Dutch development bank FMO posted a net loss of €205 million ($242 million) in 2020, its first loss since 1991, largely driven by a decrease of the fair value of its private equity portfolio, its annual report showed.
The decrease is seen across sectors and geographies and is the result of a global decline in emerging market equity valuations due to the COVID-19 pandemic, FMO said.
Linda Broekhuizen, CEO of FMO, said the firm prepared for a worst-case scenario as early as March 2020, at the start of the first lockdown. She noted that customers were more resilient than FMO had expected during the year.
“Still, reflecting on the uncertainty that current times have brought, the value of our private equity portfolio decreased. Consequently, we ended the year with a negative result of €205 million for the year 2020. This is the first time in almost three decades that we report a loss,” Broekhuizen said in the report.
Aside from the pandemic, FMO said its PE portfolio was exposed to changes in currency rates as a large part of it is denominated in US dollars.
“With stock markets plummeting at the beginning of the pandemic, the euro-dollar valuation has changed significantly, affecting our private equity portfolio on the currency side,” FMO said.
Travel restrictions and lockdowns, as well as internal capacity constraints due to KYC remediation later in 2020, also prevented FMO from carrying out its due diligence process and exploring new viable business opportunities in a conventional way.
As a result, several deals were put on hold or took longer to materialize than normal. Deals that were closed in 2020 were mainly investments in existing customers with whom FMO has a well-established relationship, and in customers that had already advanced through FMO’s due diligence and KYC process, it added.
Despite these negative factors, the firm’s net interest income grew due to lower interest rates during 2020, resulting in lower interest expenses. It also claimed that its capital ratio remains well above the combined ratio of the SREP minimum requirement set by the Dutch Central Bank.
In 2020, FMO’s private equity investments in emerging markets reached €211 million, down from $352 million that it invested in 2019.
Despite a weaker 2020, FMO managed to record various milestones during the year. These include the launch of FMO Ventures Program, which seeks to support pioneering technology-enabled business models.
The program has made six investments in 2020, including four new or follow-on investments in Asia.
FMO is the Dutch entrepreneurial development bank that invests in over 85 countries, supporting jobs and income generation. It is focused on supporting sustainable private sector growth in developing countries and emerging markets by investing in ambitious projects and entrepreneurs.
The bank has an investment portfolio of $10.4 billion, with a 28 per cent exposure to Asia. It covers sectors such as financial institutions, energy, and agribusiness with average ticket size for investment at 15 million euros ($16.7 million) across equity and debt.
FMO has its head office in The Hague, the Netherlands, with local offices in Johannesburg, South Africa, and Nairobi, Kenya. It also has a representative office registered in Singapore.