news - FMO in 2019: Overall Stable Development Impact

 Strong Performance on Partnerships

Peter van Mierlo, Chief Executive Officer of FMO: “The impact of the Corona virus will be enormous. It is against this backdrop that today we present our annual report. In the light of this crisis it’s even more important for FMO to have a sound financial position so we can continue to play our role to the extent possible in our markets.”

“In spite of current circumstances, we are proud of the achievements our team have realized in 2019, taking into account the economic climate in our markets this year as well as the regulatory environment we need to live up to.”

“In 2019 we did well on mobilizing additional capital as well as a substantial increase in the investments through the government funds.”

“Almost €3 billion was invested in developing countries as a result of FMO’s activities; € 1.7 billion on FMO’s own books, € 297 million using public funds and we mobilized € 868 million from third parties. We continue to experience high liquidity in certain syndication markets. This makes it harder for FMO to find investment opportunities involving smaller syndicated transactions.”    

Portfolio’s, Programs and Partnerships

Milestones 2019

• Issue of FMO Green Bond for Climate
• Managing the Dutch Fund for Climate Development (DFCD) on behalf of the Dutch Government
• Launch of EDFI impact harmonization initiative
• First project with Tamweelcom in Jordan under the NASIRA program
• Close of F€mpower Your Growth program with Queen Máxima
• Global launch of the Platform for Carbon Accounting initiative (PCAF)
• Launch of the FMO Ventures program
• Launch of mobilizing vehicle with Munich RE to bring in commercial capital from institutional investors

We rolled out several impact programs and entered pioneering partnerships to scale up our impact.

Early in 2019, FMO successfully issued its USD 500 million 5-year Inaugural Green Bond, following strong demand from ‘green’ motivated investors.

In May 2019, we were entrusted by the Dutch Government to manage the DFCD fund, a pioneering partnership in which we joined forces with CIO, SNV and WWF, to address climate mitigation and adaptation needs.

We believe that – in addition to financing – harmonization of impact and ESG standards and measurement across the industry is key to achieving the SDGs. Also in May and as part of a multi-year harmonization effort, FMO has started with other EDFIs to harmonize indicators on jobs supported (SDG 8) and GHG avoided (SDG 13). A new impact model will be available for use by other development and commercial banks. In the last year we also harmonized within EDFI the E&S approach within the Financial Institutions Industry.

We also launched the first pilot under the NASIRA risk-sharing facility for Syrian refugees with Tamweelcom in Jordan, which allows us to finance underserved entrepreneurs in the European neighborhood and Sub-Saharan Africa.

In the autumn of 2019, we closed the first year of the F€mpower Your Growth program in the presence of Queen Máxima of the Netherlands. In her capacity of the UN Secretary-General's Special Advocate for Inclusive Finance for Development, Queen Máxima supported the program designed to enhance gender equality in the Dutch financial sector.

At COP25, FMO, together with the Partnership for Carbon Accounting Financials (PCAF) group, unveiled its new carbon accounting report for the financial sector, contributing significantly towards harmonizing the way financial institutions measure emissions financed by loans and investments. Participating institutions in the Netherlands represent €2 trillion of assets under management, many of whom already publicly disclose the associated carbon footprint.

In November, EC Commissioner Neven Mimica signed the FMO Ventures Program. FMO’s second guarantee program within the European Fund for Sustainable Development (EFSD) focuses on early-stage investments that deploy an innovative, technology-enabled business model with high developmental impact for large underserved segments of the population.

Last but not least, an exciting new mobilizing vehicle was set up with Munich RE to bring in commercial capital from institutional investors seeking opportunities to invest in development impact with a healthy risk-return.

Financial performance 2019

FMO has seen overall stable growth and margins on our loan portfolio and improvements in the (re)valuations of our equity portfolio compared to 2018. At the same time impairments on our loan portfolio increased substantially and we reported higher operating expenses. Overall, we made a net profit in 2019 of €120 million (151 million in 2018). In 2019 substantial impairments on our loan portfolio of € 92 million were recorded. (2018: € 23 million).

Emerging markets experienced challenging economic conditions that hampered investment and growth, caused among others by trade tensions between major economies, political unrest in several of our strategic markets and rapid accumulation of national debt to sometimes unsustainable levels.

