Management’s Discussion and Analysis
and
Consolidated Financial Statements
June 30, 2016
Page 2
INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
June 30, 2016
Contents
Page
I
Executive Summary .................................................................................................................. 4
II Client Services .......................................................................................................................... 8
III Liquid Assets .......................................................................................................................... 15
IV Funding Resources ................................................................................................................ 16
V Risk Management ................................................................................................................... 18
VI Critical Accounting Policies .................................................................................................... 26
VII Results of Operations ............................................................................................................. 28
VIII Governance and Control ........................................................................................................ 37
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
LIST OF TABLES Page
Table 1: Reconciliation of reported Net Income to Allocable Income for Designations ......................... 5
Table 2a: Change in Income before Net Unrealized Gains and Losses on Non-Trading
Financial Instruments Accounted for at Fair Value, Grants to IDA and Net Gains
and Losses attributable to Non-Controlling Interests FY16 vs FY15 ....................................... 5
Table 2b: Change in Income before Net Unrealized Gains and Losses on Non-Trading
Financial Instruments Accounted for at Fair Value, Grants to IDA and Net Gains
and Losses attributable to Non-Controlling Interests FY15 vs FY14 ....................................... 6
Table 3: Selected Financial data as of and for the last Five Fiscal Years .............................................. 6
Table 4: Key Financial Ratios ................................................................................................................. 7
Table 5: FY16 and FY15 Long-Term Finance and Core Mobilization .................................................. 10
Table 6: IFC Advisory Services Portfolio - Program Expenditures by Region for FY16 vs
FY15 ....................................................................................................................................... 13
Table 7: IFC Advisory Services Portfolio - Program Expenditures by Area for FY16 vs FY15 ............ 14
Table 8: List of Funds Managed by AMC ............................................................................................. 14
Table 9: Activities of the Funds Managed by AMC FY16 vs FY15 ...................................................... 15
Table 10: IFC's Capital ........................................................................................................................... 17
Table 11: IFC's Retained Earnings ......................................................................................................... 17
Table 12: IFC Loan Portfolio Credit Risk Indicators ............................................................................... 22
Table 13: Main Elements of Net Income (Loss) and Comprehensive Income (Loss) ............................ 28
Table 14: Change in Net Income FY16 vs FY15 .................................................................................... 29
Table 15: FY16 Change in Income from Loans and Guarantees, including Realized Gains
and Losses on Loans and Associated Derivatives ................................................................. 30
Table 16: Net Unrealized Gains and Losses on Non-Trading Financial Instruments FY16 vs
FY15 ....................................................................................................................................... 32
Table 17: Change in Other Comprehensive Income (Loss) - Unrealized Gains and Losses on
Equity Investments and Debt Securities FY16 vs FY15 .......................................................... 33
Table 18: Change in Net Income FY15 vs FY14 .................................................................................... 33
Table 19: FY15 Change in Income from Loans and Guarantees, including Realized Gains
and Losses on Loans and Associated Derivatives ................................................................. 34
Table 20: Net Unrealized Gains and Losses on Non-Trading Financial Instruments FY15 vs
FY14 ....................................................................................................................................... 36
Table 21: Change in Other Comprehensive Income (Loss) - Unrealized Gains and Losses on
Equity Investments and Debt Securities FY15 vs FY14 ..........................................................
37
Figures
Figure 1:
Disbursed Investment Portfolio-Distribution by Region .......................................................... 11
Figure 2: Disbursed Investment Portfolio-Distribution by Sector ........................................................... 11
Figure 3: Currency position of the Disbursed Loan Portfolio ................................................................. 12
Figure 4: IFC's Funding Resources ....................................................................................................... 16
Figure 5: IFC's Enterprise Risk Management Framework ..................................................................... 19
Figure 6: NPLs as Percentage of Disbursed Loan Portfolio .................................................................. 22
Figure 7: Environment and Social Risk .................................................................................................. 25
Figure 8: IFC's Net (Loss) Income, Fiscal Years 2012-2016 ................................................................. 29
Page 4
INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
I. EXECUTIVE SUMMARY
International Finance Corporation (IFC or the Corporation) is the largest global development institution focused on the private sector in
developing countries. Established in 1956, IFC is owned by 184 member countries, a group that collectively determines its policies. IFC
is a member of the World Bank Group (WBG)
1
but is a legal entity separate and distinct from IBRD, IDA, MIGA, and ICSID, with its own
Articles of Agreement, share capital, financial structure, management, and staff. Membership in IFC is open only to member countries of
IBRD.
The mission of the WBG is defined by two goals:
•
To end extreme poverty by reducing the percentage of people living on less than $1.90 a day to no more than 3% globally b
y
203
0; and
•
To promote shared prosperity in a sustainable manner by fostering income growth for the bottom 40% of the population of ever
y
dev
eloping country.
In the year ended June 30, 2016 (FY16), WBG, together with the international community, agreed to support a more ambitious and broader
development agenda, including the Sustainable Development Goals (SDGs), the climate change goals at the 21
st
Conference of Parties
(COP21), and the Addis Ababa Action Agenda agreed at the Financing for Development (FfD) conference in Ethiopia.
IFC’s overall strategy remains focused on contributing to the WBG strategy and goals.
IFC helps developing countries achieve sustainable growth by financing private sector investment, mobilizing capital in international
financial markets, and providing advisory services to businesses and governments. IFC’s principal investment products are loans and
equity investments, with smaller debt securities and guarantee portfolios. IFC also plays an active and direct role in mobilizing additional
funding from other investors and lenders through a variety of means. Such means principally comprise: loan participations, parallel loans,
sales of loans, the non-IFC portion of structured finance transactions which meet core mobilization criteria, the non-IFC portion of
commitments in IFC’s initiatives, and the non-IFC investment portion of commitments in funds managed by IFC’s wholly owned subsidiary,
IFC Asset Management Company LLC (AMC), (collectively Core Mobilization). Unlike most other development institutions, IFC does not
accept host government guarantees of its exposures. IFC raises virtually all of the funds for its lending activities through the issuance of
debt obligations in the international capital markets, while maintaining a small borrowing window with IBRD. Equity investments are funded
from capital (or net worth).
IFC’s capital base and its assets and liabilities, other than its equity investments, are primarily denominated in US dollars ($ or US$) or
swapped into US dollars but it has a growing portion of debt issuances denominated in currencies other than USD and which are invested
in such currencies. Overall, IFC seeks to minimize foreign exchange and interest rate risks arising from its loans and liquid assets by
closely matching the currency and rate bases of its assets in various currencies with liabilities having the same characteristics. IFC
generally manages non-equity investment related and certain lending related residual currency and interest rate risks by utilizing currency
and interest rate swaps and other derivative instruments.
The Management’s Discussion and Analysis contains forward looking statements which may be identified by such terms as “anticipates,”
“believes,” “expects,” “intends,” “plans” or words of similar meaning. Such statements involve a number of assumptions and estimates that
are based on current expectations, which are subject to risks and uncertainties beyond IFC’s control. Consequently, actual future results
could differ materially from those currently anticipated.
BASIS OF PREPARATION OF IFC’S CONSOLIDATED FINANCIAL STATEMENTS
The accounting and reporting policies of IFC conform to accounting principles generally accepted in the United States (GAAP). IFC’s
accounting policies are discussed in more detail in Section VI, Critical Accounting Policies, and in Note A to IFC’s Consolidated Financial
Statements as of and for the year ended June 30, 2016 (FY16 Consolidated Financial Statements).
Management uses income available for designations (Allocable Income) (a non-GAAP measure) as a basis for designations of retained
earnings. Allocable Income generally comprises net income excluding net unrealized gains and losses on equity investments and net
unrealized gains and losses on non-trading financial instruments accounted for at fair value, income from consolidated entities other than
AMC, and expenses reported in net income related to prior year designations
.
FINANCIAL PERFORMANCE SUMMARY
From year to year, IFC’s net income is affected by a number of factors that can result in volatile financial performance.
Global equity markets in emerging economies were volatile in the years ended June 30, 2016 (FY16) and June 30, 2015 (FY15).
Additionally, there was further depreciation of certain of IFC’s major investment currencies against IFC’s reporting currency, the US$,
particularly in the Latin America and Caribbean region in the first six months of FY16, continuing the trend experienced throughout much
of FY15. The second half of FY16 saw a partial reversal of the recent trend as certain of IFC’s major investment currencies appreciated
against the US$. FY16 also saw a continuation of lower commodities prices. Collectively, these factors negatively impacted the valuation
of many of IFC’s investments in FY16.
The above factors, together with some adverse project-specific developments, have put downward pressure on IFC’s investment portfolio
returns in FY16, resulting in continuing high other-than-temporary impairments on equity investments and debt securities, albeit marginally
lower than in FY15, along with higher provisions for losses on loans when compared to FY15. Partially offsetting these negative impacts
on the investment portfolio, IFC realized robust capital gains on equity investment sales, the largest of which occurred in the three months
1
The other institutions of the World Bank Group are the International Bank for Reconstruction and Development (IBRD), the International Development Association
(IDA), the Multilateral Investment Guaranty Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID).
Page 5
INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
ended September 30, 2015 (FY16 Q1). Realized gains were concentrated in FY16, with six investments accounting for 56% of the realized
gains.
Capital markets were particularly turbulent in FY16 Q4 with credit spreads widening significantly. By the end of FY16, however, markets
had largely recovered and IFC ultimately recorded stronger liquid asset income in the second half of FY16 than in the first half of FY16,
although gross income from liquid assets in FY16 remained lower than in FY15.
IFC’s financial performance is detailed more fully in Section VII - Results of Operations.
IFC has reported income before net unrealized gains and losses on non-trading financial instruments accounted for at fair value and grants
to IDA of $500 million in FY16, $355 million lower than FY15 ($855 million) and $1,282 million lower than FY14 ($1,782 million).
Income Available for Designations (a non-GAAP measure)
2
was $770 million, 42% lower than in FY15 ($1,327 million) and 52% lower
than in FY14 ($1,614 million).
Table 1: Reconciliation of reported Net Income to Income Available for Designations
FY16
FY15
FY14
Net (loss) income attributable to IFC
$
(33)
$
445
$
1,483
Add: Net losses (gains) attributable to non-controlling interests
(1)
(36)
5
Net (loss) income
$
(34)
$
409
$
1,488
Adjustments to reconcile net income to Income Available for Designations
Grants to IDA from prior year designations
330
340
251
Unrealized gains and losses on investments
470
456
(287)
Unrealized gains and losses on borrowings
(62)
52
74
Advisory Services Expenses from prior year designations
57
59
79
Other
9
11
9
Income Available for Designations
$
770
$
1,327
$
1,614
Based on the distribution policy approved by IFC’s Board of Directors, the maximum amount available for designation relating to FY16 would
be $161 million. On August 4, 2016, the Board of Directors approved a designation of $101 million of IFC’s retained earnings for grants to
IDA and a designation of $60 million of IFC’s retained earnings for Advisory Services. These designations are expected to be noted with
approval by the Board of Governors, and thereby concluded, in FY17.
Table 2a: Change in Income before Net Unrealized Gains and Losses on Non-Trading Financial Instruments Accounted for at
Fair Value, Grants to IDA and Net Gains and Losses Attributable to Non-Controlling Interests FY16 vs FY15 (US$ millions)
Increase
(decrease)
FY16 vs FY15
$
(188)
(151)
(99)
(71)
(24)
198
(20)
$
(355)
2
Income available for designations generally comprises net income excluding unrealized gains and losses on investments and unrealized gains and losses on other
non-trading financial instruments, income from consolidated VIEs, and expenses reported in net income related to prior year designations.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
Table 2b: Change in Income before Net Unrealized Gains and Losses on Non-Trading Financial Instruments Accounted for at
Fair Value, Grants to IDA and Net Gains and Losses Attributable to Non-Controlling Interests FY15 vs FY14 (US$ millions)
Increase
(decrease)
FY15 vs FY14
$
(658)
(484)
(132)
(83)
58
72
275
25
$
(927)
T
able 3: Selected Financial data as of and for the last Five Fiscal Years (US$ millions)
AS OF AND FOR THE YEARS ENDED JUNE 30
2016
2015
2014
2013
2012
Consolidated income highlights:
Income from loans and guarantees, including realized gains and
losses on loans and associated derivatives
$
1,126
$
1,123
$
1,065
$
996
$
993
Provision for losses on loans, guarantees and other receivables
(359)
(171)
(88)
(243)
(117)
Income from equity investments and associated derivatives
518
427
1,289
732
1,548
Income from debt securities, including realized gains and losses
on debt securities and associated derivatives
129
132
89
69
71
Income from liquid asset trading activities
504
467
599
500
313
Charges on borrowings
(409)
(258)
(196)
(220)
(181)
Other income
501
505
461
441
448
Other expenses
(1,464)
(1,423)
(1,418)
(1,401)
(1,207)
Foreign currency transaction gains and losses on non-trading
activities
(46)
53
(19)
35
145
Income before net unrealized gains and losses on non-trading
financial instruments accounted for at fair value and grants
to IDA
500
855
1,782
909
2,013
Net unrealized gains and losses on non-trading financial
instruments accounted for at fair value
(204)
(106)
(43)
441
(355)
Income before grants to IDA
296
749
1,739
1,350
1,658
Grants to IDA
(330)
(340)
(251)
(340)
(330)
Net (loss) income
(34)
409
1,488
1,010
1,328
Less: Net losses (gains) attributable to non-controlling interests
1
36
(5)
8
-
Net (loss) income attributable to IFC
$
(33)
$
445
$
1,483
$
1,018
$
1,328
AS OF AND FOR THE YEARS ENDED JUNE 30
2016
2015
2014
2013
2012
Consolidated balance sheet highlights:
Total assets
$
90,434
$
87,548
$
84,130
$
77,525
$
75,761
Liquid assets, net of associated derivatives
41,373
39,475
33,738
31,237
29,721
Investments
37,356
37,578
38,176
34,677
31,438
Borrowings outstanding, including fair value adjustments
55,142
51,265
49,481
44,869
44,665
Total capital
$
22,766
$
24,426
$
23,990
$
22,275
$
20,580
of which
Undesignated retained earnings
$
20,475
$
20,457
$
20,002
$
18,435
$
17,373
Designated retained earnings
133
184
194
278
322
Capital stock
2,566
2,566
2,502
2,403
2,372
Accumulated other comprehensive (loss) income (AOCI)
(431)
1,197
1,239
1,121
513
Non-controlling interests
23
22
53
38
-
Page 7
INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
Table 4: Key Financial Ratios
2016
2015
2014
2013
2012
Financial ratios:
a
Return on average assets (GAAP basis)
b
0.0%
0.5%
1.8%
1.3%
1.8%
Return on average assets (non-GAAP basis)
c
0.5%
1.3%
1.8%
0.9%
2.8%
Return on average capital (GAAP basis)
d
(0.1)%
1.8%
6.4%
4.8%
6.5%
Return on average capital (non-GAAP basis)
e
1.8%
4.6%
6.5%
3.1%
9.9%
Overall liquidity ratio
f
85%
81%
78%
77%
77%
External funding liquidity level
504%
494%
359%
309%
327%
Debt to equity ratio
g
2.8:1
2.6:1
2.7:1
2.6:1
2.7:1
Total reserves against losses on loans to total disbursed portfolio
h
7.4%
7.5%
6.9%
7.2%
6.6%
Capital measures:
Total Resources Required ($ billions)
i
19.2
19.2
18.0
16.8
15.5
Total Resources Available ($ billions)
j
22.5
22.6
21.6
20.5
19.2
Strategic Capital
k
3.3
3.4
3.6
3.8
3.7
Deployable Strategic Capital
l
1.0
1.1
1.4
1.7
1.8
Deployable Strategic Capital as a percentage of Total
Resources Available
4%
5%
7%
8%
9%
a. C
ertain financial ratios, as described below, are calculated excluding the effects of unrealized gains and losses on investments, other
non-trading financial instruments, AOCI, and impacts from consolidated Variable Interest Entities (VIEs).
b. Net income for the fiscal year as a percentage of the average of total assets at the end of such fiscal year and the previous fiscal year.
c. Return on average assets is defined as Net income, excluding unrealized gains/losses on investments accounted for at fair value, income from
consolidated VIEs and net gains/losses on non-trading financial investments, as a percentage of total disbursed loan and equity investments
(net of reserves), liquid assets net of repos, and other assets averaged for the current and previous fiscal year.
d. Net income for the fiscal year as a percentage of the average of total capital (excluding payments on account of pending subscriptions) at the end
o
f such fiscal year and the previous fiscal year.
e. Return on average capital is defined as Net income, excluding unrealized gains/losses on investments accounted for at fair value, income from
consolidated VIEs and net gains/losses on non-trading financial investments, as percentage of the paid-in share capital and accumulated
earnings (before certain unrealized gains/losses and excluding cumulative designations not yet expensed) averaged for the current and
previous fiscal year.
f. Overall Liquidity Policy states that IFC would at all times maintain a minimum level of liquidity, plus undrawn borrowing commitments from
the IBRD, that would cover at least 45% of the next three years’ estimated net cash requirements (target range of 65-95%).
g. Leverage (Debt/equity) ratio is defined as the number of times outstanding borrowings plus outstanding guarantees cover paid-in capital and
accumulated earnings (net of retained earnings designations and certain unrealized gains/losses).
h. Total reserves against losses on loans to total disbursed loan portfolio is defined as reserve against losses on loans as a percentage of the total
disbursed.
i. Total resources required (TRR) is the minimum capital required to cover the expected and unexpected loss on IFC’s portfolio, calibrated t
o
m
aintain IFC’s triple-A rating. TRR is the sum of the economic capital requirements for IFC’s different assets, and it is determined by the
absolute size of the committed portfolio, the product mix (equity, loans, short-term finance, and Treasury portfolio assets), and by operational
and other risks.
j. Total resources available (TRA) is the total capital of the Corporation, consisting of (i) paid-in capital; (ii) retained earnings net of designations
and some unrealized gains and losses; and (iii) total loan loss reserves. TRA grows based on retained earnings (profit minus distributions) and
increases in reserves.
k. Total resources available less total resources required.
l. 90% of total resources available less total resources required.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
II. CLIENT SERVICES
BUSINESS OVERVIEW
IFC fosters sustainable economic growth in developing countries by financing private sector investment, mobilizing capital in the
international financial markets, and providing advisory services to businesses and governments.
For all new investments, IFC articulates the expected impact on sustainable development, and, as the projects mature, IFC assesses the
quality of the development benefits realized.
IFC’s strategic focus areas are aligned to advance the World Bank Group’s global priorities.
INVESTMENT SERVICES
IFC’s investments are normally made in its developing member countries. The Articles of Agreement mandate that IFC shall invest in
productive private enterprise. The requirement for private ownership does not disqualify enterprises that are partly owned by the public
sector if such enterprises are organized under local commercial and corporate law, operate free of host government control in a market
context and according to profitability criteria, and/or are in the process of being totally or partially privatized.
IFC provides a range of financial products and services to its clients to promote sustainable enterprises, encourage entrepreneurship, and
mobilize resources that wouldn’t otherwise be available. IFC’s financing products are tailored to meet the needs of each project. Investment
services product lines include: loans, equity investments, trade finance, loan participations, structured finance, client risk management
services, and blended finance.
IFC’s investment project cycle can be divided into the following stages:
Business Development
Concept Review
Appraisal (Due Diligence)
Investment Review
Negotiations
Public Disclosure
Board of Directors Review and Approval
Commitment
Disbursement of funds
Project Supervision and Development Outcome Tracking
Evaluation
Closing
IFC comprehensively supervises its projects to monitor project performance and compliance with contractual obligations and with IFC’s
internal policies and procedures.
INVESTMENT PRODUCTS
Loans – IFC finances projects and companies through loans, typically for seven to twelve years. IFC also makes loans to intermediary
banks, leasing companies, and other financial institutions for on-lending. IFC provides long-term local-currency solutions and helps
companies access local capital markets through loans from IFC denominated in local currency, derivatives which allow clients to hedge
existing or new foreign currency denominated liabilities back in to the client’s local currency, and structured finance which enable clients
to borrow in local currency from other sources. While IFC’s loans have traditionally been dominated in the currencies of major industrial
nations, IFC has made it a priority to structure local-currency products based on client demand and on IFC’s ability to economically hedge
loans in these currencies through the use of cross currency swaps or forward contracts.
Loans generally have the following characteristics:
Term -
typically amortizing with final maturities generally for seven to twelve years, although some loans have been made for
tenors as long as 20 years
Currency -
primarily in major convertible currencies, principally US dollar, and to a lesser extent, Euro, but with a growing local-
currency loan portfolio
Interest rate -
typically variable (or fixed and swapped into variable)
Pricing -
reflects such factors as market conditions and country and project risks
Equity - IFC’s equity investments provide developmental support and long-term growth capital that private enterprises need. IFC invests
directly in companies’ equity, and also through private-equity funds. IFC generally invests between 5 and 20 percent of a company’s
equity. IFC’s equity investments are typically in the form of common or preferred stock which is not mandatorily redeemable by the issuer
or puttable to the issuer by IFC, and are usually denominated in the currency of the country in which the investment is made. IFC also
uses put and call options, profit participation features, conversion features, warrants and other types of instruments in managing its equity
investments.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
Debt Securities - Investments typically in the form of bonds and notes issued in bearer or registered form, securitized debt obligations
(e.g. asset-backed securities (ABS), mortgage-backed securities (MBS), and other collateralized debt obligations) and preferred shares
that are mandatorily redeemable by the issuer or puttable to the issuer by IFC.
Guarantees and Partial Credit Guarantees - IFC offers partial credit guarantees to clients covering, on a risk-sharing basis, client
obligations on bonds and/or loans. IFC’s guarantee is available for debt instruments and trade obligations of clients and covers commercial
as well as noncommercial risks. IFC will provide local currency guarantees, but when a guarantee is called, the client will generally be
obligated to reimburse IFC in US dollar terms.
Client Risk Management Services - IFC extends long-maturity risk management products to clients in developing countries.
IFC provides derivative products to its clients to allow them to hedge their interest rate, currency, or commodity-price exposures.
IFC intermediates between clients in developing countries and derivatives market makers to provide such clients with access to
risk-management products to bridge the credit gap between its clients and the market.
Loan Mobilization - IFC promotes development by mobilizing financing for the private sector in its developing member countries.
IFC mobilizes funds through loan participation programs, parallel loans and, beginning in FY14, a Managed Co-Lending Portfolio Program
(MCPP).
Loan Participations: Through its “B Loan Program”, IFC offers commercial banks and other financial institutions the opportunity to lend to
IFC-financed projects. These loans are a key part of IFC’s efforts to mobilize additional private sector financing in developing countries,
thereby broadening the Corporation’s developmental impact. Through the B Loan Program, financial institutions share fully in the
commercial credit risk of projects, while IFC remains the lender of record. When IFC participates a B Loan, it always maintains a portion
for its own account (an A Loan). An A Loan Participation (ALP) is an exposure management tool which IFC uses to reduce its risk
exposures to a client, country or sector. An ALP is created through the partial sale of an IFC A Loan to commercial banks or other financial
institutions and is governed in much the same way as a B Loan. IFC remains the lender of record and an ALP participant shares all project
risks with IFC.
Parallel Loans: IFC acts as an arranger (and can also act as an administrative agent) by using its existing mobilization platform,
deal-structuring expertise and global presence to identify investments, perform due diligence, and negotiate loan documents in cooperation
with parallel lenders.
MCPP: The MCPP allows institutional investors the opportunity to passively participate in IFC’s future loan portfolio. Investors provide
capital on a portfolio basis, which can be deployed by IFC in individual investments in accordance with IFC’s strategy and processes.
Through MCPP, IFC can expand its base of co-lending partners to include investors that do not have the capacity to invest on a “deal by
deal” basis.
Trade and Supply Chain Finance - IFC’s Global Trade Finance Program (GTFP) guarantees trade-related payment obligations of
approved financial institutions. Separately, the Global Trade Liquidity Program (GTLP) and Critical Commodities Finance Program (CCFP)
provides liquidity for trade in developing countries. IFC has also commenced a number of other Trade and Supply Chain Finance-related
programs, including Global Trade Supplier Finance (GTSF), Global Warehouse Finance Program, Working Capital and Systemic Solutions
and Global Trade Structured Trade.
Structured Finance - IFC uses structured and securitized products to provide forms of financing that may not otherwise be available to
clients to help clients diversify funding, extend maturities, and obtain financing in particular currencies. Products include partial credit
guarantees, structured liquidity facilities, portfolio risk transfer, securitizations, and Islamic finance.
Blended Finance - IFC combines concessional funds, typically from donor partners, with IFC’s resources to finance certain projects.
INVESTMENT PROGRAM
COMMITMENTS
In FY16, the Long-Term Finance program was $11,117 million, as compared to $10,539 million in FY15 and Core Mobilization was
$7,739 million, as compared to $7,133 million for FY15, a total increase of 7% reflecting the more favorable investing climate in FY16.
In addition, the average outstanding balance for Short-Term Finance was $2,807 million at June 30, 2016, as compared to $2,837 million
at June 30, 2015.
CORE MOBILIZATION
Core Mobilization is financing from entities other than IFC that becomes available to clients due to IFC’s direct involvement in raising
resources. lFC finances only a portion, usually not more than 25%, of the cost of any project. All IFC-financed projects, therefore, require
other financial partners. IFC mobilizes such private sector finance from other entities through a number of means, as outlined in the Table
on the following page.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
Table 5: FY16 and FY15 Long-Term Finance and Core Mobilization (US$ millions)
FY16
FY15
Total Long-Term Finance and Core Mobilization
3
$
18,856
$
17,672
Long-Term Finance
Loans
$
8,097
$
7,019
Equity investments
2,595
3,187
Guarantees
378
273
Client risk management
47
60
Total Long-Term Finance
$
11,117
$
10,539
Core Mobilization
Loan participations, parallel loans, and other mobilization
Loan participations
$
3,670
$
1,853
Parallel loans
1,205
1,522
Managed Co-lending Portfolio Program
541
818
Other Mobilization
554
881
Total loan participations, parallel loans and other mobilization
$
5,970
$
5,074
AMC (see definitions in Table 8)
China-Mexico Fund
$
140
$
-
GEM Funds
87
-
FIG Fund
82
-
Catalyst Funds
66
66
ALAC Fund
43
86
Africa Capitalization Fund
28
-
WED Fund
20
-
MENA Fund
8
-
Global Infrastructure Fund (GIF)
2
226
GIF Co-Investments
-
230
Sub-debt Capitalization Fund
-
150
Equity Capitalization Fund
-
3
Total AMC
$
476
$
761
Other initiatives
Public Private Partnership
$
793
$
548
Global Trade Liquidity Program and Critical Commodities Finance Program
500
750
Total other initiatives
$
1,293
$
1,298
Total Core Mobilization
$
7,739
$
7,133
INVESTMENT DISBURSEMENTS
IFC disbursed $9,952 million for its own account in FY16 ($9,258 million in FY15): $7,248 million of loans ($6,359 million in FY15),
$1,929 million of equity investments ($2,299 million in FY15), and $775 million of debt securities ($600 million in FY15).
DISBURSED INVESTMENT PORTFOLIO
IFC’s total disbursed investment portfolio (a non-GAAP performance measure) was $37,554 million at June 30, 2016 ($36,401 million at
June 30, 2015), comprising the disbursed loan portfolio of $23,910 million ($23,252 million at June 30, 2015), the disbursed equity portfolio
of $10,793 million ($10,581 million at June 30, 2015), and the disbursed debt security portfolio of $2,851 million ($2,568 million at June
30, 2015).
3
Debt security commitments are included in loans and equity investments based on their predominant characteristics.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
IFC’s disbursed investment portfolio is diversified by industry sector and geographic region.
The following charts show the distribution of the disbursed investment portfolio by geographical region and industry sector as of
June 30, 2016, and June 30, 2015:
Figure 1: Disbursed Investment Portfolio Distribution by Region
Fi
gure 2: Disbursed Investment Portfolio Distribution by Industry Sector
T
he carrying value of IFC’s investment portfolio comprises: (i) the disbursed investment portfolio; (ii) reserves against losses on loans;
(iii) unamortized deferred loan origination fees, net and other; (iv) disbursed amount allocated to a related financial instrument reported
separately in other assets or derivative assets; (v) unrealized gains and losses on equity investments held by consolidated variable interest
entities; (vi) unrealized gains and losses on investments accounted for at fair value as available-for-sale; and (vii) unrealized gains and
losses on investments.
LOANS
Loans comprise 64% of the disbursed investment portfolio as of June 30, 2016 (64% at June 30, 2015) and 58% of the carrying amount
of the investment portfolio as of June 30, 2016 (57% at June 30, 2015).
IFC’s disbursed loan portfolio totaled $23,910 million at June 30, 2016 ($23,252 million at June 30, 2015). The carrying amount of IFC’s
loan portfolio on IFC’s consolidated balance sheet (comprising the disbursed loan portfolio together with adjustments as detailed in Note
D to IFC’s FY16 Consolidated Financial Statements) grew 2.5% to $21,868 million at June 30, 2016 ($21,336 million at June 30, 2015).
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
Loans traditionally have been denominated in the currencies of major industrial nations, but IFC has an extensive portfolio of local currency
products. IFC typically offers local currency products in other currencies where it can economically hedge the local currency loan cash
flows back into US dollars using swap markets or where it can fund itself in local bond markets. IFC’s disbursed loan portfolio at June 30,
2016 includes $2,458 million of currency products denominated in Brazilian reals, Indian rupees, Chinese renminbi, South African rands,
Philippine pesos, Colombian pesos, Mexican pesos, Indonesian rupiahs, Russian rubles, Peruvian nuevos soles, New Romanian Lei,
Hong Kong dollars and Dominican pesos ($3,026 million at June 30, 2015). The $568 million decline over FY16 in local currency loans
outstanding measured in US dollars was mainly due to repayments of loans denominated in Chinese renminbi, Mexican pesos, and
Indonesian rupiahs. IFC has also made loans in a number of frontier market currencies such as Tunisian dinar, Paraguayan guarani,
Rwandan franc, and Zambian kwacha. At June 30, 2016, 78% (75% at June 30, 2015) of IFC’s disbursed loan portfolio was US dollar-
denominated.
The currency position of the disbursed loan portfolio at June 30, 2016 and June 30, 2015 is shown below:
Figure 3: Currency position of the Disbursed Loan Portfolio (US$ millions)
EQUITY INVESTMENTS
IFC’s disbursed equity portfolio totaled $10,793 million at June 30, 2016 ($10,581 million at June 30, 2015), an increase of 2%.
Equity investments accounted for 29% of IFC’s disbursed investment portfolio at June 30, 2016, compared with 29% at June 30, 2015
and 34% of the carrying amount of the investment portfolio at June 30, 2016 (36% at June 30, 2015).
The carrying amount of IFC’s equity investment portfolio (comprising the disbursed equity portfolio, together with adjustments as detailed
in Note D to IFC’s FY16 Consolidated Financial Statements), fell 7% to $12,588 million at June 30, 2016 ($13,503 million at June 30, 2015).
While equity disbursements were robust in FY16, this was more than offset by sales, other than temporary impairments and unrealized
losses on equity investments accounted for at fair value, reflecting the tough overall environment for emerging markets equities in FY16.
The fair value of IFC’s equity portfolio
4
was $14,642 million at June 30, 2016 ($15,721 million at June 30, 2015).
DEBT SECURITIES
IFC’s disbursed debt securities portfolio totaled $2,851 million at June 30, 2016 ($2,568 million at June 30, 2015).
Debt securities accounted for 7% of IFC’s disbursed investment portfolio at June 30, 2016 (7% at June 30, 2015) and 8% of the carrying
amount of the investment portfolio at June 30, 2016 (7% at June 30, 2015).
The carrying amount of IFC’s debt securities portfolio (comprising the disbursed debt securities portfolio, together with adjustments as
detailed in Note D to IFC’s FY16 Consolidated Financial Statements), was $2,900 million at June 30, 2016 ($2,739 million at June 30,
2015).
Additional information on IFC’s investment portfolio as of and for the years ended June 30, 2016, and June 30, 2015, can be found in
Notes B, D, E, F, G, H, P and R to IFC’s FY16 Consolidated Financial Statements.
4
Including “equity-like” securities classified as debt securities in IFC’s consolidated balance sheet and equity-related options.
Page 13
INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
GUARANTEES AND PARTIAL CREDIT GUARANTEES
IFC offers partial credit guarantees to clients covering, on a risk-sharing basis, client obligations on bonds and/or loans. IFC’s guarantee
is available for debt instruments and trade obligations of clients and covers commercial as well as noncommercial risks. IFC will provide
local currency guarantees, but when a guarantee is called, the client will generally be obligated to reimburse IFC in US dollar terms.
Guarantee fees are consistent with IFC’s loan pricing policies.
