehicles and office equipment. 

The following table presents the maturity breakdown of the leases

12. Intangible assets

Intangible assets include expenditures associated with identifiable and unique software products or internally developed software, controlled by FMO. For internally developed software, only expenses related to the development phase are capitalized. Expenses related to the research phase are immediately recognized in the statement of profit or loss under 'Temporary staff expenses'.

Impairment relates to software that is not in use anymore.