news - Performance FMO: focus on COVID-19 resilience for customers

^{1 Results based on the new harmonized joint impact model. No comparative figure available}

The first half of 2020, the year we celebrate our 50^th anniversary, has been dynamic for FMO due to the COVID-19 pandemic. FMO, like any other business, has had to adapt and revise its way of working to reflect the new reality. We remained connected, facilitated 700+ home offices and ensured we could quickly shift our attention to our customers.

To respond to economic developments in our markets, FMO developed a COVID-19 Response Package with financial and non-financial support, covering: Remote Advisory Services (17 projects under implementation), a Platform for Learning and Exchange (to date 18 webinars with ~700 attendees) and our Emergency Grant Facility (to date €3.5 million).

Furthermore, FMO also granted payment holidays to customers with short term liquidity needs and existing customers can apply for loans providing additional liquidity. We granted 18 payment deferrals and 3 full restructuring requests. Meanwhile, we carried on business as usual, adapting our processes where possible.

Impact results

The contribution to our three core SDGs over the first half year of 2020 has been lower than the same time last year, as a result of COVID-19. FMO invested €101 million to help reduce inequality (SDG 10) and €108 million towards climate action (SDG 13). FMO supported 417,639 (in)direct jobs, contributing towards decent work and economic growth (SDG 8). This is 35% lower compared to the end of last year, attributed to the introduction of a refined approach to measuring job creation. More information on the new methodology can be found on FMO's website.

Financial results

The COVID-19 pandemic and subsequent economic climate in our markets have negatively affected the activities in our debt and equity portfolios. In the first half of 2020, FMO noted a net loss of €280 million, mainly caused by a decrease in fair value of FMO’s private equity portfolio (including investments in associates). The total fair value losses amounted to €255 million. Impairments on loans amounted to €102 million as a result of the deterioration of the risk profiles of FMO’s sector portfolios in H1 2020. The development of our interest and fee income remained stable in comparison with the same period last year.

In H1 2020, FMO’s total committed portfolio in developing and emerging markets amounted to €8.6 billion. Fewer new contracts were closed by FMO than the previous year (38% lower). Both the current economic recession as well as travel restrictions limit the number of new viable investment opportunities. Where possible, we started working with virtual due diligence processes. In the first half of 2020, we invested a total of €520 million in the private sector of which €386 million on FMO’s own books, €65 million through public funds and €69 million through mobilized funds.

Internal changes

At our first virtual Annual General Meeting of Shareholders (AGM), two Supervisory Board members retired from their roles: Pier Vellinga (Chairman) and Alexandra Schaapveld. At the same meeting we welcomed three new members: Reintje van Haeringen, Marjolein Demmers and Dugald Agble. Dirk Jan van den Berg and Koos Timmermans have assumed the roles of respectively Chairman and Vice-Chairman.

In June, Peter van Mierlo announced that he would step down as FMO's CEO. This decision, the circumstances leading up to his departure and the subsequent media attention affected all of us, deeply. In the weeks that followed we intensified dialogues with our full FMO team to answer questions and address concerns on leadership style, and to reconnect with one another to move forward again.

In July, reflecting on its first period, the Executive Committee (ExCo) concluded that it has not been successful in connecting with the broader leadership group in the organization, and announced its decision to discontinue. The ExCo members stepped down per 1 August and continue in their managerial roles. A new governance structure will be co-created with management and will be designed in the second half of this year. In the interim, decision-making will remain with the Management Board.

Our outlook: new opportunities, accepting predicted historic loss

It is the first time FMO expects to make a loss since our financial independence from the Dutch government in 1990, after which we have been profitable from 1993 onward. And we are well prepared for it. FMO’s buffers exceed the minimum required by the Dutch Central Bank and the higher requirements defined by our own risk appetite. At the end of June, our total capital ratio was 22.8 percent, where a minimum of 14 percent was needed.

Looking ahead, we carefully plan potential – upside as well as worst case – scenarios, but do enter the second half of the year energized by the potential of the opportunities and entrepreneurial spirit we see among our colleagues, customers and partners. Because despite its weight on global prosperity and the gap to reach the Sustainable Development Goals, we also see how new ways of working and new mentalities help us to move forward. Technology will stimulate further innovation and allows us to connect with colleagues and partners all over the world much more easily and flexibly than we were used to before. Partnerships remain crucial to moving forward and we actively engage with the European Development Finance Institutions (EDFIs) as well as with multilateral banks to jointly support our customers.

The crisis forces us to fundamentally redefine how we work and interact with each other, providing us with an opportunity to leapfrog into a future-proof way of working and to rethink the future of ‘traditional’ development finance. Which, for FMO, is an exciting place to be.

For more information, please see our half year report online| pdf. 

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ANNEX

Financial performance

FMO noted a net loss of €280 million for first half year of 2020. The net loss is for a majority caused by the significant decline of fair value of FMO’s private equity portfolio (including investments in associates). The total fair value losses amounted to €255 million (H1 2019: loss of €1 million). The reduction in fair values can be seen across sectors and geographies and is the result of global declines in emerging market equity prices. However, as FMO’s investees are still distributing dividends, FMO’s dividend income amounted to €20 million (H1 2019: €11 million).

Moreover, the level of impairments on our loan portfolio amounted to €102 million (H1 2019: €15 million). The higher level of impairments is the result of the deterioration of the risk profiles of FMO’s sector portfolios in H1 2020. At this stage, the deterioration in risk profiles has not led to a significant increase in non-performing loans (NPL). In first half year of 2020, the NPL ratio was 9.6%, which is in line with the year-end 2019 ratio of 9.8%.

The development of the interest and fee income remains stable in comparison with the same period last year. While FMO’s total net loss is expected to have a negative effect on our capitalization, FMO’s capital ratio remains significantly above the combined ratio of the SREP minimum and FMO’s internal risk appetite levels.