Guarantees of $3,478 million were outstanding (i.e., not called) at June 30, 2016 ($3,168 million at June 30, 2015).
ADVISORY SERVICES
It takes more than finance to achieve sustainable development. IFC’s experience shows the powerful role advice can play in unlocking
private sector investment and helping businesses expand and create jobs—thereby strengthening the World Bank Group’s efforts to end
poverty and boost shared prosperity.
That is why IFC continues to strengthen advisory work, which is now closely aligned with other areas of IFC and the World Bank, so that
IFC’s clients can benefit from the full range of capabilities available across the Bank Group. Advice is increasingly integrated into the wide
suite of solutions IFC provides to clients.
During FY16, IFC provided advice in a number of areas critical to development:
Financial Sector: IFC helps increase the availability and affordability of financial services for individuals and for micro, small, and medium
enterprises. IFC works with financial institutions to strengthen their risk management and diversify their product offering in areas such as
SMEs, housing finance, and sustainable energy. As part of an integrated World Bank Group team in the Finance & Markets Global
Practice, IFC also supports the development of financial markets—by promoting universal access to finance, strengthening capital
markets, and establishing credit bureaus and collateral registries that open up new avenues for companies to create jobs and grow
sustainably.
Investment Climate: As part of an integrated Work Bank Group team in the Trade & Competitiveness Global Practice, IFC helps national
and local governments implement reforms that improve the business environment and attract and retain investment—fostering growth,
competitive markets, and job creation.
Public-Private Partnerships: IFC helps governments design and implement public-private partnerships in infrastructure and basic public
services. IFC’s advice helps increase public access to electricity, water, health, and education.
Agribusiness: IFC helps clients improve productivity and standards in agribusiness. IFC’s efforts are focused on designing efficient value
chains and boosting food security—thereby providing valuable social, economic, and environmental benefits for all stakeholders.
Energy & Resource Efficiency: IFC helps clients develop clean, affordable, competitive, and high-quality energy solutions across the
value chain. IFC accelerates the development of commercial markets to increase renewable energy production and improve people's
access to modern energy services.
IFC also provides advisory solutions that can be deployed across several industries. This includes helping businesses improve corporate
governance and building the capacity of smaller businesses operating within the supply chains of larger companies, thereby increasing
local opportunities while helping clients make better use of local suppliers and resources. Central to IFC’s advisory work is helping clients
build robust and inclusive business performance by making them aware of, and invest in, the value women can bring either as a defined
consumer segment that can be better served, as employees, as business leaders or as entrepreneurs and suppliers.
The IFC Advisory Services Portfolio
5
as of June 30, 2016 totaled $1.3 billion ($1.2 billion at June 30, 2015). FY16 program expenditures
with clients was $221 million ($202 million -FY15) with a strong focus in strategic priority areas of IDA (62%) and FCS (21%) as of June
30, 2016 (65% and 20% at June 30, 2015). This emphasis is expected to continue in the coming years.
Table 6: IFC Advisory Services - Program Expenditures by Region for FY16 vs FY15
FY16
FY15
IFC Advisory Services program by region
US$ millions
%
US$ millions
%
Sub Saharan Africa
$
63
29
$
54
27
East Asia and the Pacific
39
18
38
19
Europe and Central Asia
34
15
34
17
South Asia
27
12
23
11
Latin America and the Caribbean
25
11
22
11
Middle East and North Africa
23
10
20
10
World region
10
5
11
5
Total expenditures
$
221
100
$
202
100
5
IFC Advisory Services Portfolio is the total of funds managed by IFC for active advisory projects.
Page 14
INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
Table 7: IFC Advisory Services - Program Expenditures by area for FY16 vs FY15
FY16
FY15
IFC Advisory Services program by area
US$ millions
%
US$ millions
%
Financial Sector
$
67
30
$
64
32
Investment Climate
57
26
50
25
Cross-Industry Areas
34
15
28
14
Public-Private Partnerships
31
14
31
15
Energy & Resource Efficiency
19
9
17
8
Agribusiness
13
6
12
6
Total expenditures
$
221
100
$
202
100
Similar to FY15, the program results in FY16 were positive. Development effectiveness ratings of the projects reached 68% success rate
(77% in FY15) and client satisfaction was 91% (91% in FY15).
ASSET MANAGEMENT COMPANY
IFC Asset Management Company, LLC (AMC), a wholly-owned subsidiary of IFC, invests third-party capital and IFC capital, enabling outside
investors to benefit from IFC’s expertise in achieving strong equity returns, as well as positive development impact in the countries in which
it invests in developing and frontier markets. Investors in funds managed by AMC include sovereign wealth funds, national pension funds,
multilateral and bilateral development institutions, national development agencies and international financial institutions. AMC helps IFC
mobilize additional capital resources for investment in productive private enterprise in developing countries.
At June 30, 2016, AMC managed twelve funds, with $8.9 billion total assets under management (ten funds; $8.5 billion at June 30, 2015):
Table 8: List of Funds Managed by AMC at June 30, 2016
Fund Name
Established
Description
The IFC Capitalization
(Equity) Fund, L.P. (Equity
Capitalization Fund)
Year ended June
30, 2009 (FY09)
Help strengthen systemically important banks in emerging
markets
The Capitalization (Subordinated Debt) Fund, L.P.
(Sub-Debt Capitalization Fund)
FY09 Help strengthen systemically important banks in emerging
markets
The African, Latin American and Caribbean Fund,
LP (ALAC Fund)
Year ended June
30, 2010 (FY10)
Invest in equity investments across a range of sectors in
Sub-Saharan Africa, Latin America, and the Caribbean.
The Africa Capitalization Fund, Ltd. (Africa
Capitalization Fund)
FY10 Capitalize on systemically important commercial banking
institutions in northern and Sub-Saharan Africa
The Russian Bank Capitalization Fund, LP
(
Russian Bank Cap Fund)
Year ended June
30, 2012 (FY12)
Invest in mid-sized commercial banks in Russia that are either:
(i) privately owned and controlled; or (ii) state-
owned; or
(iii) controlled and on a clear path to privatization
The
Catalyst Fund, LP, IFC Catalyst Fund (UK),
LP and IFC Catalyst Fund (Japan), LP
(collectively, Catalyst Funds)
Year ended June
30, 2013 (FY13)
Make investments in selected climate-
and resource
efficiency-focused private equity funds in emerging markets
The Global Infrastructure Fund,
LP (Global
Infrastructure Fund)
The China
-Mexico Fund, LP (China-Mexico Fund)
FY13
FY1
5
Focus on making equity and equity-related investments in the
infrastructure sector in global emerging markets
Focus on making equity and equity-
related investments
across all sectors in Mexico
The
Financial Institutions Growth Fund, LP (FIG
Fund)
FY15 Invest in equity and equity-related investments in financial
institutions in global emerging markets
The Global Emerging Markets Fund of Funds, LP
and IFC Global Emerging Markets Fund of Funds
(Japan Parallel), LP (collectively, GEM Funds)
FY15 Primarily invest in a portfolio of investment funds in global
emerging markets.
The Middle East and North Africa Fund, LP
(MENA Fund)
FY16 Make equity and equity related investments in the Middle East
and North Africa region
Women Entrepreneurs Debt Fund
, LP (WED
Fund)
FY16 Focus on extending senior loans to commercial banks for
on-lending to women-owned small and medium enterprises in
emerging markets
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
The activities of the funds managed by AMC at June 30, 2016 and 2015 can be summarized as follows:
Table 9: Activities of the Funds Managed by AMC FY16 vs FY15 (US$ millions unless otherwise indicated)
As of June 30, 2016 For the year ended June 30, 2016
Total assets under management
Disbursements to Fund
Disbursements
made by Fund
Disbursements
made by Fund
(number)*
Total
From IFC
From other
investors
From IFC
From other
investors
Equity Capitalization Fund
$ 1,275
$ 775
$ 500
$ 2
$ 1
$ -
-
Sub-Debt Capitalization Fund
1,725
225
1,500
-
2
-
-
ALAC Fund
1,000
200
800
19
80
81
8
Africa Capitalization Fund
182
-
182
-
56
29
2
Russian Bank Cap Fund
550
250
300
2
2
-
-
Catalyst Funds
418
75
343
9
38
48
96
Global Infrastructure Fund**
1,430
200
1,230
24
104
102
5
China-Mexico Funds
1,200
-
1,200
-
13
4
1
FIG Fund
464
150
314
45
63
96
3
GEM Funds
406
81
325
7
26
25
16
MENA Fund
162
60
102
6
11
12
1
WED Fund
90
30
60
9
17
10
1
Total
$ 8,902
$ 2,046
$ 6,856
$ 123
$ 413
$ 407
133
* Number of disbursements may include multiple disbursements to a single investee company or fund.
** Includes co-investment fund managed by AMC on behalf of Fund LPs.
As of June 30, 2015 For the year ended June 30, 2015
Total assets under management
Disbursements to Fund
Disbursements
made by Fund
Disbursements
made by Fund
(number)*
Total
From IFC
From other
investors
From IFC
From other
investors
Equity C
apitalization Fund
$ 1,275 $ 775
$ 500 $ 6
$ 4 $ 8 1
Sub-Debt Capitalization Fund
1,725
225
1,500
29
196
254
4
ALAC Fund
1,000 200
800 29
112 94 7
Africa Capitalization Fund
182
-
182
-
3
-
-
Russian Bank Cap Fund
550 250
300 5
5 - -
Catalyst Funds
418
75
343
9
41
36
46
Global Infrastructure Fund**
1,430 200
1,230 27
298 293 7
China-Mexico Funds
1,200
-
1,200
-
6
-
-
FIG
Fund 344 150
194 -
- - -
GEM Funds
406
81
325
-
-
-
-
MENA Fund
- -
- -
- - -
WED Fund
-
-
-
-
-
-
-
Total
$ 8,530
$ 1,956
$ 6,574
$ 105
$ 665
$ 685
65
* Number of disbursements may include multiple disbursements to a single investee company or fund.
** Includes co-investment fund managed by AMC on behalf of Fund LPs.
III. LIQUID ASSETS
All liquid assets are managed according to an investment authority approved by the Board of Directors and liquid asset investment
guidelines approved by IFC’s Corporate Risk Committee, a subcommittee of IFC’s Management Team.
IFC funds its liquid assets from two sources, borrowings from the market (funded liquidity) and capital (net worth). Liquid assets are
managed in a number of portfolios related to these sources.
IFC invests its liquid assets generally in highly rated fixed and floating rate instruments issued by, or unconditionally guaranteed by,
governments, government agencies and instrumentalities, multilateral organizations, and high quality corporate issuers; these include
asset-backed securities and mortgage-backed securities, time deposits, and other unconditional obligations of banks and financial institutions.
Diversification across multiple dimensions ensures a favorable risk return profile. IFC has a flexible approach to managing the liquid assets
portfolios by making investments on an aggregate portfolio basis against its benchmarks within specified risk parameters. In implementing
these portfolio management strategies, IFC utilizes derivative instruments, principally currency and interest rate swaps and futures and
options, and takes positions in various industry sectors and countries.
IFC’s liquid assets are accounted for as trading portfolios. The net asset value of the liquid assets portfolio was $41.4 billion at June 30, 2016
($39.5 billion at June 30, 2015). The increase in FY16 was principally due to additions to the portfolio from the investment of the net proceeds
of market borrowings, plus returns made on the investment portfolio partially offset by reductions due to investment disbursements.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
FUNDED LIQUIDITY
The primary funding source for liquid assets for IFC is borrowings from market sources. Proceeds of borrowings from market sources not
immediately disbursed for loans and loan-like debt securities (Funded Liquidity) are managed internally against money market
benchmarks. A small portion of Funded Liquidity is managed by third parties with the same benchmark as that managed internally.
MANAGED NET WORTH
The second funding source of liquid assets is that portion of IFC’s net worth not invested in equity and equity-like investments (Managed
Net Worth) which is managed against a U.S. Treasury benchmark. A portion of these assets are managed by third parties with the same
benchmark as that part managed internally.
Net income from liquid assets trading activities
6
from Funded Liquidity was $419 million and from Managed Net Worth totaled $85 million
in FY16.
IV. FUNDING RESOURCES
IFC’s funding resources (comprising borrowings, capital and retained earnings) as of June 30, 2016 and June 30, 2015 are as follows:
Figure 4: IFC's Funding Resources
BORROWINGS
The major source of IFC’s borrowings is the international capital markets. Under the Articles of Agreement, IFC may borrow in the public
markets of a member country only with approvals from that member, together with the member in whose currency the borrowing is
denominated.
Beginning July 1, 2014, IFC has a General Funding Authorization that authorizes IFC to borrow within the limits of its risk policies without
requiring annual authorizations from the Board of the Corporation as to the size of its borrowing program for the subsequent financial year.
IFC borrowed (after the effect of borrowing-related derivatives) $14.3 billion during FY16 ($14.8 billion in FY15 and $15.3 billion in FY14).
In addition, the Board of Directors has authorized the repurchase and/or redemption of debt obligations issued by IFC, which enhances
the liquidity of IFC’s borrowings. During FY16, IFC repurchased and retired $0.5 billion of outstanding debt ($1.4 billion in FY15 and
$1.4 billion in FY14), generating gains on buybacks of $6 million in FY16 ($2 million - FY15 and $3 million - FY14).
IFC uses its borrowings issuances as a tool to promote capital markets development in emerging and frontier markets. Proceeds of these
issuances not disbursed into loans have primarily been invested in securities of the related sovereign and sovereign instrumentalities in
the currency of the issuances. As a result, borrowings from market sources at June 30, 2016 that have not been swapped amounted
to 5% of the total borrowings from market sources (6% at June 30, 2015 and 5% at June 30, 2014).
IFC diversifies its borrowings by currency, country, source, and maturity to provide flexibility and cost-effectiveness. In FY16 IFC borrowed
in eighteen currencies and in final maturities ranging from one to 30 years. Remaining maturities have a weighted average remaining
contractual maturity of 4.1 years at June 30, 2016 (3.3 years at June 30, 2015). Actual maturities may differ from contractual maturities
due to the existence of call features in certain of IFC’s borrowings.
Market borrowings are generally swapped into floating-rate obligations denominated in US dollars. As of June 30, 2016, IFC had gross
payables from borrowing-related currency swaps of $19.9 billion ($19.6 billion at June 30, 2015) and from borrowing-related interest rate
swaps in the notional principal payable amount of $35.2 billion ($35.2 billion at June 30, 2015). After the effect of these derivative
instruments is taken into consideration, 95% of IFC’s market borrowings at June 30, 2016 were variable rate US dollar-denominated
(94% - June 30, 2015). The weighted average cost of market borrowings after currency and interest rate swap transactions was 1.1% at
June 30, 2016 (0.5% at June 30, 2015). This was mainly due to developments in USD funding, where compared to the prior year,
US$ six-month LIBOR rates were 0.5% higher and IFC’s credit spread widened by 0.1%.
6
Reported gross of borrowing costs and excluding foreign exchange gains and losses on local currency Funded Liquidity which are reported separately from income
from liquid assets trading activities in foreign currency gains and losses on non-trading activities and the effects of internal trades related to foregone swapping of
market borrowings and Funded Liquidity in certain currencies.
Page 17
INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
IFC’s mandate to help develop domestic capital markets can result in raising local currency funds. As of June 30, 2016, $2.2 billion
($2.5 billion as of June 30, 2015) of such non-US$ denominated market borrowings were outstanding, denominated in Chinese Renminbi,
Dominican Pesos, Indian Rupees, Namibia dollar, New Zambian Kwacha, Nigerian Naira, Russian Ruble and Rwanda Francs. Proceeds
of such borrowings were invested in such local currencies, on-lent to clients and/or partially swapped into US dollars.
IFC has short term discount note programs in US$, Chinese renminbi and Turkish lira to provide an additional funding and liquidity
management tool for IFC in support of certain of IFC’s trade finance and supply chain initiatives and to expand the availability of short
term local currency finance.. The discount note programs provide for issuances with maturities ranging from overnight to one year. The
weighted average cost of discount note borrowing was at 0.33% at June 30, 2016. During FY16, IFC issued $11.5 billion of discount
notes and $1.8 billion were outstanding as of June 30, 2016 under the short-term discount note programs.
CAPITAL AND RETAINED EARNINGS
As of
June 30, 2016, IFC’s authorized capital was $2.58 billion ($2.58 billion - June 30, 2015), of which $2.57 billion was subscribed and
paid in at
June 30, 2016 ($2.57 billion at June 30, 2015).
Table 10: IFC's Capital (US$ millions)
June 30,
2016
June 30,
2015
Capital
Capital stock, subscribed and paid-in
$
2,566
$
2,566
Accumulated other comprehensive (loss) income
(431)
1,197
Retained earnings
20,608
20,641
Total IFC capital
$
22,743
$
24,404
Non-controlling interests
23
22
Total capital
$
22,766
$
24,426
At June 30, 2016 and June 30, 2015, retained earnings comprised the following:
Table 11: IFC's Retained Earnings (US$ millions)
June 30,
2016
June 30,
2015
Undesignated retained earnings
$
20,475
$
20,457
Designated retained earnings:
Advisory services
98
137
Performance-based grants
12
16
IFC SME Ventures for IDA countries and Global Infrastructure Project Development Fund
23
31
Total designated retained earnings
$
133
$
184
Total retained earnings
$
20,608
$
20,641
SELECTIVE CAPITAL INCREASE (SCI)
On July 20, 2010, the IFC Board of Directors recommended that the IFC Board of Governors approve an increase of $130 million in the
authorized share capital of IFC to $2,580 million, through the issuance of $200 million in shares (including $70 million in unallocated
shares). The Board of Directors also recommended that the Board of Governors approve an increase in Basic Votes aimed at enhancing
the voice and participation of developing and transition countries which required an amendment to IFC’s Articles of Agreement.
The resolution recommended by the Board of Directors was adopted by the Board of Governors on March 9, 2012 (IFC Resolution no.
256 entitled "Amendment to the Articles of Agreement and 2010 Selective Capital Increase"). The amendment to the Articles of Agreement
and the increase in the authorized share capital became effective on June 27, 2012. As of the same date, eligible members were authorized
to subscribe to their allocated IFC shares.
As of June 30, 2015, IFC had received payments with respect to the SCI totaling $194 million and the balance of $6 million has become
part of IFC’s authorized and unallocated capital stock.
DESIGNATIONS OF RETAINED EARNINGS
Beginning in the year ended June 30, 2004, IFC began a process of designating retained earnings to increase its support of advisory
services and, subsequently, for performance-based grants (PBG) (year ended June 30, 2005), grants to IDA (year ended June 30, 2006),
the Global Infrastructure Project Development Fund (year ended June 30, 2008 (FY08), and IFC SME Ventures for IDA Countries (FY08).
The levels and purposes of retained earnings designations are set based on the Board of Directors-approved principles, which are applied
each year to assess IFC’s financial capacity and to determine the maximum levels of retained earnings designations.
Amounts available to be designated are determined based on a Board of Directors-approved income-based formula and, beginning in the
year ended June 30, 2008, on a principles-based Board of Directors-approved financial distribution policy, and are approved by the Board
of Directors.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
IFC recognizes designations of retained earnings for advisory services when the Board of Directors approves it and recognizes designation
of retained earnings for grants to IDA when it is noted with approval by the Board of Governors. Expenditures for the various approved
designations are recorded as expenses in IFC’s consolidated income statement in the year in which they occur, and have the effect of
reducing retained earnings designated for this specific purpose.
FY15 DESIGNATIONS
On August 6, 2015, the Board of Directors approved a designation of $330 million of IFC’s retained earnings for grants to IDA and a designation
of $14 million of IFC’s retained earnings for Advisory Services. On October 9, 2015, IFC’s Board of Governors noted with approval these
designations. On January 15, 2016 IFC recognized expenditures against designations of retained earnings for grants to IDA of $330 million
pursuant to signing of a grant agreement between IDA and IFC.
FY16 DESIGNATIONS
Income available for designations in FY16 (a non-GAAP measure)
7
totaled $770 million. Based on the distribution policy approved by IFC’s
Board of Directors the maximum amount available for designation would be $161 million. On August 4, 2016, the Board of Directors approved
a designation of $101 million of IFC’s retained earnings for grants to IDA and a designation of $60 million of IFC’s retained earnings for
Advisory Services. These designations are expected to be noted with approval by the Board of Governors, and thereby concluded, in FY17.
DEPLOYABLE STRATEGIC CAPITAL
IFC’s deployable strategic capital (DSC) ratio was 4.4% at June 30, 2016, compared with 5.4% at June 30, 2015. Total Resources Available
(TRA) decreased to $22.5 billion at the end of FY16 from $22.6 billion at the end of FY15. Total Resources Required (TRR) was unchanged
at $19.2 billion at the end of FY16. The increase in capital required for the investment portfolio was offset by a decline in capital to support
the Treasury portfolio and for operational risk. The decrease in total resources available was heavily affected by the $0.8 billion increase in
the underfunded status of the pension plans - without this impact, the DSC ratio would have been 7.3%.
V. RISK MANAGEMENT
ENTERPRISE RISK MANAGEMENT
IFC provides long-term investments to the private sector in emerging markets, which includes expanding the investment frontier into the
most challenging markets. In doing so, IFC is exposed to a variety of financial and non-financial risks. Sound risk management is crucial
in fulfilling IFC’s mission.
The Corporate Risk and Sustainability Vice-Presidency combines all of IFC’s financial and non-financial risk functions to streamline and
enhance risk management at both corporate and project levels, as well as to improve support for IFC’s external clients.
ENTERPRISE RISK MANAGMENT FRAMEWORK
IFC’s enterprise risk management framework (ERM) is designed to enable the prudent management of financial and reputational impacts
that originate from the Corporation’s business activities. In this context, IFC’s risk management efforts are designed specifically to help
align the Corporation’s performance with its strategic direction. The ERM framework that IFC adopted in FY14 is aligned broadly with
industry standards and is designed to underpin IFC's response to risk by defining:
IFC's core risk management principles;
A common risk taxonomy for use across the organization, to help ensure that risk management efforts are coordinated and
aligned across the distinct parts of the organization that share responsibility for managing different aspects of risk;
A standard classification of roles and responsibilities for risk management, to differentiate and thereby clarify how different parts
of
the organization contribute towards the overall management of risk; and
The structures, processes and methods that are necessary to put active risk management into practice.
KEY RISK MANAGEMENT PRINCIPLES
The key principles that inform IFC’s ERM Framework are:
Maximizing development impact while maintaining financial sustainability;
Ensuring that business decisions are based on a thorough understanding of risks and that risks and rewards are balanced
appropriately;
Being selective in undertaking activities that could cause significant, adverse reputational impact; and
Sharing responsibility for risk management across the Corporation.
The ERM Framework comprises several components, each addressing a specific issue within the Framework. These components are
dynamic in nature and reflect the fact that IFC’s risk management evolution is a continual, iterative and interconnected effort.
7
Income available for designations generally comprises net income excluding unrealized gains and losses on investments and unrealized gains and losses on other
non-trading financial instruments, income from consolidated VIEs, and expenses reported in net income related to prior year designations.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
The Framework is depicted as follows:
Figure 5: IFC's Enterprise Risk Management Framework
R
isk Culture
- Starting with IFC’s Management Team, building the right risk culture instills behaviors that are integral to the success of
ERM.
Risk Coverage
- IFC’s risk profile is categorized across five classes of risk, namely Credit, Market, Operational, Liquidity and Business
risks. Each of these is addressed in the following paragraphs.
Risk Appetite
- A comprehensive set of explicit risk appetite statements, with associated metrics, will provide a consistent and integrated
basis for making decisions that impact IFC’s risk profile, while monitoring IFC’s risk exposures, and taking action when risk tolerances are
exceeded.
Risk Governance and Policies
- IFC’s risk governance structure is based on the industry-standard principle of “three lines of defense”.
IFC’s first line of defense is line management, consisting of frontline decision makers on individual projects and transactions.
The second line of defense is, collectively, the Management Team, its committees and IFC’s independent risk management
functions. Independent oversight bodies, together with the Board of Directors, serve as the third line of defense. These
independent oversight bodies are:
o
The
Independent Evaluation Group
, which assesses the alignment between projected and realized outcomes of IFC’s
investment and advisory projects undertaken with its clients;
o
The
Compliance Advisor/Ombudsman
, which is the independent recourse mechanism for IFC’s stakeholders, responding
to complaints from project-affected communities with the goal of enhancing social and environmental outcomes on the
ground;
o
The
World Bank Group’s Internal Audit Vice Presidency
, which evaluates the effectiveness of the organization’s
governance, risk management, and control processes; and
o
The
Integrity Vice-Presidency
, which investigates and pursues sanctions related to allegations of fraud and corruption in
World Bank Group-financed activities.
IFC’s risk management policies define the types and amounts of risk that IFC’s Management Team is willing to assume, via
delegated authority from the Board.
Risk Data and Infrastructure
- Source data is collected, integrated and analyzed to support decision-making across the Corporation.
Measurement and Evaluation
- IFC uses a combination of quantitative and qualitative metrics to manage its risk profile. Key metrics for
each category of risk are discussed later in this document.
Control Environment
-
Management relies on internal controls, modelled on the COSO Framework, to reduce the level of inherent risk
to an acceptable level.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
Risk Response
-
Risks are analyzed and monitored by IFC’s risk oversight units and the Corporate Risk Committee, a subcommittee of
IFC’s Management Team, meets frequently to discuss and decide upon enterprise-level risk issues.
Stress Testing
- Semi-annual, IFC-wide, stress testing provides Management with an additional tool to inform capital management and
decision making. The testing involves multi-year projections of IFC’s financial performance and capital adequacy under base case and
stressed macroeconomic scenarios.
ENTERPRISE LEVEL RISK APPETITE
I
FC has developed risk appetite statements which set the direction for the Corporation’s willingness to take risks in fulfilment of its
development goals. These statements reflect the Corporation’s core values of maximizing development impact, preserving its financial
sustainability and safeguarding its reputation.
At the strategic level, IFC has adopted the following risk appetite statements:
Developmental Impact
: IFC will maximize developmental impact by focusing on the World Bank Group’s twin goals of
addressing extreme poverty and boosting shared prosperity, while maintaining financial sustainability and safeguarding its brand.
Financial Sustainability
: IFC will generate and maintain sufficient financial resources, conduct its business and manage risk
s
c
onsistent with standards implied by a triple-A rating.
Safeguarding Reputation
: In determining what engagement and activities to pursue, IFC will assess whether any potential
adverse impact to its reputation is balanced by the potential development impact.
From a financial sustainability perspective, the capital required to maintain a triple-A rating is assessed using an economic capital
framework, which is the foundation of financial risk management at IFC. Economic capital acts as a “common currency of risk” across the
organization, providing IFC with an objective, quantifiable measure of risk that can be applied consistently across business lines, products,
regions and sectors. IFC holds economic capital for credit, market and operational risks. The main measure of capital adequacy is DSC,
which is the capital available to support future commitments, over and above the current portfolio. It is calculated as the amount by which
Total Resources Available (TRA)
8
exceeds (a) Total Resources Required (TRR)
9
, plus (b) a conservation buffer
10
and is expressed as a
percentage of TRA.
IFC operates under a number of key financial policies approved by its Board of Directors, as detailed below:
■ C
apital Adequacy Policy - IFC is required to maintain a minimum level of total resources (including paid-in capital, total loss
reserves and retained earnings, net of designations) equal to total potential losses for all on- and off-balance sheet exposures
estimated at levels consistent with maintaining a triple-A rating.
■ Lev
erage Policy - IFC’s outstanding debt plus guarantees held must not exceed four times its net worth.
■ O
verall Liquidity Policy - Minimum liquidity (liquid assets plus undrawn borrowing commitments from IBRD) must be sufficient at
all times to cover at least 45% of IFC’s estimated net cash requirements for the next three years.
■ E
xternal Funding Liquidity Policy - IFC maintains a minimum level of liquidity, consisting of proceeds from external funding,
covering at least 65% of the sum of: (i) 100% of committed but undisbursed straight senior loans; (ii) 30% of committed
guarantees; and (iii) 30% of committed client risk management products.
■ M
atched Funding Policy - Loans are funded with liabilities that have similar characteristics in terms of interest rate basis,
currency, and duration, except for new products, approved by the Board of Directors, involving asset-liability mismatches.
In order to safeguard its reputation, IFC pays close attention to potential adverse reputational impact, as negative perceptions of
stakeholders or the general public may adversely impact its ability to carry out business effectively. In determining which engagements
and activities to pursue, IFC assesses whether any potential adverse impact to its reputation is balanced by the potential development
impact and financial returns.
One of the key tools used by IFC for managing reputational impact is effective communication. Communication activities are coordinated
by the World Bank Group’s External and Corporate Relations Vice Presidency. This unit provides advice on strategic and crisis
communications for managing potential and actual reputational impacts at both the corporate and project levels, throughout the project
life cycle. It is also responsible for external and internal communications, campaigns, civil society engagement, brand marketing, and web,
social, and other media. It collaborates across IFC and with the other World Bank Group entities to develop and implement effective
communications strategies that strengthen the IFC brand.
8
Total resources available (TRA) is the total capital of the Corporation, consisting of (i) paid-in capital; (ii) retained earnings net of designations and some unrealized
gains and losses; and (iii) total loan loss reserves. TRA grows based on retained earnings (profit minus distributions) and increases in reserves.
9
Total resources required (TRR) is the minimum capital required to cover the expected and unexpected loss on IFC’s portfolio, calibrated to maintain IFC’s triple-A
rating. TRR is the sum of the economic capital requirements for IFC’s different assets, and it is determined by the absolute size of the committed portfolio, the product
mix (equity, loans, short-term finance, and Treasury portfolio assets), and by operational and other risks.
10
The conservation buffer is set at a pre-determined percent of TRA. Its purpose is to absorb short-term fluctuations in TRR and TRA that result from the volatile nature
of IFC’s portfolio.
Page 21
INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
PORTFOLIO RISK MANAGEMENT
Portfolio management is an intrinsic part of managing IFC”s business to ensure strong financial and development results of our projects.
IFC”s management reviews our entire portfolio on a semi-annual basis, looking at broad trends as well as select individual assets. IFC
provides summary reports on portfolio performance to the Board on a quarterly basis, and provides an in-depth review of portfolio results
to the Board annually. Our portfolio teams, largely based in field offices, complement global reviews with asset-by-asset quarterly reviews.
On the corporate level, IFC combines the analysis of our $52.0 billion portfolio performance with projections of global macroeconomic and
market trends to inform decisions about future investments. IFC also regularly tests the performance of the portfolio against possible
macroeconomic developments to identify and proactively address risks. In FY16, in light of substantially volatility in emerging markets,
IFC’s senior management convened in-depth region-by-region portfolio reviews to analyze similar metrics across different markets.
At the core of active risk and portfolio management is the need to have timely and accurate information to drive informed business
decisions. IFC continues to invest in its IT strategy and continues to improve its risk and portfolio management systems. This is critically
important to allow IFC to actively manage its risks and portfolio, and to continue to be responsive to the challenging external environment.
In FY16, IFC began rolling out a new Investment Risk Platform (IRP), which will replace IFC’s existing credit risk rating system and
economic capital engine. The new systems are aimed at better aligning IFC’s practice to internationally recognized standards, where they
make sense given our portfolio. The new risk rating system will allow for easier comparison between outside ratings and IFC’s internal
ratings. More granular ratings will lead to better differentiation and a better understanding of client credit standing which will allow for more
focus on those credits that most warrant the scrutiny. The improved predictive power for probability of default and loss given default will
lead to more informed investment decisions.
TREASURY RISK MANAGEMENT
Treasury risks are managed through a two-tier risk framework: (1) a comprehensive policy framework and (2) a hard economic capital
limit for treasury activities. The policy framework is based on four principles:
Investment in high quality assets;
Diversification via position size/concentration limits;
Tight limits on market risks (credit spread, interest rate and foreign exchange risk);
Proactive portfolio surveillance.
In line with the changes that are occurring in the global financial markets, IFC has enhanced its Treasury policy framework in FY16. Some
of the key initiatives include: development of an expanded framework for stress testing and contingency planning; enhancements to IFC’s
approach to monitoring of counterparty risk and structured product credit; bilateral collateral exchanges with derivatives counterparties;
and enhancements to IFC’s model validation framework.
CREDIT RISK MANAGEMENT
DEFINITION AND SCOPE OF CREDIT RISK
IFC defines credit risk as the risk of loss of principal or loss of an expected financial return due to credit events such as a default or
downgrade in credit ratings or any other failure to meet a contractual obligation that results in financial loss. IFC is exposed to credit risk
in its loan portfolio and in the form of counterparty credit risk in its Treasury portfolios.