The difficult economic situations in Argentina as well as the Energy and Agricultural sectors in our main geographies, have led to a substantial addition to our stage 3 portfolio.

This was partially offset by a stable growth in our loan portfolio and margins, which led to an improvement of our interest- and fee income. In the second half of 2019, the result from equity investments increased due to improved conditions in our markets in Nigeria, Vietnam, and Cambodia. The volatility in the EUR/USD exchange rate over 2019 was limited.

The decrease in the Common Equity Tier 1 (CET-1) to 21.8% in 2019 (2018: 24.6%) is primarily driven by the implementation of the EBA guidelines on high risk exposures, which led to an increase in risk weighted assets, together with the net increase in our debt and equity portfolios.

Organizational strengthening with a central role for ‘Impact’

Our team continued to grow and diversify further; with 57 nationalities, we are well on our way to reflect the markets we operate in. Employee satisfaction remained stable at 7.4 despite our target to achieve a solid 8 in 2019. This continues to be our goal for 2020.

Furthermore, we launched and operationalized a new set of values and behaviors to support the way we work and engage with others. In line with our values, we defined seven diversity KPIs to steer the organization towards achieving gender equality on all fronts (employee balance, recruitment, reward, promotions, etc.).

We have started a transformation process to be better aligned with the expectations of our stakeholders; mainly in terms of risk identification in the areas of ESG, impact execution, culture and compliance. But also in transparency. Van Mierlo: “It became clear that we will have to explain more - and more often - how our operating environment works, what our mandate as a development bank is and what the dilemmas are that we weigh and consider every day. In our annual report 2019 we have therefore upscaled our transparency around these challenges materially.”

We have continued previous initiatives to anchor Impact and ESG (IESG) even more firmly in our organization and primary investment process to strengthen management and decision-making on these topics. Our Supervisory Board has created an IESG Committee that supervises all related matters within our bank. In addition, a new IESG department combining five different teams in total with around 60 professionals was formed within FMO in July 2019 under the leadership of a director.

In 2019 we also improved FMO’s compliance with the Financial Supervision Act (Wft), followed by the Anti Money-Laundering and Financing Terrorism Act (Wwft). We have recruited a new Compliance Manager, strengthened our KYC capabilities and teams, are setting up a renewed training program and will further expand the Compliance and KYC teams to meet the necessary requirements.

In 2019, we further strengthened our organization. In the past ten years we experienced a greater pace of change in our markets, we more than doubled our staff base and increased our engagement with a diverse group of stakeholders. This led to the decision to establish an Executive Committee (ExCo). The ten members of the ExCo represent a broad set of functions who are responsible for the day-to-day management of the organization. 

Outlook 2020

Early January 2020, economic forecasts predicted that economic growth would pick up in 2020 and 2021 with global growth of around 4-5% in developing and emerging markets. Due to the COVID-19 (Coronavirus) outbreak these forecasts will not be realized. The outbreak is a serious risk to global health, the global economy and financial markets and it will impact FMO’s operations but the extent to which is uncertain and difficult to assess. The impact will depend on how financial markets will further react but also whether the virus will spread across all our markets and to which level and how long it will continue to have its impact. Due to the current circumstances we will abstain from giving a financial outlook.  

A special word of thanks goes to our chairman of our Supervisory Board, Mr Pier Vellinga. At our AGM on 23 April, Mr. Vellinga will leave our organization after 12 years of servicing in our Supervisory Board. Mrs Alexandra Schaapveld will also leave the Board after 8 years at the upcoming AGM.  We would like to express our great appreciation for all that Mr Vellinga and Mrs Schaapveld have meant for our organization and the enormous commitment, enthusiasm and knowledge they have brought to FMO.

Pier Vellinga, retiring Chairman of the Supervisory Board of FMO: “As a Supervisory Board member, I have sincerely enjoyed my role. Over these 12 years FMO has invested more than 15 billion euro in Renewable Energy, Sustainable Agriculture and Sustainable Banking. Over the years the cooperation with the Stakeholders has become increasingly effective in addressing needs and priorities in the less and least developed countries. In parallel the regulatory system has called on FMO to further professionalize. Over the last few years, I have seen FMO develop to an internationally leading Impact Investment bank. This transition will need to continue due to the external challenges this industry faces. I thank FMO and its Management Board for their continuous constructive cooperation and leadership especially in my years as chairman.

For more information, please see our full annual report.