Notes to the annual accounts

1. Banks

The cash on bank accounts can be freely disposed of.

2. Current account with FMO

The current account with FMO can be freely disposed of.

3. Short-term deposits

Short-term deposits are very liquid accounts with high credit ratings and are subject to an insignificant risk of changes in fair value. The Fund has on demand full access to the carrying amounts.

4. Derivatives

The following tables present the fair value of derivatives which are related to the loan portfolio.

5. Loan portfolio

Loans originated by the Fund include loans to the private sector in developing countries for the account and risk of the Fund. The tables below present the movement in loans during 2019 and 2018.

The contractual amount of assets that were written off during the period are still subject to enforcement activity. Recoveries from written off loans amount to €1,122 (2018:€0).

The following tables summarize the loans segmented by sector and by geographical area:

The movements in the gross carrying amounts and ECL for the loan porfolio at AC are as follows:

• 1 As per 2019, recoveries from written-off loans have been reclassed from line item 'Other operating income' to 'Impairments'. Comparatives have been adjusted accordingly if relevant.

The table below show the values of the IMF GDP forecasts used in each of the economic scenarios for the ECL calculations of the top 10 countries where the Fund operates. 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 following tables outline the impact of multiple scenarios on the ECL allowance:

The table below represents sensitivity of ECL stage 2 allowance for the loan portfolio and loan commitments.

We also refer to our accounting policy on macro-economic scenarios on PD estimates.

6. Equity investments

The equity investments in developing countries are for the Fund's account and risk. The movements in fair value of the equity investments are summarized in the following table.

The following table summarizes the equity investments segmented by sector:

7. Other receivables

Fee receivables primarily relate to front-end fees.

8. Other accrued liabilities

Accrued liabilities relate mainly to unpaid CD expenses.

9. Provisions

The amounts recognized in the balance sheet are as follow:

10. Contributed fund capital and other reserves

11. Net interest income

12. Fee and commission income

13. Dividend income

14. Results from equity investments

15. Results from financial transactions

16. Operating expenses

Remuneration FMO relates to management fees paid to FMO.
Capacity development expenses relate to grants or contributions paid to beneficiaries in terms of the fund's objectives.
Evaluation costs relate to expenses made during frequent investigations and controls of existing investments and costs related to due diligence of new projects.

As per 2019, presentation of CD expenses and evaluation expenses has changed from 'Fund Capital' to 'Comprehensive income'. Comparatives for 2018 have been adjusted accordingly.

17. Off-Balance Sheet information

To meet the financial needs of borrowers, the Fund enters into various irrevocable commitments (loan commitments, equity commitments). Though these obligations are not recognized on the balance sheet, they do obtain Credit Risk similar to the loan portfolio. Therefore, provisions are calculated for loan commitments according to ECL measurement methodology. Refer to the 'Accounting Policy' chapter.

Nominal amounts for irrevocable facilities is as follows:

The movement in exposure and ECL allowances for loan commitments is as follows:

18. Analysis of financial assets and liabilities by measurement basis

The significant accounting policies summary describes how financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognized. The following table gives a breakdown of the carrying amounts of the financial assets and financial liabilities by category as defined by balance sheet heading.

Fair value hierarchy

All financial instruments for which fair value is recognized or disclosed are categorized within the fair value hierarchy, based on lowest level input that is significant to the fair value measurement as a whole, as follows:
Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities;
Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable;
Level 3 – Valuation technique for which the lowest level input that is significant to the fair value measurement is unobservable.

Valuation process

For recurring and non-recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the Fund has a valuation process in place to decide its valuation policies and procedures and analyze changes in fair value measurement from period to period.

The Fund’s fair value methodology and governance over its methods includes a number of controls and other procedures to ensure appropriate safeguards are in place to ensure its quality and adequacy. The responsibility of ongoing measurement resides with the relevant departments. Once submitted, fair value estimates are also reviewed and challenged by the Investment Review Committee (IRC). The IRC approves the fair values measured including the valuation techniques and other significant input parameters used.

Valuation technique

When available, the fair value of an instrument is measured by using the quoted price in an active market for that instrument (level 1). A market is regarded as active if transactions of the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

If there is no quoted price in an active market, valuation techniques are used that maximize the use of relevant observable inputs and minimize the use of unobservable inputs.

Valuation techniques include:

• Recent broker / price quotations

• Discounted cash flow model

• Option-pricing models

The techniques incorporate current market and contractual prices, time to expiry, yield curves and volatility of the underlying instrument. Inputs used in pricing models are market observable (level 2) or are not market observable (level 3). A substantial part of fair value (level 3) is based on net asset values.

Equity investments are measured at fair value when a quoted market price in an active market is available or when fair value can be estimated reliably by using a valuation technique. The main part of the fair value measurement related to equity investments (level 3) is based on net asset values of investment funds as reported by the fund manager and are based on advanced valuation methods and practices. When available, these fund managers value the underlying investments based on quoted prices, if not available multiples are applied as input for the valuation. For the valuation process of the equity investments we further refer to the accounting policies within these Annual Accounts as well as section 'Equity Risk', part of the Risk Management chapter. The determination of the timing of transfers is embedded in the quarterly valuation process, and is therefore recorded at the end of each reporting period.

The table below presents the carrying value and estimated fair value of non fair value financial assets and liabilities.

The following table gives an overview of the financial instruments measured at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.

The following table shows the movements of financial assets measured at fair value based on level 3.

19. Related party information

The Fund defines the Dutch Government, FMO and their subsidiaries, their Management Board and Supervisory Board as related parties.

Dutch Government

The Dutch Ministry of Foreign Affairs, Directoraat-generaal internationale Samenwerking sets up and administers the Fund including Building Prospects, according to the Dutch Government’s development agenda. Directoraat-generaal internationale Samenwerking is the main contributor to the Fund’s name, providing funding upon FMO’s request.

Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (“FMO”)

The Dutch development bank FMO supports sustainable private sector growth in developing and emerging markets by leveraging its expertise in agribusiness, food & water, energy, financial institutions, Dutch business focus areas to invest in impactful businesses. FMO is a public-private partnership, with 51% of FMO’s shares held by the Dutch State and 49% held by commercial banks, trade unions and other members of the private sector. FMO has a triple A rating from both Fitch and Standard & Poor’s.

FMO has been entrusted by the Dutch Government to execute the mandates of the Funds. Currently MASSIF, Building Prospects, Access to Energy – I, FOM, FOM-OS, Dutch Fund for Climate and Development Land Use Facility are under FMO’s direct management; the execution of Access to Energy – II and the other facilities of the Dutch Fund for Climate and Development are performed by third parties under FMO’s supervision.

FMO charges management fee to the Dutch Ministry of Foreign Affairs and it is reimbursed accordingly from the subsidy amount of the Fund. The management fee amounts up to €8 mln in 2019 (2018: €8 mln).

20. Subsequent events

There has been no significant subsequent event between the balance sheet date and the date of approval of these accounts which should be reported by the Fund. The current COVID-19 outbreak will likely impact the global economy and the Fund's financial performance. The impact is expected to be greatest on investments in debt and equity. Given the uncertainties, ongoing developments and measures taken by governments around the globe, the Fund cannot estimate the quantitative impact in an accurate and reliable way at this point in time.