INVESTMENT OPERATIONS
Credit risk in investment projects is actively managed throughout the project life cycle. Investment teams are responsible for gathering the
necessary information from the client to verify the financial viability of the project, and for assigning a credit risk rating (CRR) at defined
stages in the project approval process. The CRR, the investment size and the product type determine the authority level required for
transaction approval. All projects are subject to independent credit assessment by a credit officer within the independent risk oversight
function and who participates in the project approval process. Projects are approved with reference to a number of operational and
prudential limits approved by the Corporate Risk Committee, including limits related to single project or client exposure, single country
exposure, and sector concentration; these are detailed below:
■ IFC’s total exposure to a country is measured as the amount of economic capital required to support its investment portfolio in
t
hat country. Exposure limits are set for each country based on the size of its economy and its risk rating. Sub-limits apply for
certain sector exposures within a country.
■ I
FC’s total exposure to a single client or client group may not exceed stipulated economic capital and nominal limits based on
the CRR for the client.
Individual Investment Limits are applied at the individual project or client level to prevent excessive concentrations.
■ P
referential debt exposure to a country is limited by reference to that country’s total medium and long-term external debt.
■ IFC’s total equity and quasi-equity exposure (outstanding exposure net of impairments) shall not exceed IFC’s net worth.
The quality of IFC’s investment projects is actively monitored after commitment. CRRs are reviewed regularly for every project, and revised
if required. In addition, an independent corporate portfolio team monitors and assesses the health of the portfolio, including stress testing
of exposure to emerging risks. When projects get into difficulty, rapid response is the key to recovery. Seasoned professionals from IFC’s
Department of Special Operations provide focused attention on portfolio projects that require more sophisticated workout and restructuring.
The credit risk of loans is quantified in terms of the probability of default, loss given default and exposure at risk. These risk parameters
are used to determine risk-based economic capital for capital adequacy, capital allocation and internal risk management purposes, as well
as for setting the general reserve against loan losses and exposure limits.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
TREASURY OPERATIONS
IFC’s manages its exposures to counterparties in its Treasury operations to mitigate potential losses from the failure by a counterparty to
fulfill its contractual obligations. Conservative counterparty eligibility criteria are set by Authorizations from the Board of Directors and by
Directives approved by IFC’s senior management. Eligible counterparties are predominantly banks and financial institutions with high
quality credit ratings issued by leading international credit rating agencies. Details of applicable financial policies and guidelines are given
below:
■ C
ounterparties are selected based on standard eligibility criteria, with a tenor limit for deposits and repurchase agreements
.
■
C
ounterparties for derivative instruments are restricted to banks and financial institutions with high quality credit ratings from
leading international credit rating agencies; for the sole purpose of funding local currency loans, eligibility is extended to central
banks and select local banks.
■ Exposures to individual counterparties are subject to exposure limits. For derivatives, exposure is measured in terms of total
pot
ential exposure based on replacement cost.
■ I
FC signs collateral agreements with counterparties that require the posting of collateral when net mark-to-market exposur
es
e
xceed certain predetermined thresholds.
■ F
or exchange-traded instruments, credit risk is limited by restricting transactions to a list of authorized exchanges, contracts
and
deal
ers, and by placing limits on IFC’s position in each contract.
FY16 CREDIT RISK COMMENTARY
INVESTMENT OPERATIONS
Selected indicators of credit risk exposure in IFC’s loan portfolio, together with the five-year trend of non-performing loans (NPLs), are
given below:
Table 12: IFC Loan Portfolio Credit Risk Indicators
INDICATOR
June 30, 2016
June 30, 2015
Change
NPLs as % of the loan portfolio
11
6.5%
6.2%
Up 0.3%
Principal amount outstanding on NPLs
$1,712 million
$1,578 million
Up $134 million
Total reserves against losses on loans
$1,775 million
$1,743 million
Up $32 million
Total reserves against losses on loans as % of
disbursed loan portfolio
7.4% 7.5% Down 0.1%
Total reserves against losses on guarantees
$23 million
$20 million
Up $3 million
Fi
gure 6: NPLs as Percentage of Disbursed Loan Portfolio
TREASURY OPERATIONS
Treasury operations counterparties remain well diversified by sector and geography. In accordance with its agreements with
counterparties, at June 30, 2016, IFC held $305 million in cash and $415 million in securities as collateral for changes in mark-to-market
exposures on open trades (June 30, 2015 - $237 million in cash and $756 million in securities).
11
A non-GAAP measure that includes loan-like debt securities.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
MARKET RISK MANAGEMENT
DEFINITION AND SCOPE OF MARKET RISK
IFC defines market risk as the risk of losses in positions arising from movements in market prices. IFC’s exposure to market risk is largely
mitigated by its matched funding policy, whereby it uses derivative instruments to convert loans funded from market borrowings, and the
market borrowings themselves, into floating rate US dollar assets and liabilities with similar duration. Similarly, market risk resulting from
derivative transactions with clients, to facilitate clients’ risk management, is typically mitigated by entering into offsetting positions with
highly rated market counterparties. IFC’s residual exposure to market risk arises primarily from its listed and unlisted equity investments
in emerging markets, from its Treasury liquid asset portfolios, and also from its aggregate asset and liability management positions.
EQUITY INVESTMENTS
The risk of loss in value of IFC’s emerging markets equity investments is mitigated primarily by applying the same limits framework,
decision making process and portfolio management methods as described above for its lending operations. IFC has a long time horizon
for its equity investments and accepts short term price volatility of these investments, which can be significant.
LIQUID ASSET PORTFOLIOS
Market risk in IFC’s liquid assets portfolios is managed to the chosen risk profile of the respective portfolio benchmarks, using derivative
and other financial instruments such as over-the-counter foreign exchange forward agreements, interest rate and currency swaps, and
exchange-traded interest rate futures and options. Overall market risk exposure is also subject to daily monitoring, based on Directives
approved by the Corporate Risk Committee, which limit interest rate and spread risk, foreign exchange exposure and value-at-risk.
ASSET-LIABILITY MANAGEMENT
While IFC’s matched-funding policy mitigates most currency and interest rate risk, IFC is still exposed to residual market risks in the market
borrowings-funded portion of the balance sheet. Residual currency risk arises from factors such as changes in the level of reserves for
losses on non-US dollar loans. The aggregate position in each lending currency is monitored on a daily basis and the risk is managed
within a range of +/- $5 million equivalent in each currency. Residual interest rate risk may arise from differing interest rate reset dates on
assets and liabilities, or from assets that are fully match-funded at inception, but become mismatched over time due to write-downs,
prepayments, or rescheduling. The residual interest rate risk is managed by measuring the sensitivity of the present value of assets and
liabilities in each currency to a one basis point change in interest rates and managing exposures on a daily basis to within a potential
change in value of +/- $50,000.
FY16 MARKET RISK COMMENTARY
IFC’s liquid asset portfolios have minimal interest rate risk due to short-tenor benchmarks and because deviations from those benchmarks
are small. The overall level of market risk in IFC's Treasury operations reduced slightly between FY15 and FY16 due to lower credit spread
exposure in a slightly larger liquid asset portfolio. FY16 was also characterized by periods of elevated Treasury portfolio volatility as credit
spreads and interest rates fluctuated with external market events. Interest rate, foreign exchange, and spread risks are all controlled on a
daily basis using a system of limits that remained in compliance during FY16.
I
n FY16, financial markets endured several rounds of global contagion risk concerns, higher volatility, and associated risk-off trading. FY16
Q1 started with the Chinese stock market turbulence and the risk that a decelerating of China’s economy would dampen global
growth. Sharp declines in oil and commodity prices in Q2 prompted IFC to increase surveillance on affected sectors and individual
investments, although price trends started to stabilize in Q4. Divergence of monetary policies intensified across major central banks. In
the U.S., the Federal Reserve raised interest rates in December 2015, which created significant challenges to emerging markets. The
normalization of U.S. monetary policy, however, could still be some time away, with continuing mixed signals in domestic and global
economies. Expanded quantitative easing policies in the European Union and Japan led to negative interest rates in almost a third of
global government debt in those regions. Quantitative easing policies are also creating price distortions in some markets as a result of
government intervention. The U.K. voting to exit the European Union (‘Brexit’) emerged as an additional major source of uncertainty, which
could elevate the overall market stress both in the U.K. and European countries for an extended period of time.
Income from liquid assets was notably lower and less stable in FY16 as a result of the external market context. At the start of the fiscal
year, Income from liquid assets was already forecast to be lower as a result of lower credit spreads and fewer attractive investment
opportunities than in prior years. FY16 income from liquid assets was further depressed as a result of credit spread widening in many
sectors due to heightened macro uncertainty. In addition, sector-specific mark-to-market losses in IFC's investments in US government-
guaranteed student loan asset backed securities and U.K. residential mortgage backed securities had a proportionally larger contribution
than other sectors. In the case of student loans, mark-to-market losses were driven by concerns on the cash flow extension risk resulting
from generous income-based repayment government programs. In the case of U.K. residential mortgages, mark-to-market losses resulted
from the potential future impact of Brexit. More generally, portfolio volatility spiked on multiple occasions during FY16 as spreads widened
and sovereign safe haven yields decreased in response to the contagion risks of a potential hard landing in China, the collapse in oil
prices, and Brexit. Liquid asset holdings remain well diversified both geographically and across the eligible sectors of the eligible interest-
bearing investment universe.
Volatility in Emerging Market (EM) equities persisted in FY16 with EMs significantly lagging behind the returns in developed markets. EMs
sold off in FY16 Q1 on the back of a slowdown in the Chinese economy and concerns of substantial devaluation in the renminbi. This
was followed by a stabilization during FY16 Q2. In January 2016, a significant deterioration in market sentiment due to weakening macro
fundamentals in EMs and collapsing commodity prices led to another sharp correction which translated into a negative total return for Ems
for the fiscal year. Investor sentiment on EMs remained subdued, with money mostly flowing out of those markets and seeking protection
in markets with more solid fundamentals, such as India and Mexico. Economic growth in many markets was subdued and it was difficult
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
for markets to post strong returns in this environment. The US dollar remained strong in FY16, leading to negative returns for
US dollar-based investors. In this very challenging environment, IFC’s equity portfolio performed well on a relative basis, again exceeding
the overall market return as benchmarked by the MSCI Emerging Markets Index. IFC continues to focus on selectivity at entry and active
management of its portfolio through close monitoring, portfolio reviews and oversight. Active management enabled the Corporation to
continue its judicious divestitures in FY16 and take advantage of market opportunities to generate significant realized gains from its mature
exposures. This significantly reduced the impact of write-downs and fair value changes linked to market turbulence.
LIQUIDITY RISK MANAGEMENT
IFC defines liquidity risk as the risk of a financial loss arising from the inability to liquidate financial assets or to raise additional funds in
the expected time frame to meet contractual obligations. IFC faces liquidity risk in its core development finance activities because its
investments are predominantly illiquid in nature, due to the lack of capital flows, the infrequency of transactions, and the lack of price
transparency in many emerging markets. To offset this risk, IFC maintains substantial liquid asset portfolios funded by market borrowings.
LIQUID ASSET PORTFOLIOS
Liquidity risk in the liquid asset portfolios is addressed by strict eligibility criteria defined in Directives approved by the Corporate Risk
Committee. Examples include minimum sizes for bond issuances, and limits on single bond issue concentration and on the percentage of
total bond issuance held by IFC. Consequently, a significant portion of the liquid asset portfolio is invested in highly liquid securities such
as high quality sovereign, sovereign-guaranteed, and supranational fixed income instruments, and in short term investments such as
money market mutual funds. IFC expects to continue to be able to realize these assets as needed to meet its cash requirements, even
in a liquidity crisis.
FUNDING
IFC’s funding operations ensure that IFC has the funds it needs for its lending operations, and that it has sufficient liquidity to safeguard
its triple-A rating and fulfill IFC’s counter-cyclical role. IFC is able to access a variety of funding markets, including the US dollar benchmark
market, the Australian dollar market and the Japanese retail market. IFC’s discount note programs complement IFC's traditional funding
sources by providing swift access to funded liquidity. IFC’s triple-A rating is critical to the Corporation’s ability to maintain its low cost of
funds. Regular issuance in a variety of markets serves to sustain investor confidence and maintain a diversified investor base. IFC
continued to enjoy one of the lowest funding costs of any multilateral development bank in FY16. As a result of changes to the external
market interest rates and spreads, however, IFC’s funding costs for large benchmark issues increased somewhat in FY16 compared to
US dollar Libor.
FY16 LIQUIDITY RISK COMMENTARY
On June 30, 2016, IFC’s liquid asset portfolios totaled $41.4 billion (June 30, 2015 - $39.5 billion). The externally funded liquidity ratio
was 504%, above the required minimum of 65% and the Corporation’s overall liquidity as a percentage of next three years’ estimated net
cash needs stood at 85%, above the minimum requirement of 45%. During FY16, IFC raised $14.3 billion in market borrowings, net of
derivatives (FY15 - $14.8 billion). The outstanding balance under the Discount Note Program at June 30, 2016 was $1.8 billion (June 30,
2015 - $1.3 billion).
OPERATIONAL RISK MANAGEMENT
Consistent with the Basel Framework, IFC defines operational risk as the risk of loss resulting from inadequate or failed internal processes,
people and systems, or from external events.
IFC’s Operational Risk Management (ORM) program is based on a Directive approved by the Corporate Risk Committee. This directive
establishes the approach and roles and responsibilities for operational risk management in the Corporation. IFC’s ORM approach is
designed to ensure that operational risks are identified, assessed, and managed so as to minimize potential adverse impacts, and to
enable Senior Management to determine which risks IFC will accept, mitigate or transfer. IFC seeks to mitigate key risks by maintaining
a comprehensive set of processes and internal controls.
IFC utilizes risk transfer mechanisms, including insurance, at both the project and the institutional levels for mitigation of low frequency
and high severity operational risks. At both levels, IFC identifies and evaluates risks, determines available contractual transfer and
insurance options, implements the optimal structure, and tracks its effectiveness over time. IFC also insures its corporate assets and
operations against catastrophic losses where commercially viable.
FY16 OPERATIONAL RISK COMMENTARY
IFC continues to develop and implement enhanced methodologies to identify, measure, monitor and manage material operational risks in
its key activities. IFC adopted an enterprise-level approach to assess operational risks in FY15 and has continued to develop this approach
in FY16. Under this approach, IFC assesses operational risks in the processes that support IFC’s key business pillars, namely, equity,
debt, and treasury. IFC also continues to focus on its preparedness to react to extreme situations that could disrupt its normal operations
through the Business Continuity Management program, which covers all IFC offices.
BUSINESS RISK MANAGEMENT
DEFINITION AND SCOPE OF BUSINESS RISK
Business risk is risk that is specific to IFC given its mission and strategy and that is not covered by other risk dimensions. It has the
following components, which are described in the paragraphs below together with the specific risk mitigation measures that are adopted:
environment and social; corporate governance; integrity; conflict of interest; and external financing.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
ENVIRONMENT AND SOCIAL RISK
Environment and social (E&S) risk is the risk that IFC does not effectively engage and influence clients to fulfill the requirements of the
Performance Standards on Environmental and Social Sustainability, potentially causing harm to people or the environment. The
Performance Standards form part of IFC’s Sustainability Framework, articulating the Corporation's strategic commitment to sustainable
development:
■ The Performance Standards guide clients on sustainable business practices, including continually identifying and managing risks
through: analytical work such as environmental and social assessments; stakeholder engagement; and client disclosure
obligations in relation to project-level activities.
■ The Policy on Environmental and Social Sustainability describes IFC's commitments, roles and responsibilities in relation to
environmental and social sustainability.
■ IFC's Access to Information Policy reflects the Corporation’s commitment to transparency and good governance and outlines
institutional disclosure obligations.
IFC uses the Sustainability Framework along with other strategies, policies and initiatives to focus business activities on achieving the
Corporation’s development objectives. All project teams are required to record expectations of development outcomes with time-bound
targets using standard indicators. These indicators are tracked and performance is rated on an annual basis for the duration of every
project.
Focused supervision efforts in the last two fiscal years have improved the E&S risk profile of our portfolio by reducing the number of poor
performing projects, defined as a historical environmental and social risk rating (ESRR) of 3 and 4. The ESRR evaluates a client’s
management of E&S risks and avoidance and control of adverse outcomes.
Figure 7: Environment and Social Risk
E
SRR distribution scale: 1) Excellent, 2) Satisfactory, 3) Partly Unsatisfactory, 4) Unsatisfactory. The score is calculated at appraisal as a
baseline, and is then updated after each supervision activity.
CLIENT CORPORATE GOVERNANCE RISK
Corporate governance risk is the risk that IFC’s clients have inefficient or ineffective corporate governance practices, leading to adverse
reputational or financial impact on IFC. IFC manages corporate governance risk primarily by conducting a structured evaluation of every
investment project, covering the following five areas:
■ Effectiveness of the Board of Directors;
■ Sufficiency of internal controls, audit, risk management and compliance;
■ Adequacy of financial disclosure;
■ Adequacy of shareholders’ rights; and
■ Demonstration of the client’s commitment to implement high quality corporate governance policies and practices.
The findings from these assessments are taken into account in the decision on whether to proceed with the project.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
INTEGRITY RISK
Integrity risk is the risk of engaging with external institutions or persons whose background or activities may have adverse reputational
and/or financial impact on IFC. IFC works with a wide range of partners in both Investment Operations and Advisory Services, from
multi-national to small companies, and from government institutions to Non-Governmental Organizations. Thus, each transaction or
service opportunity presents unique integrity risks, affected by different factors including the structure and duration of the engagement.
IFC has defined procedures for conducting Integrity Due Diligence and these are used to:
■ Uncover integrity risk issues related to a project or engagement and the institutions and persons involved;
■ Evaluate and assess integrity risks, including deciding on whether to mitigate or to accept the risks, and determining next steps,
which may include IFC senior management and Board approval;
■ Document results and appropriately classify documentation; and
■ Monitor integrity risks and update documentation throughout the life of the project or engagement.
OPERATIONAL CONFLICT OF INTEREST RISK
Operational conflict of interests can arise when IFC acts in the interests of more than one party, where the interests of those parties might
be, or might be perceived to be, inconsistent. Given the nature and scope of products and services that IFC provides to its clients in
furtherance of its development mandate, and the different roles played by other World Bank Group entities, actual or
perceived operational conflicts of interest can arise in the normal course of its activities. IFC recognizes that adverse legal, reputational,
client relationship and other implications may arise if such conflicts are not managed. IFC has implemented policies and procedures to
manage these risks.
EXTERNAL FINANCING RISK
As well as using its own resources to invest in and provide advice to clients, IFC raises additional funds from public and private sector
investors, lenders and donors through several different mechanisms. External financing risk is the risk that when entrusted with oversight
of such funds, IFC does not act in the best interests of the third parties involved.
To mitigate this risk, IFC works within agreed frameworks which establish IFC's responsibilities and obligations with respect to the third
parties. For example, where financing to clients is mobilized through B Loans or the MCPP, the specialized Syndications Department
follows defined processes to identify co-financiers, advise on structuring, and monitor compliance with investment agreements. In some
cases, financing from third parties, including donors, is administered through trust funds. A separate unit within IFC follows predefined
procedures for clearing all IFC trust fund proposals and agreements and overseeing IFC's trust fund portfolio. Finally, AMC, a wholly-owned
subsidiary, provides for an independent governance process making decisions for the benefit of investors in funds managed by AMC.
FY16 BUSINESS RISK COMMENTARY
During FY16, IFC established a centralized Business Risk and Compliance Department to enhance and build out oversight of compliance
risk relating to IFC’s operational, advisory and corporate functions, in particular relating to market conduct and the mobilization of third
party capital; management of operational conflicts of interest; oversight of integrity risk, anti-money laundering, combating the financing
of terrorism, sanctionable practices and debarment; information access and security; and use of offshore financial centers and tax
behaviors, and to assist client departments and project teams improve consistency and accountability in relation to the management of
such risks.
VI. CRITICAL ACCOUNTING POLICIES
Note A to IFC’s FY16 Consolidated Financial Statements contain a summary of IFC’s significant accounting policies, including a discussion
of recently adopted accounting standards and accounting and financial reporting developments. Certain of these policies are considered
to be “critical” to the portrayal of IFC’s financial condition and results of operations, since they require management to make difficult,
complex or subjective judgments, some of which may relate to matters that are inherently uncertain.
These policies include:
Determining the level of reserves against losses in the loan portfolio;
Determining the level and nature of impairment for equity investments and debt securities carried at fair value with changes in
fair value being reported in other comprehensive income (OCI) and for equity investments accounted for at cost less impairment
(where impairment is determined with reference to fair value);
Determining the fair value of certain equity investments, debt securities, loans, liquid assets, borrowings and derivatives, which
have no quoted market prices and are accounted for at fair value; and
Determining the future pension and postretirement benefit costs and obligations using actuarial assumptions based on financial
market interest rates, past experience, and management’s best estimate of future benefit cost changes and economic conditions.
Many of IFC’s financial instruments are classified in accordance with the fair value hierarchy established by accounting standards for fair
value measurements and disclosures where the fair value and/or impairment is estimated based on internally developed models or
methodologies utilizing significant inputs that are non-observable.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
RESERVE AGAINST LOSSES ON LOANS
IFC considers a loan as impaired when, based on current information and events, it is probable that IFC will be unable to collect all amounts
due according to the loan’s contractual terms. The reserve against losses for impaired loans reflects management’s judgment of the present
value of expected future cash flows discounted at the loan’s effective interest rate. The reserve against losses for loans also includes an
estimate of probable losses on loans inherent in the portfolio but not specifically identifiable. The reserve is established through periodic
charges to income in the form of a provision for losses on loans. Loans written off, as well as any subsequent recoveries, are recorded through
the reserve.
The assessment of the adequacy of reserves against losses for loans is highly dependent on management’s judgment about factors such
as its assessment of the financial capacity of borrowers, geographical concentration, industry, regional and macroeconomic conditions,
and historical trends. Due to the inherent limitation of any particular estimation technique, management utilizes a capital pricing and risk
framework to estimate the probable losses on loans inherent in the portfolio but not specifically identifiable. This Board of Directors-
approved framework uses actual loan loss history and aligns the loan loss provisioning framework with IFC’s capital adequacy framework.
The reserve against losses on loans is separately reported in the consolidated balance sheet as a reduction of IFC’s total loans. Increases
or decreases in the reserve level are reported in the income statement as provision for losses or release of provision for losses on loans,
and guarantees. The reserve against losses on loans relates only to the Investment services segment of IFC (see Note S to the FY16
Consolidated Financial Statements for further discussion of IFC’s business segments).
OTHER-THAN-TEMPORARY IMPAIRMENTS ON EQUITY INVESTMENTS AND DEBT SECURITIES
IFC assesses all equity investments accounted for at fair value through OCI and all equity investments accounted for at cost less
impairment for impairment each quarter. When impairment is identified and is deemed to be other-than-temporary, the equity investment
is written down to its impaired value, which becomes the new cost basis in the equity investment. IFC generally presumes that all equity
impairments are deemed to be other-than-temporary. Impairment losses on equity investments accounted for at cost less impairment are
not reversed for subsequent recoveries in value of the equity investment until it is sold. Recoveries in value on equity investments
accounted for at fair value through OCI that have been the subject of an other-than-temporary impairments are reported in OCI until sold.
IFC assesses all debt security investments accounted for at fair value through OCI for impairment each quarter. When impairment is
identified, the entire impairment is recognized in net income if certain conditions are met (as detailed in Note A to IFC’s FY16 Consolidated
Financial Statements). However, if IFC does not intend to sell the debt security and it is not more likely than not that IFC will be required
to sell the security, but the security has suffered a credit loss, the credit-related impairment loss is recognized in net income and the
non-credit related loss is recognized in OCI.
VALUATION OF FINANCIAL INSTRUMENTS WITH NO QUOTED MARKET PRICES
IFC reports at fair value all of its derivative instruments, all of its liquid asset trading securities and certain borrowings, loans, equity
investments and debt securities. In addition, various investment agreements contain embedded or stand-alone derivatives that, for
accounting purposes, are separately accounted as either derivative assets or liabilities, including puts, caps, floors, and forwards. IFC
classifies all financial instruments accounted for at fair value based on the fair value hierarchy established by accounting standards for fair
value measurements and disclosures as described in more detail in Notes A and R to IFC’s FY16 Consolidated Financial Statements.
Many of IFC’s financial instruments accounted for at fair value are valued based on unadjusted quoted market prices or using models where
the significant assumptions and inputs are market-observable. The fair values of financial instruments valued using models where the
significant assumptions and inputs are not market-observable are generally estimated using complex pricing models of the net present value
of estimated future cash flows. Management makes numerous assumptions in developing pricing models, including an assessment about the
counterparty’s financial position and prospects, the appropriate discount rates, interest rates, and related volatility and expected movement in
foreign currency exchange rates. Changes in assumptions could have a significant impact on the amounts reported as assets and liabilities
and the related unrealized gains and losses reported in the income statement and statement of OCI. The fair value computations affect both
the Investment services and Treasury segments of IFC (see Note S to the FY16 Consolidated Financial Statements for further discussion of
IFC’s business segments).
PENSION AND OTHER POSTRETIREMENT BENEFITS
IFC participates, along with IBRD and MIGA, in pension and postretirement benefit plans that cover substantially all of their staff members.
All costs, assets and liabilities associated with the plans are allocated between IBRD, IFC and MIGA based upon their employees’
respective participation in the plans. The underlying actuarial assumptions used to determine the projected benefit obligations, the fair
value of plan assets and the funded status associated with these plans are based on financial market interest rates, past experience, and
management’s best estimate of future benefit cost changes and economic conditions. For further details, please refer to Note V to the
FY16 Consolidated Financial Statements.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
VII. RESULTS OF OPERATIONS
OVERVIEW
The overall market environment has a significant influence on IFC’s financial performance. The main elements of IFC’s net income (loss)
and comprehensive income (loss) and influences on the level and variability of net income and comprehensive income from year to year
are:
Table 13: Main Elements of Net Income (loss) and Comprehensive Income (loss)
ELEMENTS
SIGNIFICANT
INFLUENCES
Net income:
Yield on interest earning assets
Market conditions including spread levels and degree of competition. Nonaccruals and
recoveries of interest on loans formerly in nonaccrual status and income from participation notes
on individual loans are also included in income from loans.
Liquid asset income
Realized and unrealized gains and losses on the liquid asset portfolios, which are driven by
external factors such as: the interest rate environment and liquidity of certain asset classes within
the liquid asset portfolio.
Income from the equity investment portfolio
Global climate for emerging markets equities, fluctuations in currency and commodity markets
and company-specific performance for equity investments. Performance of the equity portfolio
(principally realized capital gains, dividends, equity impairments, gains on non-monetary
exchanges and unrealized gains and losses on equity investments).
Provisions for losses on loans and
guarantees
Risk assessment of borrowers and probability of default and loss given default.
Other income and expenses
Level of advisory services provided by IFC to its clients, the level of expense from the staff
retirement and other benefits plans, and the approved and actual administrative expenses and
other budgets.
Gains and losses on other non-trading
financial instruments accounted for at fair
value
Principally, differences between changes in fair values of borrowings, including IFC’s credit
spread, and associated derivative instruments and unrealized gains or losses associated with
the investment portfolio including puts, warrants and stock options which in part are dependent
on the global climate for emerging markets. These securities are valued using internally
developed models or methodologies utilizing inputs that may be observable or non-observable.
Grants to IDA
Level of the Board of Governors-approved grants to IDA.
Other comprehensive income (loss):
Unrealized gains and losses on listed
equity investments and debt securities
accounted for as available-for-sale
Global climate for emerging markets equities, fluctuations in currency and commodity markets
and company-specific performance. Such equity investments are valued using unadjusted
quoted market prices and debt securities are valued using internally developed models or
methodologies utilizing inputs that may be observable or non-observable.
Unrecognized net actuarial gains and
losses and unrecognized prior service
costs on benefit plans
Returns on pension plan assets and the key assumptions that underlay projected benefit
obligations, including financial market interest rates, staff expenses, past experience, and
management’s best estimate of future benefit cost changes and economic conditions.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
IFC’s net (loss) income for each of the past five fiscal years ended June 30, 2016 is presented below (US$ millions):
Figure 8: IFC's Net (Loss) Income, Fiscal Years 2012-2016
T
he following paragraphs detail significant variances between FY16 vs FY15 and FY15 vs FY14, covering the periods included in IFC’s
FY16 Consolidated Financial Statements.
FY16 VERSUS FY15
NET INCOME
IFC reported income before net unrealized gains and losses on non-trading financial instruments accounted for at fair value, grants to IDA
and net gains and losses attributable to non-controlling interest of $500 million in FY16, as compared to $855 million in FY15.
Increase
(decrease)
FY16 vs FY15
$
(188)
(151)
(99)
(71)
(24)
198
(20)
for at fair value, grants to IDA and net gains and losses attributable to non-controlling interests
$
(355)
FY16
FY15
Income before net unrealized gains and losses on non-trading financial instruments
accounted for at fair value, grants to IDA and net gains and losses attributable to non-
controlling interests
$
500
$
855
Net unrealized gains/(losses) on non-trading financial instruments accounted for at fair value
(204)
(106)
Income before grants to IDA
296
749
Grants to IDA
(330)
(340)
Net (loss)/Income
(34)
409
Net losses attributable to non-controlling interests
1
36
Net (loss)/Income attributable to IFC
$
(33)
$
445
A more detailed analysis of the components of IFC’s net income (loss) follows.
INCOME FROM LOANS AND GUARANTEES, INCLUDING REALIZED GAINS AND LOSSES ON LOANS AND ASSOCIATED
DERIVATIVES
IFC’s primary interest earning asset is its loan portfolio. Income from loans and guarantees, including realized gains and losses on loans
and associated derivatives for FY16 totaled $1,126 million, compared with $1,123 million in FY15, an increase of $3 million.
The disbursed loan portfolio increased $658 million from $23,252 million at June 30, 2015 to $23,910 million at June 30, 2016.
The increase in the loan portfolio due to new disbursements exceeding repayments ($1,233 million in FY16) was partially offset by the
reduction in loans outstanding due to currency exchange rate fluctuations ($244 million in FY16) as IFC’s reporting currency, the US dollar
appreciated against most of IFC’s lending currencies in FY16 notwithstanding the depreciation of the US dollar against most of IFC’s
lending currencies in FY16.
Page 30
INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
Table 15: FY16 Change in Income from Loans and guarantees, including Realized Gains and Losses on Loans and Associated
Derivatives (US$ millions)
Income from loans and guarantees, including realized gains and losses on loans and associated
derivatives in FY15
$
1,123
Increase due to increase in the loan portfolio and interest rate environment
92
Decrease due to lower realized gains on loans, guarantees and associated derivatives
(55)
Decrease due to higher amount of interest reversed on non-accruing loans, net
(15)
Decrease due to lower commitment and financial fees
(11)
Decrease due to lower income from participation notes and other income
(8)
Change in Income from loans and guarantees, including realized gains and losses on loans and
associated derivatives
$
3
Income from loans and guarantees, including realized gains and losses on loans and associated
derivatives in FY16
$
1,126
The weighted average contractual interest rate on loans at June 30, 2016 was 5.1%, up from 4.9% June 30, 2015. Contributing to the
increase was growth in fixed-rate local currency loans, and as many of IFC’s loans periodically re-price against US$ LIBOR, the increase
in US$ six-month LIBOR from 0.44% at June 30, 2015 to 0.92% at June 30, 2016. These factors combined resulted in $92 million higher
interest income in FY16 than in FY15. Realized gains on loans were significantly lower in FY16 primarily due to a successful workout of
a loan and the conversion of a loan to equity in an investee company which together generated $35 million of realized gains in FY15.
INCOME FROM EQUITY INVESTMENTS AND ASSOCIATED DERIVATIVES
Income from the equity investment portfolio, including associated derivatives, increased by $91 million from $427 million in FY15 to
$518 million in FY16.
IFC sells equity investments where IFC’s developmental role was complete, where pre-determined sales trigger levels had been met and,
where applicable, lock ups have expired. Gains on equity investments and associated derivatives comprise realized and unrealized gains.
IFC recognized realized gains on equity investments and associated derivatives in the form of cash and non-monetary considerations for
FY16 of $1,217 million, as compared with $1,288 million for FY15, a decrease of $71 million. Realized gains on equity investments and
associated derivatives are concentrated in a small number of investments. In FY16, there were thirteen investments that generated
individual capital gains in excess of $20 million for a total of $856 million, or 70%, of the FY16 realized gains, compared to twelve
investments that generated individual capital gains in excess of $20 million for a total of $920 million, or 71%, of the FY15 realized gains.
Dividend income in FY16 totaled $241 million, as compared with $272 million in FY15. Dividend income in FY16 included returns from
two unincorporated joint venture (UJVs) in the oil, gas and mining sectors accounted for under the cost recovery method, which totaled
$11 million, as compared with $23 million from four such UJVs in FY15.
Other-than-temporary impairments on equity investments totaled $744 million in FY16 ($360 million on equity investments accounted for
as available-for-sale; and $384 million on equity investments accounted for at cost less impairment), as compared with $732 million in
FY15 ($381 million on equity investments accounted for as available-for-sale; and $351 million on equity investments accounted for at
cost less impairment), an increase of $12 million. Other-than-temporary impairments on equity investments in FY16 reflected the economic
downturn in certain countries in the East Asia and the Pacific, Latin America and the Caribbean, and the Middle East and North Africa
regions. In FY16, six investments generated individual other-than-temporary impairments in excess of $20 million for a total of
$173 million. In FY15, four investment generated an individual other-than-temporary impairment in excess of $20 million for a total of
$234 million.
Net unrealized losses on equity investments and associated derivatives totaled $204 million (Net unrealized losses of $402 million in
FY15) reflecting a generally deteriorating macro environment in emerging market equities which has negatively impacted the value of
many of IFC’s equity investments accounted for at fair value in net income. Seven investments in equity funds accounted for $194 million
of the unrealized losses in FY16. In FY15 one investment accounted for $58 million of the unrealized gains. Nine investments in equity
funds accounted for $179 million of the unrealized losses in FY15. Individual investments in such funds provided a significant component
of such unrealized gains and losses.
INCOME FROM DEBT SECURITIES AND REALIZED GAINS AND LOSSES ON DEBT SECURITIES AND ASSOCIATED DERIVATIVES
Income from debt securities and realized gains and losses on debt securities and associated derivatives decreased to $129 million in
FY16 from $132 million in FY15. The largest changes were higher interest income ($18 million), lower realized gains on debt securities
and associated derivatives ($7 million) and higher other-than-temporary impairments ($12 million) in FY16 when compared with FY15.
PROVISION FOR LOSSES ON LOANS, GUARANTEES AND OTHER RECEIVABLES
The quality of the loan portfolio, as measured by the weighted average country risk ratings and the weighted average credit risk ratings,
deteriorated in FY16. Non-performing loans (NPLs) increased by $134 million, from $1,578 million of the disbursed loan portfolio at June
30, 2015 to $1,712 million* at June 30, 2016. The increase of $134 million comprised $713 million of loans and loan-like debt securities
being placed in NPL status, $542 million being removed from NPL status and a $37 million reduction due to repayments and currency
translation adjustments. In FY16, 24 loans greater than $10 million, and totaling $638 million, were placed in NPL status.
* Includes $66 million reported as debt securities on the Balance Sheet as of June 30, 2016 ($44 million - June 30, 2015).
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
IFC recorded a net provision for losses on loans, guarantees and other receivables of $359 million in FY16 ($319 million of specific
provisions on loans; $36 million of portfolio provisions on loans; $3 million provision on guarantees; and $1 million provision on other
receivables) as compared to a provision of $171 million in FY15 ($199 million of specific provisions for losses on
loans; $30 million release
of portfolio provisions for losses on loans; and net $2 million of provision for losses on guarantees and other receivables). Project-specific
developments on four loans comprised $122 million of the specific provision for losses on loans in FY16.
At June 30, 2016, IFC’s total reserves against losses on loans were $1,775 million or 7.4% of the disbursed loan portfolio ($1,743 million;
7.5% at June 30, 2015), an increase of $32 million from June 30, 2015. The increase in reserves against losses on loans due to provisions
of $355 million has been partially offset by write-offs, net of recoveries, and other adjustments of $298 million and foreign exchange gains
related to reserves held against non-U.S. dollar-denominated loans and the strengthening of the U.S. dollar against many of IFC’s lending
currencies of $25 million. In FY16, IFC actively sought to exit a number of loan exposures through settlement or sale or a recognition that
the possibility of recovery was remote resulting in a significant amount of exits.
Specific reserves against losses on loans at June 30, 2016 of $965 million ($962 million at June 30, 2015) are held against impaired loans
of $1,752 million ($1,722 million at June 30, 2015), a coverage ratio of 55% (56% at June 30, 2015).
INCOME FROM LIQUID ASSET TRADING ACTIVITIES
The liquid assets portfolio, net of derivatives and securities lending activities, increased by $1.9 billion from $39.5 billion at June 30, 2015,
to $41.4 billion at June 30, 2016. Gross income from liquid asset trading activities totaled $504 million in FY16 compared to $467 million
in FY15, an increase of $37 million.
Interest income in FY16 totaled $561 million, compared to $614 million in FY15. In addition, the portfolio of ABS and MBS experienced
fair value losses totaling $70 million in FY16. Holdings in other products, including US Treasuries, global government bonds, high quality
corporate bonds and derivatives generated $13 million of gains in FY16, a total loss of $57 million (realized and unrealized). This compares
to a total loss (realized and unrealized) of $147 million in FY15.
In FY16, the liquid assets portfolios outperformed their benchmarks by $145 million. The capital markets were highly turbulent during FY16
with contributions to the environment from highly volatile oil prices, Chinese foreign-exchange policy (weakening RMB) and political
developments (Brexit). Surprisingly, in a fiscal year in which the Federal Reserve raised their benchmark rates, U.S. Treasuries rallied
strongly with the 10-year yield down 88 bps and the 2-year down 6 bps. Even though the U.S. S&P 500 index managed a small gain over
the fiscal year, credit spreads were generally wider as tail risks increased. In addition, U.S. swap spreads (the yield difference between
the fixed-leg of a fixed-floating swap versus USD LIBOR and the same maturity U.S. Treasury) narrowed significantly, e.g., 15 basis points
for 5-year maturity. With spreads to U.S. Treasuries for high-quality credit securities already quite narrow, the “cheapening” of U.S.
Treasuries to swaps led to a widening in the spreads of swaps for high-quality assets (including IFC’s own issuances). As a result, liquid
assets, many of which are swapped or indexed to LIBOR, generally underperformed their LIBOR-based benchmark. The aforementioned
rise in perceived tail-risks also hindered the performance of liquid assets as did developments in the UK and in the market for
U.S. government-guaranteed student loan ABS.
The absolute return on liquid assets in FY16 benefited from rising short-term interest rates (3-month LIBOR rose 37 bps) and a relatively
dovish Federal Reserve, which supported a rally in U.S. Treasury yields that contributed to the performance of the net worth portion of
liquid assets. Note that the increase in short-term interest rates was offset by a corresponding increase in IFC’s funding cost.
In FY16 and FY15, all internally managed liquid asset portfolios outperformed their respective benchmarks.
At June 30, 2016, trading securities with a fair value of $68 million are classified as Level 3 securities ($86 million - June 30, 2015).
CHARGES ON BORROWINGS
I
FC’s charges on borrowings increased by $151 million, from $258 million in FY15 (net of $2 million gain on extinguishment of borrowings)
to $409 million in FY16 (net of $6 million gain on extinguishment of borrowings), largely attributable to increase in borrowings outstanding,
rising LIBOR rates, and increased interest charges on the back of pricing in the SSA (Sovereigns, Supranational and Agency) market
becoming more expensive due to USD swap curve tightening and widening borrowing spreads vs. LIBOR.
The weighted average cost of IFC’s borrowings outstanding from market sources, after the effects of borrowing-related derivatives, and
excluding short-term borrowings from market and other sources, was 1.1% at June 30, 2016, an increase from 0.5% at June 30, 2015.
The size of the borrowings portfolio (excluding the short-term borrowings), net of borrowing-related derivatives and before fair value
adjustments, increased by $2.2 billion during FY16 from $51.7 billion at June 30, 2015, to $53.9 billion at June 30, 2016.
OTHER INCOME
Other income of $501 million for FY16 was $4 million lower than in FY15 ($505 million). There were lower returns on the Post Employment
Benefit Plan (PEBP) assets which are partly invested in global equities and reflected the challenging market for equity investments in
FY16 as compared to the same period in FY15. The decline in service fees was due to decreases in FY16 evaluation fees, supervision
fees, and other project related fees, partially offset by an increase in mobilization fees when compared with FY15 activities.
Other income also i
ncludes management and other fees from IFC’s consolidated subsidiary, AMC, of $66 million ($59 million in FY15)
and income from Advisory Services, predominantly contributions from donors, of $266 million ($244 million in FY15). In FY16, income
from advisory services comprised $217 million of donor funds utilized ($197 million - FY15) and $49 million of fees from clients and
administrative fees from donors ($47 million - FY15).
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
OTHER EXPENSES
Administrative expenses (the principal component of other expenses) increased by $32 million from $901 million in FY15 to $933 million
in FY16. The increase in FY16 is due to marginally higher salary and benefit costs, the largest component of administrative expenses,
and higher variable expenses, primarily consultants and travel.
Advisory services expenses totaled $308 million in FY16 ($285 million in FY15) with the increase from FY15 consistent with the increase
in advisory services income.
IFC recorded expenses from pension and other postretirement benefit plans in FY16 of $185 million, compared with $197 million in FY15.
This decrease, based on the beginning of the year actuarial assumptions and calculations, was driven by lower service and higher interest
costs, partially offset by higher expected returns on plan assets.
FOREIGN CURRENCY TRANSACTION GAINS AND LOSSES ON NON-TRADING ACTIVITIES
Foreign currency transaction losses reported in net loss in FY16 totaled $46 million (gains of $53 million - FY15). Foreign currency
transaction losses on debt securities accounted for as available-for-sale in the amount of $49 million in FY16 (losses of $115 million - FY15)
are reported in Other Comprehensive Income, while gains and losses on the derivatives economically hedging such debt securities are
reported in net income.
Largely due to IFC having a small population of unhedged non-U.S. dollar-denominated loans and debt securities and the U.S. dollar
strengthening against such currencies, IFC has recorded overall foreign exchange related losses in a combination of Net Income and
Other Comprehensive Income of $95 million in FY16 (losses of $62 million - FY15).
NET UNREALIZED GAINS AND LOSSES ON NON-TRADING FINANCIAL INSTRUMENTS
As discussed in more detail in Note A to IFC’s FY16 Consolidated Financial Statements, IFC accounts for certain financial instruments at
fair value with unrealized gains and losses on such financial instruments being reported in net income, namely: (i) all market borrowings
that are economically hedged with financial instruments that are accounted for at fair value with changes therein reported in net income;
(ii) unrealized gains and losses on certain loans, debt securities and associated derivatives; and (iii) borrowings from IDA.
Table 16: Net Unrealized Gains and Losses on Non-Trading Financial Instruments FY16 vs FY15 (US$ millions)
FY16
FY15
Unrealized gains and losses on loans, debt securities and associated derivatives
$
(266)
$
(54)
Unrealized gains and losses on borrowings from market, IDA and associated derivatives
, net
62
(52)
Net unrealized gains and losses on non-trading financial instruments accounted for at fair value
$
(204)
$
(106)
Changes in the fair value of IFC’s borrowings from market, IDA and associated derivatives, net, includes the impact of changes in IFC’s
own credit spread when measured against US$ LIBOR. As credit spreads widen, unrealized gains are recorded and when credit spreads
narrow, unrealized losses are recorded (notwithstanding the impact of other factors, such as changes in risk-free interest and foreign
currency exchange rates). The magnitude and direction (gain or loss) can be volatile from period to period but do not alter the cash flows.
IFC’s policy is to generally match currency, amount and timing of cash flows on market borrowings with cash flows on associated
derivatives entered into contemporaneously.
In FY16, the trend of the first half of the fiscal year to higher after swap borrowing costs continued, coupled with an increase in volatility in
credit markets. Additionally, at the end of FY16, the cost of economically hedging borrowings in US dollars, Australian dollars, New
Zealand dollars and Japanese yen was more expensive across all maturities with respect to benchmarks as compared to the end of FY15.
While these credit spreads for IFC borrowing issuances were higher than at the end of the prior year, interest rate levels had generally
fallen by the end of FY16 back to below prior year levels. This coupled with the deterioration in credit spreads, resulted in unrealized
losses on the valuation of IFC’s market borrowings that were more than offset by gains on related hedging swaps. As a result, IFC has
reported net $62 million of unrealized gains on borrowings and associated derivatives in FY16 (net $52 million of unrealized losses in
FY15).
IFC reported net unrealized losses on loans, debt securities and associated derivatives of $266 million in FY16 (net unrealized losses of
$54 million in FY15). In FY16 this comprised unrealized losses of $143 million on the loan and debt securities portfolio carried at fair
value, unrealized losses of $107 million on asset liability management swaps, and unrealized losses of $16 million on other derivatives,
mainly conversion features, warrants in investment contracts and interest rate and currency swaps hedging the fixed rate and/or non-
US$ loan portfolio and funding local currency lending pools. Currency swap losses were mainly in instruments denominated in Brazilian
real and Indian rupees reflecting declines in local interest rates and supply and demand in forward foreign exchange markets.
GRANTS TO IDA
During FY16, IFC recorded a grant to IDA of $330 million, as compared with $340 million in FY15.
OTHER COMPREHENSIVE INCOME (OCI)
UNREALIZED GAINS AND LOSSES ON EQUITY INVESTMENTS AND DEBT SECURITIES
IFC’s investments in debt securities and equity investments that are listed in markets that provide readily determinable fair values are
classified as available-for-sale, with unrealized gains and losses on these investments being reported in OCI until realized. When realized,
the gain or loss is transferred to net income. Changes in unrealized gains and losses on equity investments and debt securities reported
in OCI are significantly impacted by (i) the global environment for emerging markets; and (ii) the realization of gains on sales of such equity
investments and debt securities.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
Table 17: Change in Other Comprehensive Income (Loss) - Unrealized Gains and Losses on Equity Investments and Debt
Securities FY16 vs FY15 (US$ millions)
FY16
FY15
Net unrealized gains and losses on equity investments arising during the year:
Unrealized gains
$
355
$
1,067
Unrealized losses
(871)
(799)
Reclassification adjustment for realized gains and other-than-temporary impairments included in net income
(281)
(393)
Net unrealized gains and losses on equity investments
$
(797)
$
(125)
Net unrealized gains and losses on debt securities arising during the year:
Unrealized gains
$
103
$
110
Unrealized losses
(180)
(182)
Reclassification adjustment for realized gains, non-credit related portion of impairments which were
recognized in net income and other-than-temporary included in net income
10
(7)
Net unrealized gains and losses on debt securities
$
(67)
$
(79)
Total unrealized gains and losses on equity investments and debt securities
$
(864)
$
(204)
Net unrealized losses on equity investments arising in FY16 totaled $797 million, mainly due to decreases in equity fair values reflecting
the volatile and overall significantly negative market conditions (equity, commodities and foreign exchange) in FY16. Unrealized losses
of $976 million were reported in FY16 Q1, unrealized gains of $24 million in FY16 Q2, unrealized losses of $55 million in FY16 Q3 and
unrealized gains of $143 million in FY16 Q4, reflecting the significantly weaker emerging markets environment that existed in FY16 Q1
when compared to FY16 Q2 and FY16 Q3 and larger realizations of gains on equity investments accounted for as available for sale early
in FY16 Q1.
UNRECOGNIZED NET ACTUARIAL GAINS AND LOSSES AND UNRECOGNIZED PRIOR SERVICE COSTS ON BENEFIT PLANS
Unrecognized pension adjustments largely represent the unrecognized net actuarial gains and losses on benefit plans. Actuarial gains
and losses occur when actual results differ from expected results in determining the funded status of the pension plans. Since the pension
plans are long term, changes in asset returns and discount rates cause volatility in fair value income. The decline in the funded status
reflects the decline in interest rates and to a lesser extent the lower asset returns compared with the long-term projection. Given its long
term planning horizon for pension plans, Management is focused mainly on ensuring that contributions to pension plans appropriately
reflect long term assumptions about asset returns and discount rates.
During FY16, IFC experienced a loss of $764 million primarily due to $763 million and $1 million of unrecognized net actuarial loss and
prior service cost, resulting largely from the decrease in the discount rates used to determine the projected benefit obligations. The discount
rate assumptions used to determine the projected benefit obligation for the Staff Retirement Plan and Post-Employment Benefits Plan
decreased from 4.3% at June 30, 2015 to 3.4% at June 30, 2016 and from 4.4% at June 30, 2015 to 3.5% at June 30, 2016, respectively.
FY15 VERSUS FY14
NET INCOME
IFC reported income before net unrealized gains and losses on non-trading financial instruments accounted for at fair value and grants to
IDA of $855 million in FY15, as compared to $1,782 million in FY14.
Table 18: Change in Net Income FY15 vs FY14 (US$ millions)
Increase
(decrease)
FY15 vs FY14
Higher other-than-temporary impairments on equity investments and debt securities
$
(484)
Lower gains on equity investments and associated derivatives, net
(383)
Lower income from liquid asset trading activities
(132)
Higher provisions for losses on loans, guarantees and other receivables
(83)
Higher income from loans and guarantees, realized gains and losses on loans and associated derivatives
58
Higher foreign currency transaction gains on non-trading activities
72
Other, net
25
Change in income before net unrealized gains and losses on non-trading financial instruments accounting
for at fair value and grants to IDA and net gains and losses attributable to non-controlling interests
$
(927)
FY15
FY14
Income before net unrealized gains and losses on non-trading financial instruments
accounted for at fair value and grants to IDA and net gains and losses attributable to
non-controlling interests
$
855
$
1,782
Net unrealized (losses) gains on non-trading financial instruments accounted for at fair value
(106)
(43)
Income before grants to IDA
749
1,739
Grants to IDA
(340)
(251)
Net losses (gains) attributable to non-controlling interests
36
(5)
Net income attributable to IFC
$
445
$
1,483
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
A more detailed analysis of the components of IFC’s net income follows.
INCOME FROM LOANS AND GUARANTEES, REALIZED GAINS AND LOSSES ON LOANS AND ASSOCIATED DERIVATIVES
IFC’s primary interest earning asset is its loan portfolio. Income from loans and guarantees, realized gains and losses on loans and
associated derivatives for FY15 totaled $1,123 million, compared with $1,065 million in FY14, an increase of $58 million.
The disbursed loan portfolio decreased by $1,155 million, from $24,407 million at June 30, 2014 to $23,252 million at June 30, 2015.
New disbursements of loans exceeded repayments in FY15. The reduction in total loan outstanding was due to currency exchange rate
fluctuations as IFC’s reporting currency, the US dollar, appreciated significantly in FY15 against most of IFC’s lending currencies. Loans
outstanding decreased by $1,076 million in FY15 from currency exchange rate fluctuations. As IFC economically hedges the currency
risk in most of its loan portfolio, substantially offsetting gains on lending-related derivatives due to currency exchange fluctuations have
also been recorded.
Table 19: FY15 Change in Income from Loans and Guarantees, including Realized Gains and Losses on Loans and Associated
Derivatives (US$ millions)
Income from loans and guarantees, including realized gains and losses on loans and associated
derivatives in FY14
$
1,065
Increase due to change in loan portfolio and interest rate environment
94
Increase due to higher realized gains on loans, guarantees and associated derivatives
48
Decrease due to lower recoveries of interest on non-accruing loans, net
(25)
Decrease due to lower commitment and financial fees
(11)
Decrease due to lower income from participation notes and other income
(48)
Change in income from loans and guarantees, including realized gains and losses on loans and
associated derivatives
$
58
Income from loans and guarantees, including realized gains and losses on loans and associated
derivatives in FY15
$
1,123
The weighted average contractual interest rate on loans at June 30, 2015 was 4.9%, up from 4.5% June 30, 2014. Contributing to the
increase was growth in fixed-rate local currency loans, and as many of IFC’s loans periodically re-price against US$ LIBOR, the increase
in US$ six-month LIBOR from 0.33% at June 30, 2014 to 0.44% at June 30, 2015. These factors combined resulted in $94 million higher
interest income in FY15 than in FY14. Realized gains on loans were significantly higher in FY15 due mainly to a successful workout of a
loan which generated $19 million of gains, and the conversion of a loan to equity in an investee company which generated gains of
$16 million.
INCOME FROM EQUITY INVESTMENTS AND ASSOCIATED DERIVATIVES
I
ncome from the equity investment portfolio, including associated derivatives decreased by $862 million from $1,289 million in FY14 to
$427 million in FY15.
IFC sells equity investments where IFC’s developmental role was complete, and where pre-determined sales trigger levels had been met
and, where applicable, lock ups have expired. Gains on equity investments and associated derivatives comprise realized and unrealized
gains.
IFC recognized gains on equity investments and associated derivatives in the form of cash and non-monetary considerations for FY15 of
$1,288 million, as compared with $1,013 million for FY14, an increase of $275 million with the majority of realized gains being recorded in
the six months ended December 31, 2014. Realized gains on equity investments and associated derivatives are concentrated. In FY15,
there were twelve investments that generated individual capital gains in excess of $20 million for a total of $920 million, or 71%, of the
FY15 realized gains, compared to thirteen investments that generated individual capital gains in excess of $20 million for a total of
$733 million, or 72%, of the FY14 realized gains.
Dividend income in FY15 totaled $272 million, substantially unchanged from $274 million in FY14. Dividend income in FY15 included
returns from four unincorporated joint ventures (UJVs) in the oil, gas and mining sectors accounted for under the cost recovery method,
which totaled $23 million, as compared with $19 million from four such UJVs in FY14.
Other-than-temporary impairments on equity investments totaled $732 million in FY15 ($381 million on equity investments accounted for
as available-for-sale; and $351 million on equity investments accounted for at cost less impairment), as compared with $268 million in
FY14 ($161 million on equity investments accounted for as available-for-sale; and $107 million on equity investments accounted for at
cost less impairment), an increase of $464 million. Other-than-temporary impairments on equity investments in FY15 reflected the
economic downturn in certain countries in Eastern Europe and Central Asia and Latin America and the Caribbean, a decline in the price
of oil and currency depreciation versus the US dollar in most of IFC’s equity investing currencies and some adverse project-specific
developments. $305 million (42%) of other-than-temporary impairments on equity investments in FY15 were in Europe and Central Asia
and $205 million (28%) were in Latin America and the Caribbean. In FY15, four investments generated individual other-than-temporary
impairments in excess of $20 million for a total of $234 million. In FY14, one investment generated an individual other-than-temporary
impairment in excess of $20 million for a total of $34 million.
Net unrealized losses on equity investments and associated derivatives totaled $402 million (Net unrealized gains of $256 million in FY14)
in large part due to reversal of previously reported unrealized gains of $235 million relating to unwinding the value of put options that were
on IFC’s balance sheet at June 30, 2014, together with the overall weak environment for emerging markets equities negatively impacting
the value of many of IFC’s equity investments accounted for at fair value in net income. One investment accounted for $58 million of the
unrealized gains in FY15. Nine investments in equity funds accounted for $179 million of the unrealized losses in FY15. In FY14 one
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
investment accounted for $181 million of the unrealized gains. Six investments in equity funds accounted for $31 million of the unrealized
losses in FY14. Individual investments in such funds provided a significant component of such unrealized gains and losses.
INCOME FROM DEBT SECURITIES AND REALIZED GAINS AND LOSSES ON DEBT SECURITIES AND ASSOCIATED DERIVATIVES
Income from debt securities and realized gains and losses on debt securities and associated derivatives increased to $132 million in FY15
from $89 million in FY14, an increase of $43 million. The largest components of the increase were higher interest income ($45 million)
and realized gains on debt securities and associated derivatives ($17 million) in FY15 when compared with FY14.
PROVISION FOR LOSSES ON LOANS, GUARANTEES AND OTHER RECEIVABLES
The quality of the loan portfolio, as measured by average country risk ratings and average credit risk ratings, deteriorated marginally in
FY15. Non-performing loans increased by $236 million, from $1,342 million of the disbursed loan portfolio at June 30, 2014 to
$1,578 million at June 30, 2015. The increase of $236 million comprised $587 million of loans and loan-like debt securities being placed
in NPL status, $278 million being removed from NPL status and a $73 million reduction due to repayments and currency translation
adjustments.
IFC recorded a provision for losses on loans, guarantees and other receivables of $171 million in FY15 ($199 million of specific provisions
on loans; $30 million release of portfolio provisions on loans; $2 million release of provision on guarantees; and $4 million provision on
other receivables) as compared to a provision of $88 million in FY14 ($127 million of specific provisions for losses on loans; $44 million
release of portfolio provisions for losses on loans; and $5 million of provision for losses on guarantees and other receivables).
Project-specific developments on two loans resulted in $92 million of the specific provision for losses on loans in FY15.
On June 30, 2015, IFC’s total reserves against losses on loans were 7.5% of the disbursed loan portfolio (6.9% at June 30, 2014), an
increase of $57 million. The increase in reserves against losses on loans due to provisions of $169 million has been partially offset by
foreign exchange gains related to reserves held against non-U.S. dollar-denominated loans and the strengthening of the U.S. dollar against
many of IFC’s lending currencies of $80 million and write-offs, net of recoveries, and other adjustments of $32 million.
Specific reserves against losses on loans at June 30, 2015 of $962 m
illion ($838 million at June 30, 2014) are held against impaired loans
of $1,722 million ($1,725 million at June 30, 2014), a coverage ratio of 56% (49% at June 30, 2014).
INCOME FROM LIQUID ASSET TRADING ACTIVITIES
The liquid assets portfolio, net of derivatives and securities lending activities, increased from $33.7 billion at June 30, 2014, to $39.5 billion
at June 30, 2015. Gross income from liquid asset trading activities totaled $467 million in FY15 ($599 million in FY14).
Interest income in FY15 totaled $614 million. In addition, the portfolio of ABS and MBS experienced fair value losses totaling $38 million
in FY15. Holdings in other products, including US Treasuries, global government bonds, high quality corporate bonds and derivatives
generated $109 million of losses in FY15, a net loss of $147 million.
The primary driver of income for FY15 was interest earned over the period, totaling $614 million ($533 million – FY14). Relative to FY14,
there were fewer gains from spread tightening, and income on liquid assets denominated in foreign currencies was reduced by the
strengthening of the U.S. dollar. Net foreign exchange losses for assets held in liquidity are offset by gains on foreign exchange hedges
including, among other things, derivative instruments and debt issuances in the related currencies.
In FY15 and FY14, all internally managed liquid asset portfolios outperformed their respective benchmarks.
At June 30, 2015, trading securities with a fair value of $86 million are classified as Level 3 securities ($188 million on June 30, 2014).
CHARGES ON BORROWINGS
IFC’s charges on borrowings increased by $62 million, from $196 million in FY14 (net of $3 million gain on extinguishment of borrowings)
to $258 million in FY15 (net of $2 million gain on extinguishment of borrowings), largely reflecting an increase in interest charges relating
to fixed rate local currency bonds raised from capital market development activities (which in the aggregate have been invested in higher
rate local currency assets).
The weighted average rate of IFC’s borrowings outstanding from market sources, after the effects of borrowing-related derivatives, and
excluding short-term borrowings from market and other sources, was 0.5% at June 30, 2015, slightly increased from 0.4% June 30, 2014.
The size of the borrowings portfolio (excluding the short-term borrowings), net of borrowing-related derivatives and before fair value
adjustments, increased by $3.9 billion during FY15 from $47.8 billion at June 30, 2014, to $51.7 billion at June 30, 2015.
OTHER INCOME
Other income of $505 million for FY15 was $44 million higher than in FY14 ($461 million) principally due to fee income generated from
stronger mobilization activities in FY15 as compared with FY14. Other income in FY15 also includes management fees and service fee
reimbursements of $59 million ($57 million in FY14) from IFC’s consolidated subsidiary, AMC, and income from advisory services of $244
million ($254 million in FY14). In FY15, income from advisory services comprised $197 million of donor funds utilized ($216 million - FY14)
and $47 million of fees from clients and administrative fees from donors ($38 million - FY14).
OTHER EXPENSES
Other expenses increased modestly in FY15 by $5 million from $1,418 million to $1,423 million. Other expenses reflect higher expense
from pension and other postretirement plans, driven by higher service and interest costs partially offset by higher expected returns on plan
assets and higher expenses from AMC, driven by the growth in AMC’s funds and assets under management.
Advisory services expenses totaled $285 million in FY15 ($324 million in FY14) with the decrease in advisory services reflecting the series
of advisory service reforms and transition to the new organizational structure.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
In addition, pursuant to a series of expenditure controls, administrative expenses were favorably impacted due to lower head count and
resulting impact on staff salaries and benefits, lower spending on consultants and lower spending on travel, partially offset by an increase
in service and support fees paid to IBRD due to an increase in shared services. Lastly, administrative expenses were also lower due to
expenses being incurred in currencies other than US dollars.
FOREIGN CURRENCY TRANSACTION GAINS AND LOSSES ON NON-TRADING ACTIVITIES
Foreign currency transaction gains reported in net income in FY15 totaled $53 million ($19 million losses - FY14). Foreign currency
transaction losses on debt securities accounted for as available-for-sale in the amount of $115 million in FY15 (losses of $8 million - FY14)
are reported in Other Comprehensive Income, while gains and losses on the derivatives economically hedging such debt securities are
reported in net income.
Largely due to IFC having a small population of unhedged non-U.S. dollar-denominated loans and debt securities and the U.S. dollar
strengthening against such currencies, IFC has recorded overall foreign exchange related losses in both Net Income and Other
Comprehensive Income of $62 million in FY15 (losses of $27 million - FY14).
NET UNREALIZED GAINS AND LOSSES ON NON-TRADING FINANCIAL INSTRUMENTS
As discussed in more detail in Note A to IFC’s FY15 Consolidated Financial Statements, IFC accounts for certain financial instruments at
fair value with unrealized gains and losses on such financial instruments being reported in net income, namely: (i) all market borrowings
that are economically hedged; and (ii) unrealized gains and losses on certain loans, debt securities and associated derivatives, (iii)
substantially all market borrowings, and (iv) borrowings from IDA.
The resulting effects of fair value accounting for these non-trading financial instruments on net income in FY15 and FY14 are summarized
as follows:
Table 20: Net Unrealized Gains and Losses on Non-Trading Financial Instruments FY15 vs FY14 (US$ millions)
FY15
FY14
Unrealized gains and losses on loans, debt securities and associated derivatives
$
(
54
)
$
31
Unrealized gains and losses on borrowings from market, IDA and associated derivatives
, net
(
52
)
(74)
Net unrealized gains and losses on other non-trading financial instruments accounted for at fair value
$
(
106
)
$
(43)
Changes in the fair value of IFC’s borrowings from market, IDA and associated derivatives, net, includes the impact of changes in IFC’s
own credit spread when measured against US$ LIBOR. As credit spreads widen, unrealized gains are recorded and when credit spreads
narrow, unrealized losses are recorded (notwithstanding the impact of other factors, such as changes in risk-free interest and foreign
currency exchange rates). The magnitude and direction (gain or loss) can be volatile from period to period but do not alter cash flow. IFC’s
policy is to generally match currency, amount, and timing of cash flows on market borrowings with cash flows on associated derivatives
entered into contemporaneously.
In FY15, modest unrealized losses were incurred on market borrowings after swaps, on balance, across funding currency portfolios. The
cost of economically hedging borrowings in US dollars and Australian dollars after swaps was largely unchanged with respect to
benchmarks at FY15 -end as compared to FY14-end. The cost of economically hedging borrowings in Japanese yen was slightly cheaper
at FY15-end compared to FY14-end, while the cost of hedging the fair value of New Zealand dollar borrowings was more expensive at
FY15-end. As a result, IFC has reported net $52 million of unrealized losses on borrowings and associated derivatives in FY15 (net $74
million of unrealized losses in FY14)
IFC reported net unrealized losses on loans, debt securities and associated derivatives (principally conversion features, warrants and
interest rate and currency swaps economically hedging the fixed rate and/or non-US$ loan portfolio) of $54 million in FY15 (net unrealized
gains of $31 million in FY14).
GRANTS TO IDA
During FY15, IFC recorded a grant to IDA of $340 million, as compared with $251 million in FY14.
OTHER COMPREHENSIVE INCOME
UNREALIZED GAINS AND LOSSES ON EQUITY INVESTMENTS AND DEBT SECURITIES
IFC’s investments in debt securities and equity investments that are listed in markets that provide readily determinable fair values are
classified as available-for-sale, with unrealized gains and losses on these investments being reported in OCI until realized. When realized,
the gain or loss is transferred to net income. Changes in unrealized gains and losses on equity investments and debt securities reported
in OCI are significantly impacted by (i) the global environment for emerging markets; and (ii) the realization of gains on sales of such equity
investments and debt securities.
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
The net change in unrealized gains and losses on equity investments and debt securities in OCI can be summarized as follows:
Table 21: Change in Other Comprehensive Income - Unrealized Gains and Losses on Equity Investments and Debt Securities
FY15 vs FY14 (US$ millions)
FY15
FY14
Net unrealized gains and losses on equity investments arising during the year:
Unrealized gains
$
1,067
$
882
Unrealized losses
(
799
)
(228)
Reclassification adjustment for realized gains and other-than-temporary impairments included in net income
(
393
)
(312)
Net unrealized gains and losses on equity investments
$
(
125
)
$
342
Net unrealized gains and losses on debt securities arising during the year:
Unrealized gains
$
110
$
154
Unrealized losses
(
182
)
(93)
Reclassification adjustment for realized gains, non-credit related portion of impairments which were
recognized in net income and other-than-temporary included in net income
(
7
)
(16)
Net unrealized gains and losses on debt securities
$
(
79
)
$
45
Total unrealized gains and losses on equity investments and debt securities
$
(
204
)
$
387
Net unrealized gains on equity investments arising in FY15 totaled $268 million. This gains were achieved in spite of the overall negative
environment for emerging markets equities through FY15 as a whole due to a small number of financial institution investments in Asia
accounted for as available-for-sale that increased in value during FY15, despite significant volatility in that region late in FY15.
UNRECOGNIZED NET ACTUARIAL GAINS AND LOSSES AND UNRECOGNIZED PRIOR SERVICE COSTS ON BENEFIT PLANS
Changes in the funded status of pension and other postretirement benefit plans are recognized in OCI, to the extent they are not recognized
in net income under periodic benefit cost for the year.
During FY15, IFC experienced a gain of $162 million primarily due to $156 million of unrecognized net actuarial gains, resulting largely
from the increase in the discount rates used to determine the projected benefit obligations. The discount rate assumptions used to
determine the projected benefit obligation for the Staff Retirement Plan and Post-Employment Benefits Plan increased from 4.2% at June
30, 2014 to 4.3% at June 30, 2015 and from 4.3% at June 30, 2014 to 4.4% at June 30, 2015, respectively.
VIII. GOVERNANCE AND CONTROL
SENIOR MANAGEMENT CHANGES
The following changes became effective July 1, 2015:
Nena Stoiljkovic assumed the role of Vice President, Global Client Services. Jean Philippe Prosper left the position of Vice President,
Global Client Services and became an Adviser to IFC’s Executive Vice President and CEO. Karin Finkelston left the position of Vice
President, Global Partnerships to become Vice President and Chief Operating Officer of MIGA. Saran Kebet-Koulibaly assumed the role
of Vice President, Corporate Risk and Sustainability. The units that previously reported to the Co-Vice Presidents, Global Partnerships,
were realigned with synergistic functional areas in IFC.
James Scriven, Vice President, Corporate Risk and Sustainability on June 30, 2015 left IFC effective October 31, 2015.
Jin-Yong Cai left IFC effective January 8, 2016. IFC appointed Philippe Le Houérou Executive Vice President and CEO effective March
1, 2016. Ethiopis Tafara, IFC’s Vice President and General Counsel was the acting Executive Vice President and CEO until Mr. Le
Houérou’s appointment became effective.
The following is a list of the principal officers of IFC as of June 30, 2016.
President ……………………………………………………………………………………………………………….
Dr. Jim Yong Kim
Executive Vice President and CEO ..............................................................................................................
Philippe Le Houérou
Vice President, Global Client Services .........................................................................................................
Dimitris Tsitsiragos
Vice President, Global Client Services .........................................................................................................
Nena Stoiljkovic
Vice President, Corporate Risk & Sustainability and General Counsel .........................................................
Ethiopis Tafara
Vice President, Corporate Risk & Sustainability ...........................................................................................
Saran Kebet-Koulibaly
Vice President, Treasury and Syndications…………………………………………………………………………
Jingdong Hua
Vice President, CEO, IFC Asset Management Company LLC (a wholly-owned subsidiary of IFC)………….
Gavin E.R. Wilson
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INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
GENERAL GOVERNANCE
IFC’s decision-making structure consists of the Board of Governors, the Board of Directors, the President, the Executive Vice President
and CEO, management and staff. The Board of Governors is the highest decision-making authority. Governors are appointed by their
member governments for a five-year term, which is renewable. The Board of Governors may delegate authority to the Board of Directors
to exercise any of its powers, except those reserved to the Board of Governors under the Articles of Agreement.
BOARD MEMBERSHIP
In accordance with its Articles of Agreement, Directors are appointed or elected every two years by their member governments. The Board
currently has 25 Directors who represent all member countries. Directors are neither officers nor staff of IFC. The President is the only
member of the Board from management, and he serves as a non-voting member and as Chairman of the Board.
The Board has established several Committees. These include:
Audit Committee
Budget Committee
Committee on Development Effectiveness
Committee on Governance and Executive Directors’ Administrative Matters
Human Resources Committee
The Board and its committees are in continuous session at the main IBRD offices in Washington DC, as business requires. Each
committee’s terms of reference establishes its respective roles and responsibilities. As committees do not vote on issues, their role is
primarily to serve the Board in discharging its responsibilities.
The Board is required to consider proposals made by the President on the use of IFC’s net income: retained earnings and designation of
retained earnings and on other policies that affect its general operations. The Board is also responsible for presenting to the Board of
Governors, at the Annual meetings, audited accounts, an administrative budget, and an annual report on operations and policies and on
other matters.
AUDIT COMMITTEE
MEMBERSHIP
The Audit Committee consists of eight Directors. Membership in the Committee is determined by the Board, based on nominations by the
Chairman of the Board, following informal consultation with Directors.
KEY RESPONSIBILITIES
The Audit Committee is appointed by the Board for the primary purpose of assisting the Board in overseeing IFC’s finances, accounting,
risk management, internal controls and institutional integrity, specific responsibilities include:
•
Oversight of the integrity of IFC’s financial statements.
•
Appointment, qualifications, independence and performance of the External Auditor.
•
Performance of the Internal Audit Department.
•
Adequacy and effectiveness of financial and accounting policies and internal controls and the mechanisms to deter, prevent and
penalize fraud and corruption in IFC operations and corporate procurement.
•
Effective management of financial, fiduciary, compliance in IFC.
•
Oversight of the institutional arrangements and processes for risk management across IFC.
In carrying out its role, the Audit Committee discusses financial issues and policies that affect IFC’s financial position and capital adequacy
with Management, external auditors, and internal auditors. It recommends the annual audited financial statements for approval to the
Board. The Audit Committee monitors and reviews developments in corporate governance and its own role on an ongoing basis.
EXECUTIVE SESSIONS
Under the Audit Committee’s terms of reference, it may convene in executive session at any time, without Management’s presence. The
Audit Committee meets separately in executive session with the external and internal auditors.
ACCESS TO RESOURCES AND TO MANAGEMENT
Throughout the year, the Audit Committee receives a large volume of information to enable it to carry out its duties, and meets both formally
and informally throughout the year to discuss relevant matters. It has complete access to Management and reviews and discusses with
Management topics considered in its terms of reference.
The Audit Committee has the authority to seek advice and assistance from outside legal, accounting, or other advisors as it deems
necessary.
Page 39
INTERNATIONAL FINANCE CORPORATION
Management’s Discussion and Analysis
BUSINESS CONDUCT
The WBG promotes a positive work environment in which staff members understand their ethical obligations to the institution. In support of
this commitment, the institution has in place a Code of Conduct. The WBG has both an Ethics HelpLine and a Fraud and Corruption hotline.
A third-party service offers many methods of worldwide communication. Reporting channels include telephone, mail, email, or confidential
submission through a website.
IFC has in place procedures for receiving, retaining, and handling recommendations and concerns relating to business conduct identified
during the accounting, internal control and auditing processes.
WBG staff rules clarify and codify the staff’s obligations in reporting suspected fraud, corruption, or other misconduct that may threaten
the operations or governance of the WBG. These rules also offer protection from retaliation.
AUDITOR INDEPENDENCE
The appointment of the external auditor for IFC is governed by a set of Board-approved principles. These include:
Prohibiting the external auditor from providing any non audit-related services;
Requiring all audit-related services to be pre-approved on a case-by-case basis by the Board, upon recommendation of the Audit
Committee; and
Mandatory rebidding of the external audit contract every five years, with a limit of two consecutive terms and mandatory rotation
thereafter, provided however that the Audit Committee may exceptionally recommend that the incumbent audit firm should be
allowed to participate in the re-bidding.
The external auditor is appointed to a five-year term and is subject to annual reappointment based on the recommendation of the Audit
Committee and approval of a resolution by the Board. In FY14, KPMG LLP began a second five-year term as IFC’s external auditor.
Communication between the external auditor and the Audit Committee is ongoing and carried out as often as deemed necessary by either
party. The Audit Committee meets periodically with the external auditor and individual committee members have independent access to
the external auditor. IFC’s external auditors also follow the communication requirements with audit committees set out under generally
accepted auditing standards in the United States.
INTERNAL CONTROL
INTERNAL CONTROL OVER EXTERNAL FINANCIAL REPORTING
Each fiscal year, Management evaluates the internal controls over external financial reporting to determine whether any changes made
in these controls during the fiscal year materially affect, or would be reasonably likely to materially affect IFC’s internal control over external
financial reporting. The internal control framework promulgated by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), “Internal Control – Integrated Framework (2013)” provides guidance for designing, implementing and conducting
internal control and assessing its effectiveness. Beginning in FY15, IFC used the 2013 COSO framework to assess the effectiveness of
the internal control over external financial reporting. As of June 30, 2016, these controls were determined to be effective. See
“Management’s report regarding effectiveness of Internal Control over External Financial Reporting” on Page 41.
Concurrently, IFC’s external auditor provides a report on whether Management’s assertion statement regarding the effectiveness of
internal control over external financial reporting is fairly stated in all material respects. See “Independent Auditors Report on
Management’s Assertion Regarding Effectiveness of Internal Control over External Financial Reporting” on Page 43.
DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed to ensure that information required to be disclosed is gathered and communicated to
Management as appropriate, to allow timely decisions regarding required disclosure by IFC. Management conducted an evaluation of the
effectiveness of such controls and procedures and the President, the Executive Vice President and CEO, and the Vice President, World
Bank Group Controller and IFC’s Chief Administrative Officer have concluded that these controls and procedures were effective as of
June 30, 2016.
Page 40
INTERNATIONAL FINANCE CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS AND
INTERNAL CONTROL REPORTS
June 30, 2016
Contents
Page
Management’s report regarding effectiveness of internal control over external financial reporting.... 41
Independent auditors’ report on management’s assertion regarding effectiveness of internal
control over external financial reporting .............................................................................................. 43
Consolidated balance sheets .............................................................................................................. 44
Consolidated statements of operations ............................................................................................... 45
Consolidated statements of comprehensive income (loss)................................................................. 46
Consolidated statements of changes in capital ................................................................................... 47
Consolidated statements of cash flows ............................................................................................... 49
Consolidated statement of capital stock and voting power ................................................................. 51
Notes to consolidated financial statements ......................................................................................... 52
Independent Auditors’ Report ........................................................................................................... 109
illFe
International
Finance
Corporation
Wor
l
d
Ba
n
k
Group
Management's Report Regarding
Effectiveness of
Internal
Control over
External
Financial
Reporting
August 4,2016
The management
of
the International Finance Corporation (IF C) is responsible for the
preparation
,
integrity, and fair presentation
of
its published consolidated financial statements. The consolidated
financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (US GAAP)
and
,
as such, include amounts based on
informed judgments and estimates made by management.
The consolidated financial statements have been audited by an independent audit
firm
,
which was
given unrestricted access to all financial records and related data, including minutes of all meetings
of
the Board
of
Directors and their Committees. Management believes that all representations
made to the independent auditors during their audit of IFC's consolidated financial statements and
attestation of its internal control over financial reporting were valid and appropriate. The
independent auditor's reports accompany the audited consolidated financial statements.
Management is responsible for establishing and maintaining effective internal control over
external financial reporting for financial statement presentations in conformity with US GAAP.
Management maintains a comprehensive system
of
controls intended to ensure that transactions
are executed in accordance with management's
authorization
,
assets are safeguarded and financial
records are reliable. The system
of
internal control contains monitoring mechanisms, and actions
are taken to correct deficiencies identified
.
Management believes that internal controls for external
financial
reporting
,
which are subject to scrutiny by management and the
interna
l
auditors
,
and are
revised as considered
necessary
,
support the integrity and reliability
of
the external consolidated
financial
statements
.
There are inherent limitations in the effectiveness
of
any internal control, including the possibility
of
human error and the circumvention or overriding
of
controls. Accordingly, even effective
internal control can provide only reasonable assurance with respect to financial statement
preparation. Further, because of changes in conditions, the effectiveness
of
internal control may
vary over time.
IFC assessed its internal control over external financial reporting for financial statement
presentation in conformity with US GAAP as
of
June 30, 2016. This assessment was based on the
criteria for effective internal control over external financial reporting described in Internal Control
-
2013 Integrated Framework issued by the Committee of Sponsoring Organizations
of
the
Treadway Commission. Based upon this assessment, management believes that IFC maintained
effective internal control over external financial reporting presented in conformity with US GAAP
as
of
June 30,2016. The independent audit firm that audited the consolidated financial statements
has issued an attestation report on management's assertion on IFC's internal control over financial
r
eporting
.
2121
Pennsylvan
i
a
Ave
.
,
NW
.
Washington,
D.C.
20433
USA
Phone
:
(202) 473
-
1000.
Facsimile
:
(202)
477
-
6391
Page 41
The Board
of
Directors has appointed an Audit Committee responsible for monitoring the
accounting practices and internal controls
of
IFC. The Audit Committee is comprised entirely
of
Directors who are independent
of
IFC's management. The Audit Committee is responsible for
recommending to the Board
of
Directors the selection of independent auditors.
It
meets
periodically with management, the independent auditors, and the internal auditors to ensure that
they are carrying out their responsibilities. The Audit Committee is responsible for performing an
oversight role by reviewing and monitoring the financial, accounting and auditing procedures
of
IFC in addition to reviewing IFC's
reports
.
The independent auditors and the internal auditors have
full and free access to the Audit Committee, with or without the presence
of
management to discuss
the adequacy
of
internal control over external financial reporting and any other matters which they
believe should be brought to the attention
of
the Audit Committee.
e Houerou
Execut
i
ve
Vi
c
e
President and CEO
auwers
Group Controller and IFC's Chief Administrative Officer
Page 42
KPMG
LLP
S
uit
e
1200
0
1801
K S
t
r
ee
t
,
NW
Was
hin
g
t
o
n
,
DC 20006
Independent Auditors' Report
President and Board
of
Directors
International Finance Corporation:
We have examined management's assertion, included in the accompanying
Management
'
s Report Regarding
Effectiveness
of
Internal Control Over External Financial
Reporting
,
that the International Finance Corporation (IFC)
maintained effecti
v
e
internal control over external financial reporting as
of
June 30
,
2016
,
based on criteria established
in the Internal
Control-
Integrated Framework (2013) issued by the Committee
of
Sponsoring Organizations
of
the
Treadway Commission (COSO), IFC's management is responsible for maintaining effective internal control over
financial
reporting
,
and for its assertion on the effectiveness
of
internal control over financial
reporting
,
included in the
accompanying
Management
'
s
Report Regarding Effectiveness
of
Internal Control Over External
Finan
c
ial Reporting.
Our responsibility
is
to express an opinion on management's assertion based on our examination.
We conducted our examination in accordance with attestation standards established by the American Institute
of
Certified Public Accountants. Those standards require that we plan and perform the examination to obtain reasonable
assurance about whether
e
f
fective internal control over
f
inancial reporting was maintained in all material
respects
.
Our
examination included obtaining an understanding
of
internal control over financial
reporting
,
assessing the risk that a
material weakness
exists
,
and testing and evaluating the design and operating effectiveness
of
internal control based on
the assessed
risk
.
Our examination also included performing such other procedures as we considered necessary in the
circumstances
.
We believe that our examination provides a reasonable basis for our
opinion
.
An
entity
'
s internal control over financial reporting
is
a process effected by those charged with
governance
,
management
,
and other
personnel
,
designed to provide reasonable assurance regarding the preparation
of
reliable
financial statements
in
accordance with accounting principles generally accepted in the United States
of
America
.
An
entity
'
s internal control over financial reporting includes those policies and procedures that
(I)
pertain to the
maintenance
of
records
that
,
in reasonable
detail
,
accuratel
y and fairly reflect the transactions and dispositions
of
the
assets
of
the
entity
;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of
financial
statement
s
in
accordance with accounting
principle
s
generally accepted in the United
State
s
of
America
,
and that
r
e
ceipts and expenditures
o
f
the entity are being made only in accordance with
authori
z
ations
of
management
and those charged with
governance
;
and
(3
)
pro
v
ide reasonable assurance regarding
prevention
,
or timely detection and
correction
of
unauthorized
acquisition
,
use
,
or disposition
of
the entity's assets that could have a material effect on the
financial statements.
Because
of
inherent
limitation
s
,
internal control over financial reporting may not
prevent
,
or detect and correct
misstatements.
Also
,
projections
of
an
y evaluation
o
f
effecti
v
eness to future periods are subject to the risk that controls
may become inadequate because
of
changes in conditions, or that the degree
of
compliance with
polic
i
es or
procedure
s
may
deteriorate
.
In our
opinion
,
management
'
s assertion that IFC maintained effective internal controls over financial reporting as
of
June
30
,
2016
is
fairly
stated
,
in
all material
respects
,
based on the criteria established in the Internal
C
ontrol- Integrated
Framework (2013) issued by the Committee
of
Sponsoring Organizations
of
the
Treadwa
y
Commi
s
sion
(
COSO).
We
al
s
o have audited,
in
accordance with auditing standards generally accepted in the
U
nited States
of
America
,
the
accompanying consolidated financial statements
ofIFC
,
which comprise
of
consolidated balance sheets as
of
June 30
,
2016 and 2015
,
and the related consolidated statements
of
operations
,
changes
in
capital
,
and cash flows for each
o
f
the
years
in
the three-year period ended June
30
,
2016
,
and our report dated August
4
,
2016 expressed an unmodified
opinion on those consolidated financial statements.
August
4
,
2016
KP
MG LLP
is
a
De
la
ware
l
imited
l
iabi
l
ity
partnershi
p
,
the
U.S.
mem
b
er firm of
KPM
G
Internationa
l
C
oo
p
e
r
ative
{"KP
MG
I
ntern
a
tion
a
l
"
}
,
a
Swiss
entity
.
Page 43
Page 44
INTERNATIONAL FINANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
as of June 30, 2016 and June 30, 2015
(US$ millions)
2016
2015
Assets
Cash and due from banks………………………………………………………………………….……….
$
1,391
$
1,509
Time deposits – Note C…..................................................................................................................
13,114
7,509
Trading securities - Note C and R……………..……………………………………………….................
.
31,212
34,731
Securities purchased under resale agreements and receivable
for cash collateral pledged - Note C and W….………………………………………….....................
495
68
Investments - Notes B, D, E, F, G, R and T
Loans
($962 at June 30, 2016, $784 at June 30, 2015 at fair value;
net of reserve against losses of $1,775 at June 30, 2016, $1,743 at June 30, 2015)
- Notes D, E and R......................................................................................................................
21,868
21,336
Equity investments
($9,443 at June 30, 2016, $10,253 at June 30, 2015 at fair value) - Notes B, D, G and R
12,588
13,503
Debt securities - Notes D, F and R ………………………………………………………………………
2,900
2,739
Total investments ………………………………………………………..……………………………...
37,356
37,578
Derivative assets - Notes Q, R and W………………………………………………………………….....
3,695
3,255
Receivables and other assets – Note J………………………………………………………..…............
3,171
2,898
Total assets ……………………………………………………..……………………………………….
$
90,434
$
87,548
Liabilities and capital
Liabilities
Securities sold under repurchase agreements and payable
for cash collateral received - Note C and W..…………………………………….……………...........
$
4,143
$
4,695
Borrowings outstanding - Note K and R
From market and other sources at amortized cost …..……………………………………………….
2,061
1,587
From market sources at fair value ……………………………………………………….…………….
51,777
48,329
From International Development Association at fair value …......…………………...…….…….….
1,099
1,136
From International Bank for Reconstruction and Development at amortized cost …………..……
205
213
Total borrowings ……………………………………………………………………………….…….....
55,142
51,265
Derivative liabilities - Notes Q, R and W…………………………………………...………………..…...
3,952
4,225
Payables and other liabilities – Note L……………………………….…………………….…................
4,431
2,937
Total liabilities …………………………………………………….……………………………….……..
67,668
63,122
Capital
Capital stock, authorized (2,580,000 at June 30, 2016 and June 30, 2015)
shares of $1,000 par value each - Note M
Subscribed and paid-in …………………………………………………………………………………
2,566
2,566
Accumulated other comprehensive (loss) income - Note O …………………………………………...
(431)
1,197
Retained earnings - Note O …………………………………………………………….………………...
20,608
20,641
Total IFC capital ……………………………………………………………………….……………….
22,743
24,404
Non-controlling interests ……………………………………………………………….…………………
23
22
Total capital ………………………………………………………………………….………………….
22,766
24,426
Total liabilities and capital ……………………………………………………….…………………...
$
90,434
$
87,548
The notes to the Consolidated Financial Statements are an integral part of these statements.
Page 45
INTERNATIONAL FINANCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
for each of the three years ended June 30, 2016
(US$ millions)
2016
2015
2014
Income from investments
Income from loans and guarantees, including realized gains and losses
on loans and associated derivatives - Note E ….............................................................
$
1,126
$
1,123
$
1,065
Provision for losses on loans, guarantees and other receivables - Note E..........................
(359)
(171)
(88)
Income from equity investments and associated derivatives - Note G…………..................
518
427
1,289
Income from debt securities, including realized gains and losses on debt
securities and associated derivatives - Note F…………………………………….……......
129
132
89
Total income from investments....................................................................................
1,414
1,511
2,355
Income from liquid asset trading activities - Note C.................................................................
504
467
599
Charges on borrowings – Note K……………………………………………………….................
(409)
(258)
(196)
Income from investments and liquid asset trading activities,
after charges on borrowings.........................................................................................
1,509
1,720
2,758
Other income
Advisory services income.....................................................................................................
266
244
254
Service fees..........................................................................................................................
117
137
75
Other - Note B and N............................................................................................................
118
124
132
Total other income.........................................................................................................
501
505
461
Other expenses
Administrative expenses – Note X........................................................................................
(933)
(901)
(888)
Advisory services expenses..................................................................................................
(308)
(285)
(324)
Expense from pension and other postretirement benefit plans - Note V..............................
(185)
(197)
(173)
Other - Note B......................................................................................................................
(38)
(40)
(33)
Total other expenses........................................................................................................
(1,464)
(1,423)
(1,418)
Foreign currency transaction gains (losses) on non-trading activities......................................
(46)
53
(19)
Income before net unrealized gains and losses on non-trading
financial instruments accounted for at fair value, grants to IDA and
net gains and losses attributable to non-controlling
interests...........................................................................................................................
500
855
1,782
Net unrealized losses on non-trading financial instruments
accounted for at fair value - Note P...................................................................................
(204)
(106)
(43)
Income before grants to IDA............................................................................................
296
749
1,739
Grants to IDA - Note O……………………………………………………………………………….
(330)
(340)
(251)
Net (loss) income ….........................................................................................................
(34)
409
1,488
Net losses (gains) attributable to non-controlling interests.......................................................
1
36
(5)
Net (loss) income attributable to IFC………………………………….…………………......
$
(33)
$
445
$
1,483
The notes to the Consolidated Financial Statements are an integral part of these statements.
Page 46
INTERNATIONAL FINANCE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
for each of the three years ended June 30, 2016
(US$ millions)
2016
2015
2014
Net (loss) income attributable to IFC……………..……..……………..………………..
$
(33)
$
445
$
1,483
Other comprehensive (loss) income
Unrealized gains and losses on debt securities
Net unrealized (losses) gains on available-for-sale debt securities
arising during the period..........................................................................................
(77)
(72)
61
Reclassification adjustment for realized gains included in net income
(income from debt securities and realized gains and losses
on debt securities and associated derivatives)......................................................
(35)
(40)
(29)
Reclassification adjustment for other-than-temporary impairments
included in net income (income from debt securities and realized
gains and losses on debt securities and associated derivatives)..........................
45
33
13
Net unrealized (losses) gains on debt securities.............................................
(67)
(79)
45
Unrealized gains and losses on equity investments
Net unrealized (losses) gains on equity investments arising
during the period.......................................................................................................
(516)
268
654
Reclassification adjustment for realized gains included in net income
(income from equity investments and associated derivatives).................................
(641)
(774)
(473)
Reclassification adjustment for other-than-temporary impairments
included in net income (income from equity investments
and associated derivatives)....................................................................................
360
381
161
Net unrealized (losses) gains on equity investments.....................................
(797)
(125)
342
Net unrecognized net actuarial losses and unrecognized
prior service credits on benefit plans - Note V...................................................
(764)
162
(269)
Total other comprehensive (loss) income................................................................
(1,628)
(42)
118
Total comprehensive (loss) income attributable to IFC.......................................
$
(1,661)
$
403
$
1,601
The notes to the Consolidated Financial Statements are an integral part of these statements.
Page 47
INTERNATIONAL FINANCE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
for each of the three years ended June 30, 2016
(US$ millions)
Attributable to IFC
Undesignated
retained
earnings
Designated
retained
Earnings
Total
retained
earnings
Accumulated
other
comprehensive
income (loss) -
Note O
Capital
stock
Total IFC
capital
Non-
controlling
interests
Total
capital
At June 30, 2013
$
18,435
$
278
$
18,713
$
1,121
$
2,403
$
22,237
$
38
$
22,275
Year ended
June 30, 2014
Net income attributable
to IFC
1,483
1,483
1,483
1,483
Other comprehensive
income
118
118
118
Payments received for
IFC capital stock
subscribed
99
99
99
Designation of retained
earnings - Note O
(251)
251
-
-
-
Expenditures against
designated retained
earnings - Note O
335
(335)
-
-
-
Non-controlling
interests issued
10
10
Net gains attributable to
non-controlling
interests
5
5
At June 30, 2014
$
20,002
$
194
$
20,196
$
1,239
$
2,502
$
23,937
$
53
$
23,990
Year ended June 30,
2015
Net income attributable
to IFC
445
445
445
445
Other comprehensive
loss
(42)
(42)
(42)
Payments received for
IFC capital stock
Subscribed
64
64
64
Designations of retained
earnings - Note O
(398)
398
-
-
-
Expenditures against
designated retained
earnings - Note O
408
(408)
-
-
-
Non-controlling interests
issued
5
5
Net losses attributable to
non-controlling
interests
(36)
(36)
At June 30, 2015
$
20,457
$
184
$
20,641
$
1,197
$
2,566
$
24,404
$
22
$
24,426
The notes to the Consolidated Financial Statements are an integral part of these statements.
Page 48
INTERNATIONAL FINANCE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
for each of the three years ended June 30, 2016
(US$ millions)
Attributable to IFC
Undesignated
retained
earnings
Designated
retained
Earnings
Total
retained
earnings
Accumulated
other
comprehensive
income (loss) -
Note O
Capital
stock
Total IFC
capital
Non-
controlling
interests
Total
capital
At June 30, 2015
$
20,457
$
184
$
20,641
$
1,197
$
2,566
$
24,404
$
22
$
24,426
Year ended June 30,
2016
Net loss attributable to
IFC
(33)
(33)
(33)
(33)
Other comprehensive
loss
(1,628)
(1,628)
(1,628)
Payments received for
IFC capital stock
Subscribed
-
-
-
Designations of retained
earnings - Note O
(344)
344
-
-
-
Expenditures against
designated retained
earnings - Note O
395
(395)
-
-
-
Non-controlling interests
issued
2
2
Net losses attributable to
non-controlling
interests
(1)
(1)
At June 30, 2016
$
20,475
$
133
$
20,608
$
(431)
$
2,566
$
22,743
$
23
$
22,766
The notes to the Consolidated Financial Statements are an integral part of these statements.
Page 49
INTERNATIONAL FINANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for each of the three years ended June 30, 2016
(US$ millions)
2016
2015
2014
Cash flows from investing activities
Loan disbursements ………………………..………………………………….…...................
$
(7,248)
$
(6,359)
$
(6,702)
Investments in equity securities ………………………………………………….……………
(1,929)
(2,299)
(1,528)
Investments in debt securities ………………………………………………………………...
(775)
(600)
(669)
Loan repayments ………………………………………………………………………….........
5,988
6,269
4,925
Debt securities repayments …………………………………………………………………....
292
256
244
Proceeds from sales of loans ……………………………………….…….............................
-
19
2
Proceeds from sales of equity investments ……………………………………….…….......
2,297
2,301
1,810
Proceeds from sales of debt securities ……………………………………………….………
141
110
13
Net cash used in investing activities.………………………...…………………………
(1,234)
(303)
(1,905)
Cash flows from financing activities
Medium and long-term borrowings
Issuance ………………………………………………………………………….……………
15,462
15,462
15,515
Retirement ……………………………………………………………………………..………
(10,981)
(9,290)
(11,226)
Medium and long-term borrowings related derivatives, net ………………………………
(1,189)
(688)
(137)
Short-term borrowings, net ……………………………………………………..……………...
(434)
(286)
(106)
Capital subscriptions ……………………………………………………………………………
-
64
99
Non-controlling interests issued …………………………………………….…………………
2
5
10
Net cash provided by financing activities ……………………………………..………
2,860
5,267
4,155
Cash flows from operating activities
Net (loss) income attributable to IFC…..………………………………………………...……
(33)
445
1,483
Add: Net (losses) gains attributable to non-controlling interests ………………...…..…….
(1)
(36)
5
Net (loss) income…...………………………………………………………………...…………
(34)
409
1,488
Adjustments to reconcile net income or loss to net cash used in operating activities:
Realized gains on loans and associated derivatives, net …………………………………
(2)
(57)
(9)
Realized gains on debt securities and associated derivatives, net ………………………
(39)
(46)
(29)
Gains on equity investments and related derivatives, net …………………………...……
(1,013)
(886)
(1,269)
Provision for losses on loans, guarantees and other receivables………………...………
359
171
88
Other-than-temporary impairments on debt securities ……………………………………
45
33
13
Other-than-temporary impairments on equity investments……………………………......
744
732
268
Net premiums received at issuance of borrowings…………………………………..…….
4
13
4
Net discounts paid on retirement of borrowings…………………………………………….
(83)
(5)
(5)
Net realized gains on extinguishment of borrowings ………………………………….......
(6)
(2)
(3)
Foreign currency transaction gains and losses on non-trading activities ……...………..
46
(53)
19
Net unrealized losses on non-trading financial instruments
accounted for at fair value …………………………………………………………………
204
106
43
Change in accrued income on loans, time deposits and securities …………..…………
(61)
(69)
(45)
Change in payables and other liabilities ……………………………………………………
743
(163)
1,179
Change in receivables and other assets ……………………………………………………
(279)
(197)
(63)
Change in trading securities and securities purchased and sold under
resale and repurchase agreements ………………………………………………………
2,504
(3,245)
(3,418)
Net cash provided by (used in) operating activities………………………...………..
3,132
(3,259)
(1,739)
Change in cash and cash equivalents……………………………………………………….…
4,758
1,705
511
Effect of exchange rate changes on cash and cash equivalents……………………………
729
578
(281)
Net change in cash and cash equivalents………………………………………………...……
5,487
2,283
230
Beginning cash and cash equivalents………………………………………………………..…
9,018
6,735
6,505
Ending cash and cash equivalents…………………………………………………………..
$
14,505
$
9,018
$
6,735
Composition of cash and cash equivalents
Cash and due from banks …………………………………………………………………..….
$
1,391
$
1,509
$
819
Time deposits ………………………………………………………………………………..…..
13,114
7,509
5,916
Total cash and cash equivalents………………………………………………………..……
$
14,505
$
9,018
$
6,735
The notes to the Consolidated Financial Statements are an integral part of these statements.
Page 50
INTERNATIONAL FINANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for each of the three years ended June 30, 2016
(US$ millions)
2016
2015
2014
Supplemental disclosure
Change in ending balances resulting from currency exchange rate fluctuations:
Loans outstanding …………………………………………................................
$
(271)
$
(1,076)
$
68
Debt securities …………………………………………………………………….
(49)
(115)
(8)
Loan and debt security-related currency swaps ……………………………….
335
1,195
(19)
Borrowings …………………………………………………………………………
368
4,129
(269)
Borrowing-related currency swaps ………………………………………………
(190)
(3,895)
236
Charges on borrowings paid, net …………………………………………………..
$
413
$
237
$
200
Non-cash items:
Loan and debt security conversion to equity, net …………………………......
$
52
$
210
$
18
The notes to the Consolidated Financial Statements are an integral part of these statements.
Page 51
INTERNATIONAL FINANCE CORPORATION
CONSOLIDATED STATEMENT OF CAPITAL STOCK
AND VOTING POWER
as of June 30, 2016 (US$ thousands)
Members
Capital Stock
Voting Power
Amount
paid
Percent
of total
Number
of votes
Percent
of total
Afghanistan.............................
111
*
931
0.03
Albania....................................
1,302
0.05
2,122
0.08
Algeria.....................................
5,784
0.23
6,604
0.24
Angola.....................................
1,481
0.06
2,301
0.08
Antigua and Barbuda...............
13
*
833
0.03
Argentina.................................
42,405
1.65
43,225
1.59
Armenia...................................
992
0.04
1,812
0.07
Australia..................................
47,329
1.84
48,149
1.77
Austria.....................................
19,741
0.77
20,561
0.76
Azerbaijan...............................
2,367
0.09
3,187
0.12
Bahamas, The………………...
335
0.01
1,155
0.04
Bahrain…………………………
1,746
0.07
2,566
0.09
Bangladesh……………………
9,632
0.38
10,452
0.38
Barbados………………………
361
0.01
1,181
0.04
Belarus....................................
5,267
0.21
6,087
0.22
Belgium...................................
50,610
1.97
51,430
1.89
Belize......................................
101
*
921
0.03
Benin…………………………...
119
*
939
0.03
Bhutan………………………….
720
0.03
1,540
0.06
Bolivia………………………….
1,902
0.07
2,722
0.10
Bosnia and Herzegovina…….
620
0.02
1,440
0.05
Botswana………………………
113
*
933
0.03
Brazil…………………………...
55,585
2.17
56,405
2.08
Bulgaria………………………..
4,934
0.19
5,754
0.21
Burkina Faso...........................
836
0.03
1,656
0.06
Burundi....................................
100
*
920
0.03
Cabo Verde……………………
15
*
835
0.03
Cambodia................................
339
0.01
1,159
0.04
Cameroon...............................
885
0.03
1,705
0.06
Canada………………………...
81,342
3.17
82,162
3.02
Central African Republic…….
119
*
939
0.03
Chad……………………………
1,364
0.05
2,184
0.08
Chile……………………………
12,647
0.49
13,467
0.50
China…………………………..
61,756
2.41
62,576
2.30
Colombia………………………
13,658
0.53
14,478
0.53
Comoros……………………….
14
*
834
0.03
Congo, Dem. Rep. of………..
2,159
0.08
2,979
0.11
Congo, Republic of…………...
131
0.01
951
0.04
Costa Rica..............................
952
0.04
1,772
0.07
Côte d'Ivoire............................
3,544
0.14
4,364
0.16
Croatia....................................
2,882
0.11
3,702
0.14
Cyprus………………………….
2,139
0.08
2,959
0.11
Czech Republic……………….
8,913
0.35
9,733
0.36
Denmark……………………….
18,554
0.72
19,374
0.71
Djibouti…………………………
21
*
841
0.03
Dominica.................................
42
*
862
0.03
Dominican Republic................
1,187
0.05
2,007
0.07
Ecuador...................................
2,161
0.08
2,981
0.11
Egypt, Arab Republic of..........
13,380
0.52
14,200
0.52
El Salvador..............................
29
*
849
0.03
Equatorial Guinea...................
43
*
863
0.03
Eritrea.....................................
935
0.04
1,755
0.06
Estonia....................................
1,434
0.06
2,254
0.08
Ethiopia………………………...
127
*
947
0.03
Fiji………………………………
287
0.01
1,107
0.04
Finland…………………………
15,697
0.61
16,517
0.61
France………………………….
121,015
4.72
121,835
4.48
Gabon………………………….
1,268
0.05
2,088
0.08
Gambia, The…………………..
94
*
914
0.03
Georgia………………………...
1,380
0.05
2,200
0.08
Germany……………………….
128,908
5.02
129,728
4.77
Ghana………………………….
5,546
0.22
6,366
0.23
Greece....................................
6,898
0.27
7,718
0.28
Grenada..................................
74
*
894
0.03
Guatemala..............................
1,084
0.04
1,904
0.07
Guinea....................................
339
0.01
1,159
0.04
Guinea-Bissau........................
18
*
838
0.03
Guyana………………………...
1,392
0.05
2,212
0.08
Haiti…………………………….
822
0.03
1,642
0.06
Honduras………………………
495
0.02
1,315
0.05
Hungary……………………….
11,771
0.46
12,591
0.46
Iceland…………………………
42
*
862
0.03
India…………………………….
102,947
4.01
103,767
3.82
Indonesia………………………
31,602
1.23
32,422
1.19
Iran, Islamic Republic of……..
1,444
0.06
2,264
0.08
Iraq……………………………..
147
0.01
967
0.04
Ireland………………………….
1,290
0.05
2,110
0.08
Israel……………………………
2,135
0.08
2,955
0.11
Italy…………………………….
81,342
3.17
82,162
3.02
Jamaica………………………..
4,282
0.17
5,102
0.19
Japan…………………………..
162,534
6.33
163,354
6.01
Jordan………………………….
941
0.04
1,761
0.06
Kazakhstan……………………
4,637
0.18
5,457
0.20
Kenya………………………….
4,041
0.16
4,861
0.18
Kiribati…………………………
12
*
832
0.03
Korea, Republic of……………
28,148
1.10
28,968
1.07
Kosovo…………………………
1,454
0.06
2,274
0.08
Kuwait………………………….
15,073
0.59
15,893
0.58
Kyrgyz Republic………………
1,720
0.07
2,540
0.09
Lao People's Dem. Rep.……..
278
0.01
1,098
0.04
Latvia…………………………..
2,150
0.08
2,970
0.11
Lebanon………………………..
135
0.01
955
0.04
* Less than .005 percent
+ May differ from the sum of the individual percentages shown because of rounding
Members
Capital Stock
Voting Power
Amount
paid
Percent
of total
Number of
votes
Percent
of total
Lesotho ………………………...
71
*
891
0.03
Liberia ………………………….
83
*
903
0.03
Libya ……………………………
55
*
875
0.03
Lithuania ……………………….
2,341
0.09
3,161
0.12
Luxembourg……………………
2,139
0.08
2,959
0.11
Macedonia, FYR of …………...
536
0.02
1,356
0.05
Madagascar …………………...
432
0.02
1,252
0.05
Malawi ………………………….
1,822
0.07
2,642
0.10
Malaysia ……………………….
16,606
0.65
17,426
0.64
Maldives ……………………….
16
*
836
0.03
Mali ……………………………..
451
0.02
1,271
0.05
Malta ……………………………
1,615
0.06
2,435
0.09
Marshall Islands ………………
663
0.03
1,483
0.05
Mauritania ……………………..
214
0.01
1,034
0.04
Mauritius ……………………….
1,665
0.06
2,485
0.09
Mexico ………………………….
30,532
1.19
31,352
1.15
Micronesia, Fed. States of……
744
0.03
1,564
0.06
Moldova ………………………..
1,192
0.05
2,012
0.07
Mongolia ……………………….
144
0.01
964
0.04
Montenegro ……………………
1,035
0.04
1,855
0.07
Morocco ………………………..
9,635
0.38
10,455
0.38
Mozambique …………………..
322
0.01
1,142
0.04
Myanmar ……………………….
666
0.03
1,486
0.05
Namibia ………………………..
404
0.02
1,224
0.05
Nepal …………………………...
822
0.03
1,642
0.06
Netherlands ……………………
56,131
2.19
56,951
2.10
New Zealand …………………..
3,583
0.14
4,403
0.16
Nicaragua ……………………...
715
0.03
1,535
0.06
Niger ……………………………
147
0.01
967
0.04
Nigeria ………………………….
27,672
1.08
28,492
1.05
Norway …………………………
17,599
0.69
18,419
0.68
Oman …………………………..
1,187
0.05
2,007
0.07
Pakistan ………………………..
21,292
0.83
22,112
0.81
Palau …………………………...
25
*
845
0.03
Panama ………………………..
1,007
0.04
1,827
0.07
Papua New Guinea …………..
1,147
0.04
1,967
0.07
Paraguay ………………………
436
0.02
1,256
0.05
Peru …………………………….
8,373
0.33
9,193
0.34
Philippines ……………………..
13,658
0.53
14,478
0.53
Poland ………………………….
7,605
0.30
8,425
0.31
Portugal ………………………..
8,324
0.32
9,144
0.34
Qatar …………………………...
1,650
0.06
2,470
0.09
Romania ……………………….
4,278
0.17
5,098
0.19
Russian Federation …………..
102,853
4.01
103,673
3.82
Rwanda ………………………..
306
0.01
1,126
0.04
Samoa ………………………….
35
*
855
0.03
Sao Tome and Principe ………
439
0.02
1,259
0.05
Saudi Arabia …………………..
51,038
1.99
51,858
1.91
Senegal ………………………..
2,299
0.09
3,119
0.11
Serbia …………………………..
1,803
0.07
2,623
0.10
Seychelles ……………………..
27
*
847
0.03
Sierra Leone …………………..
223
0.01
1,043
0.04
Singapore ……………………...
177
0.01
997
0.04
Slovak Republic ……………….
4,457
0.17
5,277
0.19
Slovenia ………………………..
1,585
0.06
2,405
0.09
Solomon Islands ………………
37
*
857
0.03
Somalia ………………………...
83
*
903
0.03
South Africa ……………………
17,418
0.68
18,238
0.67
South Sudan …………………..
1,880
0.07
2,700
0.10
Spain …………………………...
37,026
1.44
37,846
1.39
Sri Lanka ………………………
7,491
0.29
8,311
0.31
St. Kitts and Nevis ……………
638
0.02
1,458
0.05
St. Lucia ………………………..
74
*
894
0.03
Sudan …………………………..
111
*
931
0.03
Suriname ………………………
620
0.02
1,440
0.05
Swaziland ……………………...
684
0.03
1,504
0.06
Sweden ………………………...
26,876
1.05
27,696
1.02
Switzerland …………………….
44,063
1.72
44,883
1.65
Syrian Arab Republic …………
194
0.01
1,014
0.04
Tajikistan ………………………
1,212
0.05
2,032
0.07
Tanzania ……………………….
1,003
0.04
1,823
0.07
Thailand ………………………..
11,781
0.46
12,601
0.46
Timor-Leste ……………………
777
0.03
1,597
0.06
Togo ……………………………
808
0.03
1,628
0.06
Tonga …………………………..
34
*
854
0.03
Trinidad and Tobago …………
4,112
0.16
4,932
0.18
Tunisia …………………………
3,566
0.14
4,386
0.16
Turkey ………………………….
15,837
0.62
16,657
0.61
Turkmenistan ………………….
810
0.03
1,630
0.06
Uganda ………………………...
735
0.03
1,555
0.06
Ukraine …………………………
10,159
0.40
10,979
0.40
United Arab Emirates ………...
4,033
0.16
4,853
0.18
United Kingdom ……………….
121,015
4.72
121,835
4.48
United States ………………….
569,379
22.19
570,199
20.99
Uruguay ………………………..
3,569
0.14
4,389
0.16
Uzbekistan …………………….
3,873
0.15
4,693
0.17
Vanuatu ………………………..
55
*
875
0.03
Venezuela, Rep. Boliv. de …..
27,588
1.08
28,408
1.05
Vietnam ………………………..
446
0.02
1,266
0.05
Yemen, Republic of …………..
715
0.03
1,535
0.06
Zambia …………………………
1,286
0.05
2,106
0.08
Zimbabwe ……………………..
3,215
0.13
4,035
0.15
Total June 30, 2016
2,566,199
100.00+
2,717,079
100.00+
Total June 30, 2015
2,566,199
100.00+
2,717,079
100.00+
The notes to the Consolidated Financial Statements are an integral part of these statements.
Page 52
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PURPOSE
The International Finance Corporation (IFC), an international organization, was established in 1956 to further economic development in its member
countries by encouraging the growth of private enterprise. IFC is a member of the World Bank Group (WBG), which also comprises the International
Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the Multilateral Investment Guarantee Agency
(MIGA), and the International Centre for Settlement of Investment Disputes (ICSID). Each member is legally and financially independent. Transactions
with other World Bank Group members are disclosed in the notes that follow. IFC’s activities are closely coordinated with and complement the overall
development objectives of the other World Bank Group institutions. IFC, together with private investors, assists in financing the establishment,
improvement and expansion of private sector enterprises by making loans, equity investments and investments in debt securities where sufficient
private capital is not otherwise available on reasonable terms. IFC’s share capital is provided by its member countries. It raises most of the funds for
its investment activities through the issuance of notes, bonds and other debt securities in the international capital markets. IFC also plays a catalytic
role in mobilizing additional funding from other investors and lenders through parallel loans, loan participations, partial credit guarantees,
securitizations, loan sales, risk sharing facilities, and fund investments through the IFC Asset Management Company, LLC and other IFC crisis
initiatives. In addition to project finance and mobilization, IFC offers an array of financial and technical advisory services to private businesses in the
developing world to increase their chances of success. It also advises governments on how to create an environment hospitable to the growth of
private enterprise and foreign investment.
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING AND RELATED POLICIES
The Consolidated Financial Statements include the financial statements of IFC and consolidated subsidiaries as detailed in Note B. The accounting
and reporting policies of IFC conform with accounting principles generally accepted in the United States of America (US GAAP). In the opinion of
management, the Consolidated Financial Statements reflect all adjustments necessary for the fair presentation of IFC’s financial position and results
of operation.
Consolidated Financial Statements presentation – Certain amounts in prior years have been changed to conform to the current year’s presentation.
Advisory services – Funding received for IFC advisory services from governments and other donors are recognized as contribution revenue when
the conditions on which they depend are substantially met. Advisory services expenses are recognized in the period incurred. Advisory client fees and
administration fees are recognized as income when earned. See Notes L and N.
Functional currency – IFC’s functional currency is the United States dollar (US dollars or $).
Use of estimates – The preparation of the Consolidated Financial Statements requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements
and the reported amounts of income and expense during the reporting periods. Actual results could differ from these estimates. A significant degree
of judgment has been used in the determination of: the reserve against losses on loans and impairment of debt securities and equity investments;
estimated fair values of financial instruments accounted for at fair value (including equity investments, debt securities, loans, trading securities and
derivative instruments); projected benefit obligations, fair value of pension and other postretirement benefit plan assets, and net periodic pension
income or expense. There are inherent risks and uncertainties related to IFC’s operations. The possibility exists that changing economic conditions
could have an adverse effect on the financial position of IFC.
IFC uses internal models to determine the fair values of derivative and other financial instruments and the aggregate level of the reserve against
losses on loans and impairment of equity investments. IFC undertakes continuous review and analysis of these models with the objective of refining
its estimates, consistent with evolving best practices appropriate to its operations. Changes in estimates resulting from refinements in the assumptions
and methodologies incorporated in the models are reflected in net income in the period in which the enhanced models are first applied.
Consolidation, non-controlling interests and variable interest entities – IFC consolidates:
i) all majority-owned subsidiaries;
ii) limited partnerships in which it is the general partner, unless the presumption of control is overcome by certain management participation or other
rights held by minority shareholders/limited partners; and
iii) variable interest entities (VIEs) for which IFC is deemed to be the VIE's primary beneficiary (together, consolidated subsidiaries).
Significant intercompany accounts and transactions are eliminated in consolidation.
Equity interests in consolidated subsidiaries held by third parties are referred to as non-controlling interests. Such interests and the amount of
consolidated net income/loss attributable to those interests are identified within IFC's consolidated balance sheet and consolidated income statement
as "non-controlling interests" and "net gains/losses attributable to non-controlling interests", respectively.
An entity is a VIE if:
i) its equity is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties;
ii) its equity investors do not have decision-making rights about the entity's operations; or
iii) its equity investors do not absorb the expected losses or receive the expected returns of the entity proportionally to their voting rights.
A variable interest is a contractual, ownership or other interest whose value changes as the fair value of the VIE's net assets change. IFC's variable
interests in VIEs arise from financial instruments, service contracts, guarantees, leases or other monetary interests in those entities.
IFC is considered to be the primary beneficiary of a VIE if it has the power to direct the VIE's activities that most significantly impact its economic
performance and the obligation to absorb losses of or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Page 53
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Prior to the adoption, effective July 1, 2015, of the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2015-02,
Amendments to the Consolidation Analysis, IFC was considered to be the primary beneficiary of a VIE if it had the power to direct the VIE's activities
that most significantly impact its economic performance and the obligation to absorb losses of or the right to receive benefits from the VIE that could
potentially have been significant to the VIE unless:
i) the entity had the attributes of an investment company or for which it is industry practice to account for their assets at fair value through earnings;
ii) IFC had an explicit or implicit obligation to fund losses of the entity that could potentially have been significant to that entity; and
iii) the entity was a securitization vehicle, an asset-backed financing entity, or an entity that was formerly considered a qualifying special purpose
entity, as well as entities that were required to comply with or operate in accordance with requirements that are similar to those included in Rule
2a-7 of the Investment Company Act of 1940.
In those cases, IFC was considered to be the primary beneficiary if it would absorb the majority of the VIE’s expected losses or expected residual
returns. See “Recently adopted accounting standards” in this Note A and Note M for more information regarding the adoption of ASU 2015-02. IFC
has a number of investments in VIEs that it manages and supervises in a manner consistent with other portfolio investments.
Fair Value Option and Fair Value Measurements – IFC has adopted FASB Accounting Standards Codification (ASC) Topic 820, Fair Value
Measurements and Disclosures (ASC 820) and the Fair Value Option subsections of ASC Topic 825, Financial Instruments (ASC 825 or the Fair
Value Option). ASC 820 defines fair value, establishes a framework for measuring fair value and a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value into three broad levels and applies to all items measured at fair value, including items for which
impairment measures are based on fair value. ASC 825 permits the measurement of eligible financial assets, financial liabilities and firm commitments
at fair value on an instrument-by-instrument basis, that are not otherwise permitted to be accounted for at fair value under other accounting standards.
The election to use the Fair Value Option is available when an entity first recognizes a financial asset or liability or upon entering into a firm commitment.
The Fair Value Option
IFC has elected the Fair Value Option for the following financial assets and financial liabilities:
i) investees in which IFC has significant influence:
a) direct investments in securities issued by the investee and, if IFC would have otherwise been required to apply equity method accounting,
all other financial interests in the investee (e.g., loans);
b) investments in Limited Liability Partnerships (LLPs), Limited Liability Companies (LLCs) and other investment fund structures that maintain
specific ownership accounts and loans or guarantees to such;
ii) direct equity investments representing 20 percent or more ownership but in which IFC does not have significant influence;
iii) all equity interests in private equity funds;
iv) certain hybrid instruments in the investment portfolio;
v) all market borrowings that are economically hedged with financial instruments that are accounted for at fair value with changes therein reported
in earnings; and
vi) borrowings from IDA.
All borrowings for which the Fair Value Option has been elected are economically hedged with derivative or other financial instruments that are
accounted for at fair value with changes in fair value reported in earnings as such changes occur. Measuring at fair value those borrowings for which
the Fair Value Option has been elected mitigates the earnings volatility that would otherwise occur, due to measuring the borrowings and related
economic hedges differently, without having to apply ASC Topic 815’s, Derivatives and Hedging (ASC 815) complex hedge accounting requirements.
Measuring at fair value those equity investments that would otherwise require equity method accounting simplifies the accounting and renders a
carrying amount on the consolidated balance sheet based on a measure (fair value) that IFC considers preferable to equity method accounting. For
the investments that otherwise would require equity method accounting for which the Fair Value Option is elected, ASC 825 requires the Fair Value
Option to also be applied to all eligible financial interests in the same entity. IFC has disbursed loans to certain of such investees; therefore, the Fair
Value Option is also applied to those loans. IFC elected the Fair Value Option for equity investments with 20% or more ownership where it does not
have significant influence so that the same measurement method (fair value) will be applied to all equity investments with more than 20% ownership.
The FVO has been elected for certain hybrid instruments in the investment portfolio that would otherwise require bifurcation of the host and embedded
derivative. Election of the FVO for these instruments eliminates the bifurcation requirement.
Equity securities held by consolidated subsidiaries that are investment companies
Pursuant to ASC Topic 946, Financial Services - Investment Companies (ASC 946) and ASC Topic 810, Consolidation, equity securities held by
consolidated subsidiaries that are investment companies are accounted for at fair value, with unrealized gains and losses reported in earnings.
Fair Value Measurements
ASC 820 defines fair value as the price that would be received to sell an asset or transfer a liability (i.e., an exit price) in an orderly transaction between
independent, knowledgeable and willing market participants at the measurement date assuming the transaction occurs in the entity’s principal (or
most advantageous) market. Fair value must be based on assumptions market participants would use (inputs) in determining the price and measured
assuming that market participants act in their economic best interest, therefore, their fair values are determined based on a transaction to sell or
transfer the asset or liability on a standalone basis. Under ASC 820, fair value measurements are not adjusted for transaction costs.
Notwithstanding the following paragraph, pursuant to ASC Topic 320, Investments - Debt and Equity Securities (ASC 320), IFC reports equity
investments that are listed in markets that provide readily determinable fair values at fair value, with unrealized gains and losses being reported in
other comprehensive income.
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ASC 820 established a fair value hierarchy which gives the highest priority to unadjusted quoted prices in active markets for identical unrestricted
assets and liabilities (Level 1), the next highest priority to observable market based inputs or unobservable inputs that are corroborated by market
data from independent sources (Level 2) and the lowest priority to unobservable inputs that are not corroborated by market data (Level 3). Fair value
measurements are required to maximize the use of available observable inputs.
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. It
includes IFC’s debt securities and equity investments, which are listed in markets that provide readily determinable fair values, government issues
and money market funds in the liquid assets portfolio, and market borrowings that are listed on exchanges.
Level 2: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly for substantially the
full term of the asset or liability. It includes financial instruments that are valued using models and other valuation methodologies. These models
consider various assumptions and inputs, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity and
current market and contractual pricing for the underlying asset, as well as other relevant economic measures. Substantially all of these inputs are
observable in the market place, can be derived from observable data or are supported by observable levels at which market transactions are executed.
Financial instruments categorized as Level 2 include non-exchange-traded derivatives such as interest rate swaps, cross-currency swaps, certain
asset-backed securities, as well as the majority of trading securities in the liquid asset portfolio, and the portion of IFC’s borrowings accounted for at
fair value not included in Level 1.
Level 3: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing
for situations in which there is little, if any, market activity for the asset or liability at the measurement date. It consists of financial instruments whose
fair value is estimated based on internally developed models or methodologies utilizing significant inputs that are non-observable. It also includes
financial instruments whose fair value is estimated based on price information from independent sources that cannot be corroborated by observable
market data. Level 3 includes equity and debt securities in the investment portfolios that are not listed in markets that provide readily determinable
fair values, all loans for which IFC has elected the Fair Value Option, and certain hard-to-price securities in the liquid assets portfolio.
IFC estimates the fair value of its investments in private equity funds that do not have readily determinable fair value based on the funds’ net asset
values (NAVs) per share as a practical expedient to the extent that a fund reports its investment assets at fair value and has all the attributes of an
investment company, pursuant to ASC 946. If the NAV is not as of IFC’s measurement date, IFC adjusts the most recent NAV, as necessary, to
estimate a NAV for the investment that is calculated in a manner consistent with the fair value measurement principles established by ASC 820.
Remeasurement of foreign currency transactions – Assets and liabilities not denominated in US dollars, other than disbursed equity investments,
are expressed in US dollars at the exchange rates prevailing at June 30, 2016 and June 30, 2015. Disbursed equity investments, other than those
accounted for at fair value, are expressed in US dollars at the prevailing exchange rates at the time of disbursement. Income and expenses are
recorded based on the rates of exchange prevailing at the time of the transaction. Transaction gains and losses are credited or charged to income.
Loans – IFC originates loans to facilitate project finance, restructuring, refinancing, corporate finance, and/or other developmental objectives. Loans
are recorded as assets when disbursed. Loans are generally carried at the principal amounts outstanding adjusted for net unamortized loan origination
costs and fees. It is IFC’s practice to obtain collateral security such as, but not limited to, mortgages and third-party guarantees.
Certain loans are carried at fair value in accordance with the Fair Value Option as discussed above. Unrealized gains and losses on loans accounted
for at fair value under the Fair Value Option are reported in Net unrealized gains and losses on non-trading financial instruments accounted for at
fair value on the consolidated income statement.
Certain loans originated by IFC contain income participation, prepayment and conversion features. These features are bifurcated and separately
accounted for in accordance with ASC 815 if IFC has not elected the Fair Value Option for the loan host contracts and the features meet the definition
of a derivative and are not considered to be clearly and closely related to their host loan contracts. Otherwise, these features are accounted for as
part of their host loan contracts in accordance with IFC’s accounting policies for loans as indicated herein.
Loans held for sale are carried at the lower of cost or fair value. The excess, if any, of amortized cost over fair value is accounted for as a valuation
allowance. Changes in the valuation allowance are recognized in net income as they occur.
Revenue recognition on loans – Interest income and commitment fees on loans are recorded as income on an accrual basis. Loan origination fees
and direct loan origination costs are deferred and amortized over the estimated life of the originated loan; such amortization is determined using the
interest method unless the loan is a revolving credit facility in which case amortization is determined using the straight-line method. Prepayment fees
are recorded as income when received.
IFC does not recognize income on loans where collectability is in doubt or payments of interest or principal are past due more than 60 days unless
management anticipates that collection of interest will occur in the near future. Any interest accrued on a loan placed in nonaccrual status is reversed
out of income and is thereafter recognized as income only when the actual payment is received. Interest not previously recognized but capitalized as
part of a debt restructuring is recorded as deferred income, included in the consolidated balance sheet in payables and other liabilities, and credited
to income only when the related principal is received. Such capitalized interest is considered in the computation of the reserve against losses on loans
in the consolidated balance sheet.
Reserve against losses on loans – IFC recognizes impairment on loans not carried at fair value in the consolidated balance sheet through the
reserve against losses on loans, recording a provision or release of provision for losses on loans in net income, which increases or decreases the
reserve against losses on loans. Individually impaired loans are measured based on the present value of expected future cash flows to be received,
observable market prices, or for loans that are dependent on collateral for repayment, the estimated fair value of the collateral.
The reserve against losses on loans reflects management’s estimates of both identified probable losses on individual loans (specific reserves) and
probable losses inherent in the portfolio but not specifically identifiable (portfolio reserves). The determination of identified probable losses represents
management’s judgment of the creditworthiness of the borrower. Reserves against losses are established through a review of individual loans
undertaken on a quarterly basis. IFC considers a loan as impaired when, based on current information and events, it is probable that IFC will be
unable to collect all amounts due according to the loan’s contractual terms. Information and events, with respect to the borrower and/or the economic
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and political environment in which it operates, considered in determining that a loan is impaired include, but are not limited to, the borrower’s financial
difficulties, breach of contract, bankruptcy/reorganization, credit rating downgrade as well as geopolitical conflict, financial/economic crisis, commodity
price decline, adverse local government action and natural disaster. Unidentified probable losses are the losses incurred at the reporting date that
have not yet been specifically identified. The risks inherent in the portfolio that are considered in determining unidentified probable losses are those
proven to exist by past experience and include: country systemic risk; the risk of correlation or contagion of losses between markets; uninsured and
uninsurable risks; nonperformance under guarantees and support agreements; and opacity of, or misrepresentation in, financial statements. There
were no changes, during the periods presented herein, to IFC’s accounting policies and methodologies used to estimate its reserve against loan
losses.
For purposes of providing certain disclosures about IFC’s entire reserve against losses on loans, IFC considers its entire loan portfolio to comprise
one portfolio segment. A portfolio segment is the level at which the method for estimating the reserve against losses on loans is developed and
documented.
Loans are written-off when IFC has exhausted all possible means of recovery, by reducing the reserve against losses on loans. Such reductions in
the reserve are partially offset by recoveries, if any, associated with previously written-off loans.
Equity investments – IFC invests primarily for developmental impact; IFC does not seek to take operational, controlling, or strategic equity positions
within its investees. Equity investments are acquired through direct ownership of equity instruments of investees, as a limited partner in LLPs and
LLCs, and/or as an investor in private equity funds.
Revenue recognition on equity investments – Equity investments, which are listed in markets that provide readily determinable fair values, are
accounted for as available-for-sale securities at fair value with unrealized gains and losses reported in other comprehensive income in accordance
with ASC 320. As noted above under “Fair Value Option and Fair Value Measurements”, direct equity investments and investments in LLPs and LLCs
that maintain separate ownership accounts in which IFC has significant influence, direct equity investments representing 20 percent or more ownership
but in which IFC does not have significant influence and all new equity interests in funds are accounted for at fair value under the Fair Value Option.
Direct equity investments in which IFC does not have significant influence and which are not listed in markets that provide readily determinable fair
values are carried at cost, less impairment. Notwithstanding the foregoing, equity securities held by consolidated subsidiaries that are investment
companies are accounted for at fair value, with unrealized gains and losses reported in earnings.
IFC’s investments in certain private equity funds in which IFC is deemed to have a controlling financial interest, are fully consolidated by IFC, as the
presumption of control by the fund manager or the general partner has been overcome. Certain equity investments, for which recovery of invested
capital is uncertain, are accounted for under the cost recovery method, such that receipts are first applied to recovery of invested capital and then to
income from equity investments. The cost recovery method is applied to IFC's investments in its oil and gas unincorporated joint ventures (UJVs).
IFC’s share of conditional asset retirement obligations related to investments in UJVs are recorded when the fair value of the obligations can be
reasonably estimated. The obligations are capitalized and systematically amortized over the estimated economic useful lives.
Unrealized gains and losses on equity investments accounted for at fair value under the Fair Value Option are reported in income from equity
investments and associated derivatives on the consolidated income statement. Unrealized gains and losses on equity investments listed in markets
that provide readily determinable fair values which are accounted for as available-for-sale are reported in other comprehensive income. Realized
gains on the sale or redemption of equity investments are measured against the average cost of the investments sold and are generally recorded as
income from equity investments and associated derivatives when received. Capital losses are recognized when incurred.
Dividends on listed equity investments are recorded on the ex-dividend date, and dividends on unlisted equity investments are recorded upon receipt
of notice of declaration. Realized gains on listed equity investments are recorded upon trade date, and realized gains on unlisted equity investments
are recorded upon incurring the obligation to deliver the applicable shares. Losses are recognized when incurred.
IFC enters into put and call option and warrant agreements in connection with certain equity investments; these are accounted for in accordance with
ASC 815 to the extent they meet the definition of a derivative.
Gains and losses on debt conversions and exchanges of equity interests – Loan and debt security conversions to equity interests are based
on the fair value of the equity interests received. Transfers of equity interests in exchange for equity interests in other entities and other non-cash
transactions are generally accounted for based on the fair value of the asset relinquished unless the fair value of the asset received is more clearly
evident in which case the accounting is based on the fair value of the asset received. The difference between the fair value of the asset received
and the recorded amount of the asset relinquished is recorded as a gain or loss in the income statement.
Impairment of equity investments – Equity investments accounted for at cost, less impairment and available-for-sale are assessed for impairment
each quarter. When impairment is identified, it is generally deemed to be other-than-temporary, and the equity investment is written down to the
impaired value, which becomes the new cost basis in the equity investment. Such other-than-temporary impairments are recognized in net income.
Subsequent increases in the fair value of available-for-sale equity investments are included in other comprehensive income, while subsequent
decreases in fair value, if not other-than-temporary impairment, also are included in other comprehensive income.
Debt securities – Debt securities in the investment portfolio are classified as available-for-sale and carried at fair value on the consolidated balance
sheet with unrealized gains and losses included in accumulated other comprehensive income until realized. Realized gains on sales of debt securities
and interest on debt securities is included in income from debt securities and realized gains and losses on debt securities and associated derivatives
on the consolidated income statement.
Certain debt securities are carried at fair value in accordance with the Fair Value Option as discussed above. Unrealized gains and losses on debt
securities accounted for at fair value under the Fair Value Option are reported in net unrealized gains and losses on non-trading financial instruments
accounted for at fair value on the consolidated income statement.
IFC invests in certain debt securities with conversion features; these features are accounted for in accordance with ASC 815 to the extent they meet
the definition of a derivative.
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Impairment of debt securities – In determining whether an unrealized loss on debt securities is other-than-temporary, IFC considers all relevant
information including the length of time and the extent to which fair value has been less than amortized cost, whether IFC intends to sell the debt
security or whether it is more likely than not that IFC will be required to sell the debt security, the payment structure of the obligation and the ability of
the issuer to make scheduled interest or principal payments, any changes to the ratings of a security, and relevant adverse conditions specifically
related to the security, an industry or geographic sector.
Debt securities in the investment portfolio are assessed for impairment each quarter. When impairment is identified, the entire impairment is
recognized in net income if (1) IFC intends to sell the security, or (2) it is more likely than not that IFC will be required to sell the security before
recovery. However, if IFC does not intend to sell the security and it is not more likely than not that IFC will be required to sell the security but the
security has a credit loss, the impairment charge will be separated into the credit loss component, which is recognized in net income, and the remainder
which is recorded in other comprehensive income. The impaired value becomes the new amortized cost basis of the debt security. Subsequent fair
value increases and decreases in the fair value of debt securities, if not an additional other-than-temporary impairment, are included in other
comprehensive income.
The difference between the new amortized cost basis of debt securities for which an other-than-temporary impairment has been recognized in net
income and the cash flows expected to be collected is accreted to interest income using the effective yield method. Significant subsequent increases
in the expected or actual cash flows previously expected are recognized as a prospective adjustment of the yield.
Guarantees – IFC extends financial guarantee facilities to its clients to provide credit enhancement for their debt securities and trade obligations. As
part of these financial guarantee facilities, IFC offers partial credit guarantees to clients covering, on a risk-sharing basis, client obligations on bonds
or loans. Under the terms of IFC's guarantees, IFC agrees to assume responsibility for the client’s financial obligations in the event of default by the
client (i.e., failure to pay when payment is due). Guarantees are regarded as issued when IFC commits to the guarantee. Guarantees are regarded
as outstanding when the underlying financial obligation of the client is incurred, and this date is considered to be the “inception” of the guarantee.
Guarantees are regarded as called when IFC’s obligation under the guarantee has been invoked. There are two liabilities associated with the
guarantees: (i) the stand-ready obligation to perform and (ii) the contingent liability. The fair value of the stand-ready obligation to perform is recognized
at the inception of the guarantee unless a contingent liability exists at that time or is expected to exist in the near term. The contingent liability associated
with the financial guarantee is recognized when it is probable the guarantee will be called and when the amount of guarantee called can be reasonably
estimated. When the guarantees are called, the amount disbursed is recorded as a new loan, and specific reserves against losses are established,
based on the estimated probable loss. Guarantee fees are recorded in income as the stand-ready obligation to perform is fulfilled. Commitment fees
on guarantees are recorded as income on an accrual basis. All liabilities associated with guarantees are included in payables and other liabilities, and
the receivables are included in other assets on the consolidated balance sheet.
Designations of retained earnings – IFC establishes funding mechanisms for specific Board approved purposes through designations of retained
earnings. Designations of retained earnings for grants to IDA are recorded as a transfer from undesignated retained earnings to designated retained
earnings when the designation is approved by the Board of Governors. All other designations are recorded as a transfer from undesignated retained
earnings to designated retained earnings when the designation is noted with approval by the Board of Directors. Total designations of retained earnings
are determined based on IFC’s annual income before expenditures against designated retained earnings and net unrealized gains and losses on non-
trading financial instruments accounted for at fair value in excess of $150 million, and contemplating the financial capacity and strategic priorities of
IFC.
Expenditures resulting from such designations are recorded as expenses in IFC’s consolidated income statement in the year in which they are incurred
and reduces the respective designated retained earnings for such purposes. Expenditures are deemed to have been incurred when IFC has ceded
control of the funds to the recipient. If the recipient is deemed to be controlled by IFC, the expenditure is deemed to have been incurred only when
the recipient disburses the funds to a non-related party. On occasion, recipients who are deemed to be controlled by IFC make investments. In such
cases, IFC includes those assets on its consolidated balance sheet until the recipient disposes of or transfers the asset or IFC is deemed to no longer
be in control of the recipient. These investments have had no material impact on IFC’s financial position, results of operations, or cash flows.
Investments resulting from such designations are recorded on IFC’s consolidated balance sheet in the year in which they occur, also having the effect
of reducing the respective designated retained earnings for such purposes.
Liquid asset portfolio – The liquid asset portfolio, as defined by IFC, consists of: time deposits and securities; related derivative instruments;
securities purchased under resale agreements and receivable for cash collateral pledged, securities sold under repurchase agreements and payable
for cash collateral received; receivables from sales of securities and payables for purchases of securities; and related accrued income and charges.
IFC’s liquid funds are invested in government, agency and government-sponsored agency obligations, time deposits and asset-backed, including
mortgage-backed, securities. Government and agency obligations include positions in high quality fixed rate bonds, notes, bills, and other obligations
issued or unconditionally guaranteed by governments of countries or other official entities including government agencies and instrumentalities or by
multilateral organizations. Asset-backed and mortgage-backed securities include agency and non-agency residential mortgage-backed securities,
commercial mortgage-backed securities, consumer, auto and student loan-backed securities, commercial real estate collateralized debt obligations
and collateralized loan obligations.
Securities and related derivative instruments within IFC’s liquid asset portfolio are classified as trading and are carried at fair value with any changes
in fair value reported in income from liquid asset trading activities. Interest on securities and amortization of premiums and accretion of discounts are
also reported in income from liquid asset trading activities. Gains and losses realized on the sale of trading securities are computed on a specific
security basis.
IFC classifies cash and due from banks and time deposits (collectively, cash and cash equivalents) as cash and as cash equivalents in the consolidated
statement of cash flows because they are generally readily convertible to known amounts of cash within 90 days of acquisition generally when the
original maturities for such instruments are under 90 days or in some cases are under 180 days.
Repurchase, resale and securities lending agreements – Repurchase agreements are contracts under which a party sells securities and
simultaneously agrees to repurchase the same securities at a specified future date at a fixed price. Resale agreements are contracts under which a
party purchases securities and simultaneously agrees to resell the same securities at a specified future date at a fixed price. Securities lending
agreements are similar to repurchase agreements except that the securities loaned are securities that IFC has received as collateral under unrelated
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agreements and allowed by contract to rehypothecate. Amounts due under securities lending agreements are included in securities sold under
repurchase agreements and payable for cash collateral received on the consolidated balance sheet.
It is IFC’s policy to take possession of securities purchased under resale agreements, which are primarily liquid government securities. The market
value of these securities is monitored and, within parameters defined in the agreements, additional collateral is obtained when their value declines.
IFC also monitors its exposure with respect to securities sold under repurchase agreements and, in accordance with the terms of the agreements,
requests the return of excess securities held by the counterparty when their value increases.
Repurchase, resale and securities lending agreements are accounted for as collateralized financing transactions and recorded at the amount at which
the securities were acquired or sold plus accrued interest.
Borrowings – To diversify its access to funding, and reduce its borrowing costs, IFC borrows in a variety of currencies and uses a number of borrowing
structures, including foreign exchange rate-linked, inverse floating rate and zero coupon notes. In managing the currency exposure inherent in
borrowing in a variety of currencies, generally, IFC either simultaneously converts such borrowings into variable rate US dollar borrowings through
the use of currency and interest rate swap transactions or utilizes liquid asset portfolio or debt investments denominated in the same currency to
economically hedge changes in the fair value of certain borrowings. Under certain outstanding borrowing agreements, IFC is not permitted to mortgage
or allow a lien to be placed on its assets (other than purchase money security interests) without extending equivalent security to the holders of such
borrowings.
Substantially all borrowings are carried at fair value under the Fair Value Option with changes in fair value reported in net unrealized gains and losses
on non-trading financial instruments accounted for at fair value in the consolidated income statement.
Interest on borrowings and amortization of premiums and accretion of discounts are reported in charges on borrowings.
Risk management and use of derivative instruments – IFC enters into transactions in various derivative instruments primarily for financial risk
management purposes in connection with its principal business activities, including lending, investing in debt securities and equity investments, client
risk management, borrowing, liquid asset portfolio management and asset and liability management. There are no derivatives designated as
accounting hedges.
All derivative instruments are recorded on the consolidated balance sheet at fair value as derivative assets or derivative liabilities. Where they are not
clearly and closely related to the host contract, certain derivative instruments embedded in loans, debt securities and equity investments are bifurcated
from the host contract and recorded at fair value as derivative assets or liabilities unless the hybrid instrument is accounted for at fair value with any
changes in fair value reported in income. The fair value at inception of such embedded derivatives is excluded from the carrying amount of the host
contracts on the consolidated balance sheet. Changes in fair values of derivative instruments used in the liquid asset portfolio are recorded in income
from liquid asset trading activities. Changes in fair values of derivative instruments other than those in the liquid asset portfolio and those associated
with equity investments are recorded in net unrealized gains and losses on non-trading financial instruments accounted for at fair value. The risk
management policy for each of IFC’s principal business activities and the accounting policies particular to them are described below.
Lending activities IFC’s policy is to closely match the currency, interest rate basis, and maturity of its loans and borrowings. Derivative instruments
are used to convert the cash flows from fixed rate US dollar or non-US dollar loans into variable rate US dollars.
Client risk management activities IFC enters into derivatives transactions with its clients to help them hedge their own currency, interest rate, or
commodity risk, which, in turn, improves the overall quality of IFC’s loan portfolio. To hedge the market risks that arise from these transactions with
clients, IFC enters into offsetting derivative transactions with matching terms with authorized market counterparties. Changes in fair value of all
derivatives associated with these activities are reported in net income in net unrealized gains and losses on non-trading financial instruments
accounted for at fair value.
Borrowing activities IFC issues debt securities in various capital markets with the objectives of minimizing its borrowing costs, diversifying funding
sources, and developing member countries’ capital markets, sometimes using complex structures. These structures include borrowings payable in
multiple currencies, or borrowings with principal and/or interest determined by reference to a specified index such as a stock market index, a reference
interest rate, a commodity index, or one or more foreign exchange rates. IFC generally uses derivative instruments with matching terms, primarily
currency and interest rate swaps, to convert certain of such borrowings into variable rate US dollar obligations, consistent with IFC’s matched funding
policy. IFC elects to carry at fair value, under the Fair Value Option, all market borrowings for which a derivative instrument, liquid asset portfolio
investment or debt investment is used to create an economic hedge. Changes in the fair value of such borrowings and the associated derivatives are
reported in net unrealized gains and losses on non-trading financial instruments accounted for at fair value in the consolidated income statement.
Liquid asset portfolio management activities IFC manages the interest rate, currency and other market risks associated with certain of the time
deposits and securities in its liquid asset portfolio by entering into derivative transactions to convert the cash flows from those instruments into variable
rate US dollars or by utilizing market borrowings denominated in the same currency to economically hedge changes in the fair value of certain liquid
asset portfolio investments. The derivative instruments used include short-term, over-the-counter foreign exchange forwards (covered forwards),
interest rate and currency swaps, and exchange-traded interest rate futures and options. As the entire liquid asset portfolio is classified as trading
portfolio, all securities (including derivatives) are carried at fair value with changes in fair value reported in income from liquid asset trading activities.
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Asset and liability management In addition to the risk managed in the context of its business activities detailed above, IFC faces residual market risk
in its overall asset and liability management. Residual currency risk is managed by monitoring the aggregate position in each lending currency and
reducing the net excess asset or liability position through sales or purchases of currency. Interest rate risk arising from mismatches due to write-
downs, prepayments and re-schedulings, and residual reset date mismatches is monitored by measuring the sensitivity of the present value of assets
and liabilities in each currency to each basis point change in interest rates.
IFC monitors the credit risk associated with these activities by careful assessment and monitoring of prospective and actual clients and counterparties.
In respect of liquid assets and derivatives transactions, credit risk is managed by establishing exposure limits based on the credit rating and size of
the individual counterparty. In addition, IFC has entered into master agreements with its derivative market counterparties governing derivative
transactions that contain close-out and netting provisions and collateral arrangements. Under these agreements, if the credit exposure to one of the
parties to the agreement, on a mark-to-market basis, exceeds a specified level, that party must post collateral to cover the excess, generally in the
form of liquid government securities or cash. IFC does not offset the fair value amounts of derivatives and obligations to return, or rights to receive,
cash collateral associated with these master-netting agreements.
Loan participations – IFC mobilizes funds from commercial banks and other financial institutions (Participants) by facilitating loan participations,
without recourse. These loan participations are administered and serviced by IFC on behalf of the Participants. The disbursed and outstanding
balances of loan participations that meet the applicable accounting criteria are accounted for as sales and are not included in IFC’s consolidated
balance sheet. All other loan participations are accounted for as secured borrowings and are included in loans on IFC’s consolidated balance sheet,
with the related secured borrowings included in payables and other liabilities on IFC’s consolidated balance sheet.
Pension and other postretirement benefits – IBRD has a defined benefit Staff Retirement Plan (SRP), a Retired Staff Benefits Plan (RSBP) and
a Post-Employment Benefits Plan (PEBP) that cover substantially all of its staff members as well as the staff of IFC and of MIGA.
The SRP provides regular pension benefits and includes a cash balance plan. The RSBP provides certain health and life insurance benefits to eligible
retirees. The PEBP provides pension benefits administered outside the SRP. All costs associated with these plans are allocated between IBRD, IFC,
and MIGA based upon their employees’ respective participation in the plans. In addition, IFC and MIGA reimburse IBRD for their share of any
contributions made to these plans by IBRD.
The net periodic pension and other postretirement benefit income or expense allocated to IFC is included in income or expense from pension and
other postretirement benefit plans in the consolidated income statement. IFC includes a receivable from IBRD in receivables and other assets,
representing prepaid pension and other postretirement benefit costs.
Recently adopted accounting standards – In June 2013, the FASB issued ASU 2013-08, Investment Companies (Topic 946): Amendments to the
Scope, Measurement and Disclosure Requirements (ASU 2013-08). Among other things, ASU 2013-08 amends the criteria for an entity to qualify as
an investment company under ASC Topic 946, introduces new disclosure requirements applicable to investment companies, and amends the
measurement criteria for certain investments by an investment company in another investment company. ASU 2013-08 is applicable for annual
reporting periods and interim periods within those annual periods, beginning after December 15, 2013 (which was the year ended June 30, 2015 for
IFC). IFC adopted ASU 2013-08 on July 1, 2014 with no material impact on IFC's financial position, results of operations or cash flows.
In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings,
and Disclosures (ASU 2014-11). ASU 2014-11 requires secured borrowing accounting for repurchase-to-maturity transactions, eliminates current
accounting guidance on linking repurchase financing transactions and expands disclosure requirements related to certain transfers of financial assets
that are accounted for as sales and repurchase agreements, securities lending transactions and repurchase to maturity transactions accounted for as
secured borrowings. The accounting changes and expanded disclosure requirements for certain transfers accounted as sales are applicable for the
first interim or annual reporting period beginning after December 15, 2014 (which was the interim period ended March 31, 2015 for IFC). The
disclosure requirements for certain transactions accounted for as secured borrowings are applicable for interim periods beginning after March 15,
2015 (which was the three months ended June 30, 2015 for IFC) and are reflected in Note P. IFC adopted ASU 2014-11’s accounting changes on
January 1, 2015 with no material impact on IFC’s financial position, results of operations or cash flows.
In May 2015, the FASB issued ASU No. 2015-07, Disclosure for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its
Equivalent) (ASU 2015-07). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy investments whose fair values are
measured at NAV (or its equivalent) under the practical expedient in the ASC, requires disclosure by reporting entities of the amount of investments
measured at NAV (or its equivalent) under the practical expedient, and limits the disclosure requirements all investments eligible to be measured at
NAV under the practical expedient to only those to which the practical expedient is applied. ASU 2015-07 is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2015. As permitted, IFC early adopted ASU 2015-07 effective June 30, 2015 as
reflected in Note R.
In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis (ASU 2015-02). ASU 2015-02 amends ASC Topic
810, Consolidation, by modifying the evaluation of whether limited partnerships and similar entities are VIEs; eliminating the presumption that a general
partner should consolidate a limited partnership; modifying the consolidation assessment of reporting entities that are involved with VIEs, particularly
those that have fee arrangements (with the VIE) and related party relationships; providing a scope exception from Topic 810 for reporting entities with
interests in certain money market funds. ASU 2015-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2015 (which is the year ending June 30, 2017 for IFC). As permitted, IFC early adopted ASU 2015-02 on July 1, 2015, as reflected in
Note M, with no material impact on IFC’s financial position, results of operations or cash flows.
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In November 2014, the FASB issued ASU 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a
Share Is More Akin to Debt or to Equity (ASU 2014-16). ASU 2014-16 requires, for purposes of evaluating embedded features for bifurcation under
ASU 815, the determination of the nature of a host contract issued in share form to be based on the economic characteristics and risks of the entire
hybrid instrument, including the embedded feature being evaluated. Further, the ASU stipulates that the existence or omission of any single term or
feature does not necessarily determine the economic characteristics and risks of the host. ASU 2014-16 is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2015 (which is the year ending June 30, 2017 for IFC). As permitted, IFC early adopted ASU
2014-16 on January 1, 2016 with no material impact on IFC’s financial position, results of operations or cash flows.
Accounting and financial reporting developments – In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act)
became law. The Act seeks to reform the U.S. financial regulatory system by introducing new regulators and extending regulation over new markets,
entities, and activities. The implementation of the Act is dependent on the development of various rules to clarify and interpret its requirements.
Pending the development of these rules, no impact on IFC has been determined as of June 30, 2016. IFC continues to evaluate the potential future
implications of the Act.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 replaces most existing revenue
recognition guidance by establishing a single recognition model for revenue arising from contracts with customers to deliver goods and services and
requires additional disclosure regarding those revenues - it does not change current accounting guidance for derivative contracts, investments in and
transfers of financial instruments or guarantees. ASU 2014-09 is currently applicable for annual reporting periods and interim periods within those
annual periods, beginning after December 15, 2017 (which is the year ending June 30, 2019 for IFC). IFC is currently evaluating the impact of ASU
2014-09.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Instruments - Going Concern (ASU 2014-15). ASU 2014-15 requires
reporting entities to perform interim and annual assessments of their ability to continue as a going concern within one year of the date of issuance of
the entity’s financial statements (or within one year of the date on which the financial statements are available to be issued). A reporting entity will be
required to make certain disclosures if there is substantial doubt about the entity’s ability to continue to as a going concern. ASU 2014-15 is effective
for annual periods ending after December 15, 2016 (which is the year ending June 30, 2017 for IFC) and for interim periods thereafter.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities (ASU 2016-01). ASU 2016-01
requires all investments in equity securities to be accounted for at fair value through net income. However, entities may elect to account for equity
investments that do not have readily determinable fair values at cost less impairment, as adjusted for observable price changes in orderly transactions
for the identical and similar instrument of the issuer. ASU 2016-01 will require separate presentation in other comprehensive income (OCI) the portion
of the total change in fair value resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair
value under the FVO. For public business entities, ASU 2016-01 is effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2017, (which is the year ending June 30, 2019 for IFC). ASC 2016-01’s requirements are to be adopted by means of a cumulative-
effect adjustment of the balance sheet as of the beginning of the fiscal year of adoption. Entities may adopt ASU 2016-01’s guidance relative to OCI
recognition of changes in fair value due to changes in the instrument-specific credit risk of liabilities measured under the FVO for financial statements
of fiscal years or interim periods that have not yet been issued, as of the beginning of the fiscal year of adoption – otherwise early adoption is not
permitted. IFC is currently evaluating the impact of ASU 2016-01.
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 introduces a new accounting model that will result in lessees recording
most leases on the balance sheet, aligns many of the underlying profit recognition principles with those in ASU 2014-09 and eliminates the use of
“bright line” tests currently required for determining lease classification. ASU 2016-02 is effective for fiscal years, and interim periods within the fiscal
years, beginning after December 15, 2018, (which is the year ending June 30, 2020 for IFC). Earlier adoption is permitted. IFC is currently evaluating
the impact of ASU 2016-02.
In March 2016, the FASB issued ASU 2016-06, Contingent Put and Call Options in Debt Instruments; ASU 2016-07, Simplifying the Transition to the
Equity Method of Accounting; and ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross Versus Net). ASU 2016-06
clarifies certain matters regarding the assessment required under ASC 815 of whether contingent puts and calls embedded in debt instruments require
bifurcation. ASU 2016-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, (which is the
year ended June 30, 2018 for IFC). Early adoption is permitted. ASU 2016-06 will have no material impact on IFC’s financial position, results of
operations or cash flows.
ASU 2016-07 simplifies the equity method of accounting by eliminating the requirement to retroactively apply the equity method to an investment that
subsequently qualifies for such accounting as a result of an increase in ownership and/or degree of influence. Consequently, when an investment
qualifies for equity method accounting, the cost of acquiring the additional ownership would be added to the investor’s previous cost basis and the
equity method subsequently applied upon the date the investor obtains the ability to exercise significant influence over the investee. ASU 2016-07 is
effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2016, (which is the year ended June 30,
2018 for IFC). Given IFC’s current election of the FVO for all investments that otherwise qualify for equity method accounting, ASU 2016-07 is not
expected to materially impact IFC’s financial position, results of operations or cash flows.
ASU 2016-08 amends ASU 2014-09’s principal-versus-agent guidance. It requires a reporting entity to evaluate whether it is a principal or agent for
each specified good or service in a contract with a customer and clarifies the application of the related indicators in accordance with ASC 2014-09’s
control principle. ASU 2016-08 has the same effective date as 2014-09, (which is the year ending June 30, 2019 for IFC). IFC is currently evaluating
the impact of ASU 2016-08.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 requires the
measurement of estimated credit losses on financial instruments held at the balance sheet date based on historical loss experience, current conditions,
and reasonable and supportable forecasts of future economic conditions. Contrary to the incurred impairment loss accounting model currently in
place, this forward-looking approach is intended to result in the immediate recognition of all estimated credit losses expected to occur over the
remaining life of the instruments. The resulting allowance for current expected credit losses (CECL) reduces the amortized cost basis of a financial
asset to an amount expected to be collected. For future periods which cannot be forecasted in a reasonable and supportable manner, the reporting
entity will revert to historical loss experience. Although ASU 2016-13 does not prescribe a specific methodology, it requires a collective assessment
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INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for financial assets with similar risk characteristics. Credit losses for financial assets that do not share similar risk characteristics with other financial
assets will be measured individually. Impairment of investments in available-for-sale debt securities will be recognized via the allowance method,
which allows for immediate reversals of credit losses. ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2019 (which is the year ended June 30, 2021 for IFC). IFC is currently evaluating the impact of ASU 2016-13.
In addition, during the year ended June 30, 2016, the FASB issued and/or approved various other ASUs. IFC analyzed and implemented the new
guidance, as appropriate, with no material impact on the financial position, results of operations or cash flows of IFC.
NOTE B – SCOPE OF CONSOLIDATION
IFC Asset Management Company, LLC (AMC) and AMC Funds
IFC, through its wholly owned subsidiary, AMC, mobilizes capital from outside IFC’s traditional investor pool and manages third-party capital. AMC
is consolidated into IFC’s financial statements. At June 30, 2016, IFC has provided $2 million of capital to AMC ($2 million - June 30, 2015).
As a result of the consolidation of AMC, amounts included in IFC’s consolidated balance sheet at June 30, 2016 and June 30, 2015 comprise
(US$ millions):
June 30,
2016
June 30,
2015
Cash, receivables and other assets
$
55
$
51
Equity investments
*
*
Payables and other liabilities
2
3
* less than $0.5 million.
As a result of the consolidation of AMC, amounts included in IFC’s consolidated statement of operations for the years ended June 30, 2016, June
30, 2015 and June 30, 2014 comprise (US$ millions):
2016
2015
2014
Other income
$
66
$
59
$
57
Other expenses
24
20
15
At June 30, 2016, AMC managed twelve funds (collectively referred to as the AMC Funds). All AMC Funds are investment companies and are
required to report their investment assets at fair value through net income. IFC’s ownership interests in these AMC Funds are shown in the following
table:
AMC Funds
IFC’s ownership interest
IFC Capitalization (Equity) Fund, L.P.
61%
**
IFC Capitalization (Subordinated Debt) Fund, L.P.
13%
IFC African, Latin American and Caribbean Fund, LP
20%
Africa Capitalization Fund, Ltd.
-
IFC Russian Bank Capitalization Fund, LP
45%
IFC Catalyst Funds
18%
***
IFC Global Infrastructure Fund, LP
17%
China-Mexico Fund, LP
-
IFC Financial Institutions Growth Fund, LP
32%
IFC Global Emerging Markets Fund of Funds
20%
****
IFC Middle East and North Africa Fund, LP
37%
Women Entrepreneurs Debt Fund, LP
33%
** By virtue of certain rights granted to non-IFC limited partner interests, IFC does not control or consolidate this fund.
***
The ownership interest of 18% reflects IFC’s ownership interest taking into consideration the overall commitments for the IFC Catalyst Funds, which is comprised of
IFC Catalyst Fund, LP, IFC Catalyst Fund (UK), LP and IFC Catalyst Fund (Japan), LP (collectively, IFC Catalyst Funds). IFC does not have an ownership interest in
either the IFC Catalyst Fund (UK), LP or the IFC Catalyst Fund (Japan), LP.
**** The ownership interest of 20% reflects IFC’s ownership interest taking into consideration the current committed amounts for the IFC Global Emerging Markets Fund
of Funds, which are comprised of IFC Global Emerging Markets Fund of Funds, LP and IFC Global Emerging Markets Fund of Funds, (Japan Parallel) LP. IFC is the
sole limited partner of IFC Global Emerging Markets Fund of Funds, LP. IFC does not have an ownership interest in the IFC Global Emerging Markets Fund of Funds,
(Japan Parallel) LP.
IFC’s investments in AMC Funds, except for the IFC Russian Bank Capitalization Fund, LP (RBCF) created in June 2012 and IFC Global Emerging
Markets Fund of Funds, LP (IFC GEMFOF) created in June 2015, are accounted for at fair value under the Fair Value Option. RBCF and IFC
GEMFOF are both VIEs and consolidated by IFC because IFC is deemed their primary beneficiary.
As a result of consolidating RBCF, IFC’s consolidated balance sheet at June 30, 2016 includes $41 million of equity investments ($41 million - June
30, 2015), and non-controlling interests of $23 million ($22 million - June 30, 2015). These non-controlling interests meet the FASB's definition of
mandatorily redeemable financial instruments because the terms of the underlying partnership agreement provide for a termination date at which
time its remaining assets are to be sold, its liabilities settled and the remaining net proceeds distributed to the non-controlling interest holders and
IFC. RBCF's termination date is 2021 with a possible extension to 2023. As RBCF is considered an investment company, its investment securities
(equity investments) are measured at fair value in IFC's consolidated balance sheet; therefore, the settlement value or estimate of cash that would
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INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
be due and payable to settle these non-controlling interests, assuming an orderly liquidation of RBCF on June 30, 2016, approximates the $23 million
of non-controlling interests reflected on IFC's consolidated balance sheet at June 30, 2016.
IFC is the sole limited partner of IFC GEMFOF and hence there are no non-controlling interests in this entity. As of June 30, 2016, IFC GEMFOF
had $5 million of equity investments ($0 - June 30, 2015) included in IFC’s consolidated balance sheet.
Other Consolidated entities
In August 2015, IFC created a special purpose vehicle, IFC Sukuk Company, to facilitate a $100 million Sukuk under IFC’s borrowings program.
The Sukuk is scheduled to mature in September 2020. IFC Sukuk Company is a VIE and has been consolidated into these Consolidated Financial
Statements because IFC is the VIE’s primary beneficiary. The collective impact of this and other entities consolidated into these Consolidated
Financial Statements under the VIE or voting interest model is insignificant.
NOTE C – LIQUID ASSET PORTFOLIO
Income from liquid asset trading activities
Income from liquid asset trading activities for the years ended June 30, 2016, June 30, 2015 and June 30, 2014 comprises (US$ millions):
2016
2015
2014
Interest income, net
$
561
$
614
$
533
Net gains and losses on trading activities (realized and unrealized)
(57)
(147)
66
Total income from liquid asset trading activities
$
504
$
467
$
599
Net gains and losses on trading activities comprise net losses on asset-backed and mortgage-backed securities of $70 million for the year
ended June 30, 2016 ($38 million losses - year ended June 30, 2015; $67 million gains – year ended June 30, 2014) and net gains on other
trading securities of $13 million for the year ended June 30, 2016 ($109 million losses - year ended June 30, 2015; $1 million losses - year
ended June 30, 2014).
The annualized rate of return on the liquid asset trading portfolio, calculated as total income from the liquid asset trading activities divided by
fair value average daily balance of total trading securities, during the year ended June 30, 2016, was 1.4% (1.3% - year ended June 30, 2015;
1.8% - year ended June 30, 2014). After the effect of associated derivative instruments, the liquid asset portfolio generally reprices within one
year.
Composition of liquid asset portfolio
The composition of IFC’s liquid asset portfolio included in the consolidated balance sheet captions is as follows (US$ millions):
June 30, 2016
June 30, 2015
Assets
Cash and due from banks
$
886
$
980
Time deposits
13,114
7,509
Trading securities
31,212
34,731
Securities purchased under resale agreements and receivable for cash collateral pledged
495
68
Derivative assets
489
850
Receivables and other assets:
Receivables from unsettled security trades
775
505
Accrued interest income on time deposits and securities
168
171
Accrued income on derivative instruments
19
13
Total assets
47,158
44,827
Liabilities
Securities sold under repurchase agreements and payable for cash collateral received
4,143
4,695
Derivative liabilities
439
244
Payables and other liabilities:
Payables for unsettled security trades
1,099
349
Short-Term Borrowings
36
9
Liability for short sold securities
10
-
Accrued charges on derivative instruments
58
55
Total liabilities
5,785
5,352
Total net liquid asset portfolio
$
41,373
$
39,475
The liquid asset portfolio is denominated primarily in US dollars; investments in other currencies, net of the effect of associated derivative instruments
that convert non-US dollar securities into US dollar securities, represent 6.3% of the portfolio at June 30, 2016 (7.8% - June 30, 2015).
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INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C – LIQUID ASSET PORTFOLIO (continued)
Trading securities comprises:
Year ended
June 30, 2016
At June 30, 2016
Fair value average
daily balance
(US$ million)
Fair value
(US$ millions)
Weighted average
contractual
maturity (years)
Government, agency and government-sponsored agency obligations
$
11,942
$
11,083
2.2
Asset-backed securities
12,389
11,860
17.1
Corporate securities
6,882
7,842
1.8
Money market funds
916
427
n/a
Total trading securities
$
32,129
$
31,212
Year ended
June 30, 2015
At June 30, 2015
Fair value average
daily balance
(US$ million)
Fair value
(US$ millions)
Weighted average
contractual
maturity (years)
Government, agency and government-sponsored agency obligations
$
16,679
$
15,088
2.2
Asset-backed securities
13,133
12,793
17.4
Corporate securities
5,918
5,757
3.0
Money market funds
1,163
1,093
n/a
Total trading securities
$
36,893
$
34,731
The expected maturity of the asset-backed securities may be significantly shorter than the contractual maturity, as reported above, due to prepayment
features.
NOTE D – INVESTMENTS
The carrying amount of investments at June 30, 2016 and June 30, 2015 comprises (US$ millions):
June 30, 2016
June 30, 2015
Loans
Loans at amortized cost
$
22,681
$
22,295
Less: Reserve against losses on loans
(1,775)
(1,743)
Loans at amortized cost less reserve against losses
20,906
20,552
Loans accounted for at fair value under the Fair Value Option
(outstanding principal balance $1,093 at June 30, 2016, $802 – June 30, 2015)
962
784
Total loans
21,868
21,336
Equity investments
Equity investments at cost less impairment*
3,145
3,250
Equity investments accounted for at fair value as available-for-sale
(cost $2,278 at June 30, 2016, $2,505 – June 30, 2015)
3,526
4,557
Equity investments accounted for at fair value
(cost $5,331 at June 30, 2016, $4,800 – June 30, 2015)
5,917
5,696
Total equity investments
12,588
13,503
Debt securities
Debt securities accounted for at fair value as available-for-sale
(amortized cost $2,553 at June 30, 2016, $2,329 - June 30, 2015)
2,474
2,317
Debt securities accounted for at fair value under the Fair Value Option
(amortized cost $442 at June 30, 2016, $408 – June 30, 2015)
426
422
Total debt securities
2,900
2,739
Total carrying amount of investments
$
37,356
$
37,578
* Equity investments at cost less impairment at June 30, 2016 includes unrealized gains of $7 million ($0 – June 30, 2015) related to equity investments accounted for as
available-for-sale in previous periods and for which readily determinable fair vales are no longer available.
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INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D – INVESTMENTS (continued)
The distribution of the investment portfolio by industry sector and by geographical region and a reconciliation of total disbursed portfolio to carrying
amount of investments is as follows (US$ millions):
June 30, 2016
June 30, 2015
Sector
Loans
Equity
investments
Debt
securities
Total
Loans
Equity
investments
Debt
securities
Total
Manufacturing, agribusiness and services
Asia
$
1,497
$
759
$
288
$
2,544
$
1,933
$
820
$
190
$
2,943
Europe, Middle East and North Africa
2,707
665
126
3,498
2,915
784
134
3,833
Sub-Saharan Africa, Latin America
and Caribbean
2,505
561
77
3,143
2,517
547
110
3,174
Other
353
247
-
600
171
227
-
398
Total manufacturing, agribusiness
and services
7,062
2,232
491
9,785
7,536
2,378
434
10,348
Financial markets
Asia
1,700
1,281
807
3,788
2,153
1,097
491
3,741
Europe, Middle East and North Africa
2,031
1,352
450
3,833
2,056
1,482
508
4,046
Sub-Saharan Africa, Latin America
and Caribbean
2,949
988
319
4,256
2,697
1,129
364
4,190
Other
743
245
217
1,205
501
175
220
896
Total financial markets
7,423
3,866
1,793
13,082
7,407
3,883
1,583
12,873
Infrastructure and natural resources
Asia
1,943
582
77
2,602
1,646
620
63
2,329
Europe, Middle East and North Africa
2,144
733
99
2,976
1,810
507
126
2,443
Sub-Saharan Africa, Latin America
and Caribbean
3,916
661
116
4,693
3,643
700
136
4,479
Other
200
5
-
205
156
11
-
167
Total infrastructure and natural
resources
8,203
1,981
292
10,476
7,255
1,838
325
9,418
Telecom, media & technology, and
venture investing
Asia
407
584
159
1,150
252
509
98
859
Europe, Middle East and North Africa
152
542
31
725
197
455
35
687
Sub-Saharan Africa, Latin America
and Caribbean
360
960
57
1,377
292
895
64
1,251
Other
303
628
28
959
313
623
29
965
Total Telecom, media & technology, and
venture investing
1,222
2,714
275
4,211
1,054
2,482
226
3,762
Total disbursed investment portfolio
$
23,910
$
10,793
$
2,851
$
37,554
$
23,252
$
10,581
$
2,568
$
36,401
Reserve against losses on loans
(1,775)
-
-
(1,775)
(1,743)
-
-
(1,743)
Unamortized deferred loan origination
fees, net and other
(125)
-
-
(125)
(119)
-
-
(119)
Disbursed amount allocated to a related
financial instrument reported separately
in other assets or derivative assets
(11)
(41)
-
(52)
(36)
(47)
-
(83)
Adjustments to disbursed investment
portfolio
-
10
(22)
(12)
-
28
(5)
23
Unrealized losses on equity investments
held by consolidated VIEs
-
(8)
-
(8)
-
(7)
-
(7)
Unrealized gains on investments
accounted for at fair value as available-
for-sale
-
1,248
87
1,335
-
2,052
162
2,214
Unrealized gains (losses) on investments
(131)
586
(16)
439
(18)
896
14
892
Carrying amount of investments
$
21,868
$
12,588
$
2,900
$
37,356
$
21,336
$
13,503
$
2,739
$
37,578
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INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E – LOANS AND GUARANTEES
Loans
Income from Loans and guarantees, including realized gains and losses on loans and associated derivatives for the years ended June 30, 2016,
June 30, 2015 and June 30, 2014 comprise the following (US$ millions):
2016
2015
2014
Interest income
$
1,026
$
957
$
936
Commitment fees
34
38
43
Other financial fees
64
71
77
Realized gains on loans, guarantees and associated derivatives
2
57
9
Income from loans and guarantees, including realized gains and losses on
loans and associated derivatives
$
1,126
$
1,123
$
1,065
The currency composition and average contractual rate of the disbursed loan portfolio are summarized below:
June 30, 2016
June 30, 2015
Amount
(US$ millions)
Average
contractual
rate (%)
Amount
(US$ millions)
Average
contractual
rate (%)
US dollar
$
18,565
4.6
$
17,339
4.2
Euro
2,708
3.5
2,636
3.9
Brazilian real
424
16.7
434
15.2
Indian rupee
397
10.2
438
10.5
Chinese renminbi
355
5.9
828
5.6
South African rand
196
10.6
165
9.9
Philippine peso
180
6.7
188
6.7
Colombian peso
157
9.2
81
10.5
Mexican peso
152
7.0
262
7.1
Indonesian rupiah
149
10.9
293
8.9
Russian ruble
140
12.1
190
12.4
Peruvian soles nuevos
97
8.5
95
7.8
New Romanian Lei
94
4.1
40
6.4
Hong Kong dollars
60
2.0
-
-
Dominican pesos
57
11.6
12
13.6
Other currencies
OECD currencies
44
10.5
63
9.9
Non-OECD currencies
135
12.3
188
9.7
Total disbursed loan portfolio
$
23,910
5.1
$
23,252
4.9
After the effect of interest rate swaps and currency swaps, IFC’s loans are principally denominated in variable rate US dollars.
Loans in all currencies are repayable during the years ending June 30, 2017 through June 30, 2021 and thereafter, as follows (US$ millions):
2017
2018
2019
2020
2021
Thereafter
Total
Fixed rate loans
$
959
$
689
$
670
$
863
$
588
$
983
$
4,752
Variable rate loans
3,854
2,708
2,549
2,961
1,792
5,294
19,158
Total disbursed loan portfolio
$
4,813
$
3,397
$
3,219
$
3,824
$
2,380
$
6,277
$
23,910
At June 30, 2016, 20% of the disbursed loan portfolio consisted of fixed rate loans (22% - June 30, 2015), while the remainder was at variable rates.
At June 30, 2016, the disbursed loan portfolio included $122 million of loans serving as collateral under secured borrowing arrangements
($223 million - June 30, 2015).
IFC’s disbursed variable rate loans generally reprice within one year.
Page 65
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E – LOANS AND GUARANTEES (continued)
Reserve against losses on loans and provision for losses on loans
Changes in the reserve against losses on loans for the years ended June 30, 2016, June 30, 2015 and June 30, 2014, as well as the related recorded
investment in loans evaluated for impairment individually (specific reserves) and on a pool basis (portfolio reserves) respectively, are summarized
below (US$ millions):
Year ended June 30, 2016
Specific
reserves
Portfolio
reserves
Total
reserves
Beginning balance
$
962
$
781
$
1,743
Provision (release of provision) for losses on loans, net
319
36
355
Write-offs
(310)
-
(310)
Recoveries of previously written-off loans
18
-
18
Foreign currency transaction adjustments
(18)
(7)
(25)
Other adjustments*
(6)
-
(6)
Ending balance
$
965
$
810
$
1,775
Related recorded investment in loans at June 30, 2016 evaluated for impairment**
$
22,681
$
20,929
$
22,681
Recorded investment in loans with specific reserves
$
1,752
Year ended June 30, 2015
Specific
reserves
Portfolio
reserves
Total
reserves
Beginning balance
$
838
$
848
$
1,686
Provision (release of provision) for losses on loans, net
199
(30)
169
Write-offs
(34)
-
(34)
Recoveries of previously written-off loans
4
-
4
Foreign currency transaction adjustments
(43)
(37)
(80)
Other adjustments*
(2)
-
(2)
Ending balance
$
962
$
781
$
1,743
Related recorded investment in loans at June 30, 2015 evaluated for impairment**
$
22,295
$
20,573
$
22,295
Recorded investment in loans with specific reserves
$
1,722
Year ended June 30, 2014
Specific
reserves
Portfolio
reserves
Total
reserves
Beginning balance
$
741
$
887
$
1,628
Provision (release of provision) for losses on loans, net
127
(44)
83
Write-offs
(44)
-
(44)
Recoveries of previously written-off loans
1
-
1
Foreign currency transaction adjustments
1
5
6
Other adjustments*
12
-
12
Ending balance
$
838
$
848
$
1,686
Related recorded investment in loans at June 30, 2014 evaluated for impairment**
$
23,562
$
21,837
$
23,562
Recorded investment in loans with specific reserves
$
1,725
*Other adjustments comprise reserves against interest capitalized as part of a debt restructuring.
**IFC individually evaluates all loans for impairment. Portfolio reserves are established for losses incurred, but not specifically identifiable, on loans for which no specific
reserve is established.
Page 66
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E – LOANS AND GUARANTEES (continued)
Reserve for losses on guarantees and other receivables and provision for losses on guarantees and other receivables
Changes in the reserve against losses on guarantees for the years ended June 30, 2016, June 30, 2015 and June 30, 2014, are summarized below
(US$ millions):
2016
2015
2014
Beginning balance
$
20
$
22
$
17
Provision (release of provision) for losses on guarantees
3
(2)
5
Ending balance
$
23
$
20
$
22
Changes in the reserve against losses on other receivables for the years ended June 30, 2016, June 30, 2015 and June 30, 2014, are summarized
below (US$ millions):
2016
2015
2014
Beginning balance
$
7
$
3
$
3
Provision (release of provision) for losses on other receivables
1
4
-
Ending balance
$
8
$
7
$
3
Impaired loans
The average recorded investment and the recorded investment in loans at amortized cost that are impaired at June 30, 2016 and June 30, 2015 are
as follows (US$ millions):
June 30, 2016
June 30, 2015
Average recorded investment in loans at amortized cost that are impaired
$
1,835
$
1,771
Recorded investment in loans at amortized cost that are impaired
1,752
1,722
Page 67
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E – LOANS AND GUARANTEES (continued)
Loans at amortized cost that are impaired with specific reserves are summarized by industry sector and geographic region as follows (US$ millions):
June 30, 2016
Recorded
investment
Unpaid
principal
balance
Related
specific
reserve
Average
recorded
investment
Interest
income
recognized
Manufacturing, agribusiness and services
Asia
$
102
$
154
$
72
$
139
$
1
Europe, Middle East and North Africa
672
724
391
712
11
Sub-Saharan Africa, Latin America and Caribbean
183
206
108
179
2
Other
14
14
14
14
-
Total manufacturing, agribusiness and services
971
1,098
585
1,044
14
Financial markets
Asia
-
2
-
-
-
Europe, Middle East and North Africa
10
11
8
13
1
Sub-Saharan Africa, Latin America and Caribbean
32
56
9
24
1
Other
1
1
1
1
-
Total financial markets
43
70
18
38
2
Infrastructure and natural resources
Asia
121
121
68
121
(1)
Europe, Middle East and North Africa
213
221
135
216
4
Sub-Saharan Africa, Latin America and Caribbean
398
410
156
410
16
Total infrastructure and natural resources
732
752
359
747
19
Telecom, media & technology, and venture investing
Sub-Saharan Africa, Latin America and Caribbean
6
6
3
6
1
Total Telecom, media & technology, and venture investing
6
6
3
6
1
Total
$
1,752
$
1,926
$
965
$
1,835
$
36
All impaired loans at June 30, 2016 had specific reserves.
Page 68
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E – LOANS AND GUARANTEES (continued)
June 30, 2015
Recorded
investment
Unpaid
principal
balance
Related
specific
reserve
Average
recorded
investment
Interest
income
recognized
Manufacturing, agribusiness and services
Asia
$
126
$
128
$
82
$
126
$
1
Europe, Middle East and North Africa
673
676
408
684
(10)
Sub-Saharan Africa, Latin America and Caribbean
251
299
149
278
6
Other
15
15
14
15
-
Total manufacturing, agribusiness and services
1,065
1,118
653
1,103
(3)
Financial markets
Asia
-
2
-
-
-
Europe, Middle East and North Africa
15
15
9
16
1
Sub-Saharan Africa, Latin America and Caribbean
37
63
36
42
3
Other
1
1
1
1
-
Total financial markets
53
81
46
59
4
Infrastructure and natural resources
Asia
166
166
68
171
9
Europe, Middle East and North Africa
160
160
93
172
3
Sub-Saharan Africa, Latin America and Caribbean
137
137
79
136
(1)
Total infrastructure and natural resources
463
463
240
479
11
Telecom, media & technology, and venture investing
Sub-Saharan Africa, Latin America and Caribbean
29
29
7
29
2
Other
112
112
16
101
1
Total Telecom, media & technology, and venture investing
141
141
23
130
3
Total
$
1,722
$
1,803
$
962
$
1,771
$
15
All impaired loans at June 30, 2015 had specific reserves.
Nonaccruing loans
Loans on which the accrual of interest has been discontinued amounted to $1,646 million at June 30, 2016 ($1,534 million – June 30, 2015). The
interest income on such loans for the years ended June 30, 2016, June 30, 2015 and June 30, 2014 is summarized as follows (US$ millions):
2016
2015
2014
Interest income not recognized on nonaccruing loans
157
139
104
Interest income recognized on loans in nonaccrual status
related to current and prior years, on a cash basis
34
31
19
The recorded investment in nonaccruing loans at amortized cost at June 30, 2016 and June 30, 2015 is summarized by industry sector and
geographic region as follow (US$ millions):
June 30, 2016
Manufacturing,
agribusiness
and services
Financial
markets
Infrastructure
and natural
resources
Telecom,
media &
technology,
and venture
investing
Total
recorded
investment in
nonaccruing
loans
Asia
$
87
$
-
$
121
$
-
$
208
Europe, Middle East and North Africa
610
10
195
-
815
Sub-Saharan Africa, Latin America and
Caribbean
233
1
220
16
470
Other
15
1
-
-
16
Total disbursed loans at amortized
cost
$
945
$
12
$
536
$
16
$
1,509
Page 69
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E – LOANS AND GUARANTEES (continued)
June 30, 2015
Manufacturing,
agribusiness
and services
Financial
markets
Infrastructure
and natural
resources
Telecom,
media &
technology,
and venture
investing
Total
recorded
investment in
nonaccruing
loans
Asia
$
125
$
-
$
122
$
-
$
247
Europe, Middle East and North Africa
597
12
129
-
738
Sub-Saharan Africa, Latin America and
Caribbean
250
30
135
45
460
Other
15
-
-
-
15
Total disbursed loans at amortized
cost
$
987
$
42
$
386
$
45
$
1,460
Past due loans
An age analysis, based on contractual terms, of IFC’s loans at amortized cost by industry sector and geographic region follows (US$ millions):
June 30, 2016
30-59
days
past due
60-89
days
past due
90 days
or greater
past due
Total
past due
Current
Total
loans
Manufacturing, agribusiness and services
Asia
$
14
$
-
$
74
$
88
$
1,351
$
1,439
Europe, Middle East and North Africa
-
8
564
572
2,096
2,668
Sub-Saharan Africa, Latin America and
Caribbean
6
15
194
215
2,211
2,426
Other
-
-
15
15
336
351
Total manufacturing, agribusiness and
services
20
23
847
890
5,994
6,884
Financial markets
Asia
-
-
-
-
1,644
1,644
Europe, Middle East and North Africa
-
-
7
7
1,963
1,970
Sub-Saharan Africa, Latin America and
Caribbean
-
-
2
2
2,856
2,858
Other
-
-
1
1
742
743
Total financial markets
-
-
10
10
7,205
7,215
Infrastructure and natural resources
Asia
-
-
121
121
1,793
1,914
Europe, Middle East and North Africa
-
10
124
134
1,667
1,801
Sub-Saharan Africa, Latin America and
Caribbean
-
-
82
82
3,768
3,850
Other
-
-
-
-
200
200
Total infrastructure and natural
resources
-
10
327
337
7,428
7,765
Telecom, media & technology, and venture
investing
Asia
-
-
-
-
406
406
Europe, Middle East and North Africa
-
-
-
-
144
144
Sub-Saharan Africa, Latin America and
Caribbean
11
-
16
27
237
264
Other
-
-
-
-
139
139
Total Telecom, media & technology,
and venture investing
11
-
16
27
926
953
Total disbursed loans
at amortized cost
$
31
$
33
$
1,200
$
1,264
$
21,553
$
22,817
Unamortized deferred loan origination fees,
net and other
(125)
Disbursed amount allocated to a related
financial instrument reported separately
in other assets or derivative assets
(11)
Recorded investment in loans
at amortized cost
$
22,681
At June 30, 2016, loans 90 days or greater past due still accruing were insignificant.
Page 70
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E – LOANS AND GUARANTEES (continued)
June 30, 2015
30-59
days
past due
60-89
days
past due
90 days
or greater
past due
Total
past due
Current
Total
loans
Manufacturing, agribusiness and services
Asia
$
-
$
-
$
125
$
125
$
1,747
$
1,872
Europe, Middle East and North Africa
6
16
581
603
2,258
2,861
Sub-Saharan Africa, Latin America and
Caribbean
-
15
211
226
2,209
2,435
Other
-
-
15
15
156
171
Total manufacturing, agribusiness and
services
6
31
932
969
6,370
7,339
Financial markets
Asia
-
-
-
-
2,089
2,089
Europe, Middle East and North Africa
-
-
5
5
2,010
2,015
Sub-Saharan Africa, Latin America and
Caribbean
-
-
30
30
2,585
2,615
Other
-
-
-
-
501
501
Total financial markets
-
-
35
35
7,185
7,220
Infrastructure and natural resources
Asia
-
-
122
122
1,502
1,624
Europe, Middle East and North Africa
-
-
96
96
1,648
1,744
Sub-Saharan Africa, Latin America and
Caribbean
-
-
42
42
3,557
3,599
Other
-
-
-
-
156
156
Total infrastructure and natural
resources
-
-
260
260
6,863
7,123
Telecom, media & technology, and venture
investing
Asia
-
-
-
-
252
252
Europe, Middle East and North Africa
-
-
-
-
196
196
Sub-Saharan Africa, Latin America and
Caribbean
-
16
29
45
152
197
Other
-
-
-
-
123
123
Total Telecom, media & technology,
and venture investing
-
16
29
45
723
768
Total disbursed loans
at amortized cost
$
6
$
47
$
1,256
$
1,309
$
21,141
$
22,450
Unamortized deferred loan origination fees,
net and other
(119)
Disbursed amount allocated to a related
financial instrument reported separately
in other assets or derivative assets
(36)
Recorded investment in loans
at amortized cost
$
22,295
At June 30, 2015, there are no loans 90 days or greater past due still accruing.
Page 71
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E – LOANS AND GUARANTEES (continued)
Loan Credit Quality Indicators
IFC utilizes a rating system to classify loans according to credit worthiness and risk. Each loan is categorized as very good, good, average, watch,
substandard, doubtful or loss.
A description of each category (credit quality indicator), in terms of the attributes of the borrower, the business environment in which the borrower
operates or the loan itself, follows:
Credit quality
indicator
Description
Very good
Excellent debt service capacity; superior management; market leader; very favorable operating environment; may also have strong
collateral and/or guarantee arrangements.
Good
Strong debt service capacity: good liquidity; stable performance, very strong management, high market share; minimal probability
of financial deterioration.
Average
Satisfactory balance sheet ratios, average liquidity; good debt service capacity; good management; average size and market
share.
Watch
Tight liquidity; financial performance below expectations; higher than average leverage ratio; weak management in certain
aspects; uncompetitive products and operations; unfavorable or unstable macroeconomic factors.
Substandard
Poor financial performance; difficulty servicing debt; inadequate net worth and debt service capacity; loan not fully secured: partial
past due amounts of interest and/or principal; well-
defined weaknesses may adversely impact collection but no loss of principal is
expected.
Doubtful
Bad financial performance; serious liquidity and debt service capacity issues: large and increasing past due amounts: partial loss
is very likely.
Loss
Close to or already in bankruptcy; serious regional geopolitical issues/conflicts; default and total loss highly likely.
Page 72
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E – LOANS AND GUARANTEES (continued)
A summary of IFC’s loans at amortized cost by credit quality indicator effective June 30, 2016 and June 30, 2015 respectively, as well as by industry
sector and geographic region follows (US$ millions):
June 30, 2016
Very good
Good
Average
Watch
Substandard
Doubtful
Loss
Total
Manufacturing, agribusiness
and services
Asia
$
-
$
429
$
495
$
399
$
43
$
8
$
65
$
1,439
Europe, Middle East and North
Africa
-
457
659
642
209
244
457
2,668
Sub-Saharan Africa, Latin
America and Caribbean
100
248
589
1,083
253
40
113
2,426
Other
75
54
157
50
-
15
-
351
Total manufacturing,
agribusiness and services
175
1,188
1,900
2,174
505
307
635
6,884
Financial markets
Asia
-
631
749
256
8
-
-
1,644
Europe, Middle East and North
Africa
-
481
1,139
324
16
-
10
1,970
Sub-Saharan Africa, Latin
America and Caribbean
-
886
1,456
448
36
30
2
2,858
Other
-
250
492
-
-
-
1
743
Total financial markets
-
2,248
3,836
1,028
60
30
13
7,215
Infrastructure and natural
resources
Asia
-
243
389
1,109
68
39
66
1,914
Europe, Middle East and North
Africa
-
133
283
1,032
149
85
119
1,801
Sub-Saharan Africa, Latin
America and Caribbean
300
155
987
1,113
1,116
174
5
3,850
Other
-
-
200
-
-
-
-
200
Total infrastructure and
natural resources
300
531
1,859
3,254
1,333
298
190
7,765
Telecom, media & technology,
and venture investing
Asia
-
338
68
-
-
-
-
406
Europe, Middle East and North
Africa
-
45
-
23
76
-
-
144
Sub-Saharan Africa, Latin
America and Caribbean
-
-
89
153
6
16
-
264
Other
-
-
-
139
-
-
-
139
Total telecom, media &
technology, and venture
investing
-
383
157
315
82
16
-
953
Total disbursed loans
at amortized cost
$
475
$
4,350
$
7,752
$
6,771
$
1,980
$
651
$
838
$
22,817
Unamortized deferred loan
origination
fees, net and other
(125)
Disbursed amount allocated
to a related financial
instrument reported
separately in other assets or
derivative assets
(11)
Recorded investment in
loans at amortized cost
$
22,681
Page 73
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E – LOANS AND GUARANTEES (continued)
June 30, 2015
Very good
Good
Average
Watch
Substandard
Doubtful
Loss
Total
Manufacturing, agribusiness
and services
Asia
$
-
$
531
$
601
$
546
$
69
$
9
$
116
$
1,872
Europe, Middle East and North
Africa
-
276
865
779
328
94
519
2,861
Sub-Saharan Africa, Latin
America and Caribbean
60
236
730
978
213
51
167
2,435
Other
-
57
49
50
-
15
-
171
Total manufacturing,
agribusiness and services
60
1,100
2,245
2,353
610
169
802
7,339
Financial markets
Asia
-
1,036
899
148
6
-
-
2,089
Europe, Middle East and North
Africa
-
455
1,102
350
22
74
12
2,015
Sub-Saharan Africa, Latin
America and Caribbean
-
596
1,613
334
35
7
30
2,615
Other
-
250
-
250
1
-
-
501
Total financial markets
-
2,337
3,614
1,082
64
81
42
7,220
Infrastructure and natural
resources
Asia
-
298
381
719
54
111
61
1,624
Europe, Middle East and North
Africa
-
118
458
823
293
30
22
1,744
Sub-Saharan Africa, Latin
America and Caribbean
300
154
1,245
1,332
426
115
27
3,599
Other
-
6
150
-
-
-
-
156
Total infrastructure and
natural resources
300
576
2,234
2,874
773
256
110
7,123
Telecom, media & technology,
and venture investing
Asia
-
165
85
2
-
-
-
252
Europe, Middle East and North
Africa
-
71
38
87
-
-
-
196
Sub-Saharan Africa, Latin
America and Caribbean
-
5
73
70
4
45
-
197
Other
-
-
-
-
123
-
-
123
Total telecom, media &
technology, and venture
investing
-
241
196
159
127
45
-
768
Total disbursed loans
at amortized cost
$
360
$
4,254
$
8,289
$
6,468
$
1,574
$
551
$
954
$
22,450
Unamortized deferred loan
origination
fees, net and other
(119)
Disbursed amount allocated
to a related financial
instrument reported
separately in other assets or
derivative assets
(36)
Recorded investment in
loans at amortized cost
$
22,295
Page 74
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E – LOANS AND GUARANTEES (continued)
Loan modifications, including past due amounts capitalized and written off, during the year ended June 30, 2016 considered troubled debt
restructurings totaled $232 million ($167 million – year ended June 30, 2015). There were two loans that defaulted during the year ended June 30,
2016 that had been modified in a troubled debt restructuring within 12 months prior to the date of default with a combined outstanding balance of
$41 million. One of the loans with an outstanding balance of $25 million was brought current prior to June 30, 2016. The remaining loan was
evaluated and included as part of the specific reserve.
Guarantees
IFC extends financial guarantee facilities to its clients to provide full or partial credit enhancement for their debt securities and trade obligations.
Under the terms of IFC’s guarantees, IFC agrees to assume responsibility for the client’s financial obligations in the event of default by the client,
where default is defined as failure to pay when payment is due. Guarantees entered into by IFC generally have maturities consistent with those of
the loan portfolio. Guarantees signed at June 30, 2016 totaled $4,250 million
($4,091 million – June 30, 2015). Guarantees of $3,478 million that
were outstanding (i.e., not called) at June 30, 2016 ($3,168 million – June 30, 2015), were not included in loans on IFC’s consolidated balance
sheet. The outstanding amount represents the maximum amount of undiscounted future payments that IFC could be required to make under these
guarantees.
NOTE F – DEBT SECURITIES
Income from debt securities, including realized gains and losses on debt securities and associated derivatives for the years ended June 30,
2016, June 30, 2015 and June 30, 2014 comprise the following (US$ millions):
2016
2015
2014
Interest income
$
125
$
107
$
62
Dividends
10
12
11
Realized gains on debt securities and associated derivatives
39
46
29
Other-than-temporary impairments
(45)
(33)
(13)
Total income from debt securities, including realized gains and losses on
debt securities and associated derivatives
$
129
$
132
$
89
Debt securities accounted for as available-for-sale at June 30, 2016 and June 30, 2015 comprise (US$ millions):
June 30, 2016
Amortized cost
Foreign currency
transaction
Fair value
Unrealized Unrealized
gains
losses
losses
Corporate debt securities
$
1,943
$
81
$
(40)
$
(150)
$
1,834
Preferred shares
483
45
(2)
2
528
Asset-backed securities
127
3
-
(18)
112
Total
$
2,553
$
129
$
(42)
$
(166)
$
2,474
June 30, 2015
Amortized cost
Foreign currency
transaction
Fair value
Unrealized Unrealized
gains
losses
losses
Corporate debt securities
$
1,642
$
125
$
(30)
$
(126)
$
1,611
Preferred shares
543
64
(2)
(21)
584
Asset-backed securities
144
5
-
(27)
122
Total
$
2,329
$
194
$
(32)
$
(174)
$
2,317
The following table shows the unrealized losses and fair value of debt securities at June 30, 2016 and June 30, 2015 by length of time that individual
securities had been in a continuous loss position where the fair value of securities declined below their cost basis (US$ millions):
June 30, 2016
Less than 12 months
12 months or greater
Total
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Corporate debt securities
$
463
$
(15)
$
104
$
(25)
$
567
$
(40)
Preferred shares
144
(2)
-
-
144
(2)
Total
$
607
$
(17)
$
104
$
(25)
$
711
$
(42)
Page 75
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F – DEBT SECURITIES (continued)
June 30, 2015
Less than 12 months
12 months or greater
Total
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Corporate debt securities
$
189
$
(23)
$
152
$
(7)
$
341
$
(30)
Preferred shares
42
(1)
8
(1)
50
(2)
Total
$
231
$
(24)
$
160
$
(8)
$
391
$
(32)
Corporate debt securities comprise investments in bonds and notes. Unrealized losses associated with corporate debt securities are primarily
attributable to movements in the credit default swap spread curve applicable to the issuer. Based upon IFC’s assessment of expected credit losses,
IFC has determined that the issuer is expected to make all contractual principal and interest payments. Accordingly, IFC expects to recover the cost
basis of these securities.
Preferred shares comprise investments in preferred equity investments that are redeemable at the option of IFC or mandatorily redeemable by the
issuer. Unrealized losses associated with preferred shares are primarily driven by changes in discount rates associated with changes in credit
spreads or interest rates, minor changes in exchange rates and comparable market valuations in the applicable sector. Based upon IFC’s
assessment of the expected credit losses, IFC expects to recover the cost basis of these securities.
Debt securities with contractual maturities that are accounted for as available-for-sale have contractual maturities during the years ending
June 30, 2017 through June 30, 2021 and thereafter, as follows (US$ millions):
2017
2018
2019
2020
2021
Thereafter
Total
Corporate debt securities
$
76
$
326
$
197
$
195
$
386
$
636
$
1,816
Preferred shares
-
-
-
86
-
56
142
Asset-backed securities
39
3
34
23
10
-
109
Total disbursed portfolio of debt
securities with contractual maturities
$
115
$
329
$
231
$
304
$
396
$
692
$
2,067
The expected maturity of asset-backed securities may differ from the contractual maturity, as reported above, due to prepayment features. In addition,
IFC has $343 million of redeemable preferred shares and other debt securities with undefined maturities ($347 million - June 30, 2015).
The currency composition and average contractual rate of debt securities with contractual maturities that are accounted for as available-for-sale are
summarized below:
June 30, 2016
June 30, 2015
Amount
(US$ millions)
Average
contractual
rate (%)
Amount
(US$ millions)
Average
contractual
rate (%)
US dollar
$
1,025
4.4
$
904
4.5
Indian rupee
624
9.4
381
11.1
South African rand
105
8.9
114
7.3
Euro
86
2.2
134
2.4
New Romanian Lei
53
5.9
54
5.9
Colombian peso
50
9.1
39
11.2
Chinese renminbi
47
5.1
-
-
Chilean peso
37
7.7
39
7.7
Turkish lira
3
8.1
56
7.9
Brazilian real
2
15.4
51
12.5
Other currencies
35
9.0
40
7.7
Total disbursed portfolio of debt securities with
contractual maturities
$
2,067
6.4
$
1,812
6.6
After the effect of interest rate swaps and currency swaps, IFC’s debt securities with contractual maturities that are accounted for as available-for-
sale are principally denominated in variable rate US dollars.
Nonaccruing debt securities
Debt securities on which the accrual of interest has been discontinued amounted to $66 million at June 30, 2016 ($44 million – June 30, 2015). The
interest income on such loans for the year ended June 30, 2016, June 30, 2015 and June 30, 2014 is summarized as follows (US$ millions):
2016
2015
2014
Interest income not recognized on nonaccruing debt securities
4
3
-
Interest income recognized on debt securities in nonaccrual status
related to current and prior years, on a cash basis
2
1
-
Page 76
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G – EQUITY INVESTMENTS AND ASSOCIATED DERIVATIVES
Income from equity investments and associated derivatives for the years ended June 30, 2016, June 30, 2015 and June 30, 2014 comprises the
following (US$ millions):
2016
2015
2014
Gains on equity investments and associated derivatives, net
$
1,013
$
886
$
1,269
Dividends
241
272
274
Other-than-temporary impairments:
Equity investments at cost less impairment
(384)
(351)
(107)
Equity investments available-for-sale
(360)
(381)
(161)
Total other-than-temporary impairments
(744)
(732)
(268)
Custody, fees and other
8
1
14
Total income from equity investments and associated derivatives
$
518
$
427
$
1,289
Gains on equity investments and associated derivatives includes realized gains and losses on equity investments and associated derivatives of
$1,217 million for the year ended June 30, 2016 ($1,288 million – year ended June 30, 2015, $1,013 million – year ended June 30, 2014).
Dividends include $11 million for the year ended June 30, 2016 ($23 million – year ended June 30, 2015, $19 million – year ended June 30, 2014)
of receipts, net of cash disbursements, related to investments accounted for under the cost recovery method, for which cost has been fully recovered.
Equity investments include several private equity funds that invest primarily in emerging markets across a range of sectors and that are accounted
for at fair value under the Fair Value Option. These investments cannot be redeemed. Instead distributions are received through the liquidation of
the underlying assets of the funds. IFC estimates that the underlying assets of the funds will be liquidated over five to eight years. The fair values
of these funds have been determined using the net asset value of IFC’s ownership interest in partners’ capital and totaled $3,179 million as of June
30, 2016 ($3,409 million – June 30, 2015).
NOTE H – INVESTMENT TRANSACTIONS COMMITTED BUT NOT DISBURSED OR UTILIZED
Loan, equity and debt security commitments signed but not yet disbursed, and guarantee and client risk management facilities signed but not yet
utilized are summarized below (US$ millions):
June 30, 2016
June 30, 2015
Investment transactions committed but not disbursed:
Loans, equity investments and debt securities
$
9,828
$
9,529
Investment transactions committed but not utilized:
Guarantees
772
923
Client risk management facilities
127
233
Total investment transactions committed but not disbursed or utilized
$
10,727
$
10,685
The disbursements of investment transactions committed but not disbursed or utilized are generally subject to fulfillment of conditions of disbursement.
NOTE I – LOAN PARTICIPATIONS
Loan participations signed as commitments for which disbursement has not yet been made and loan participations disbursed and outstanding which
are serviced by IFC for participants are as follows (US$ millions):
June 30, 2016
June 30, 2015
Loan participations signed as commitments but not disbursed
$
2,046
$
2,062
Loan participations disbursed and outstanding which are serviced by IFC
$
8,608
$
6,747
NOTE J – RECEIVABLES AND OTHER ASSETS
Receivables and other assets are summarized below (US$ millions):
June 30, 2016
June 30, 2015
Receivables from unsettled security trades
$
775
$
505
Accrued interest income on time deposits and securities
168
171
Accrued income on derivative instruments
399
371
Accrued interest income on loans
247
227
Headquarters building:
Land
89
89
Building
247
244
Less: Accumulated building depreciation
(173)
(155)
Headquarters building, net
163
178
Deferred charges and other assets
1,419
1,446
Total receivables and other assets
$
3,171
$
2,898
Page 77
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K – BORROWINGS
Market borrowings and associated derivatives
IFC's borrowings outstanding from market sources and currency and interest rate swaps, net of unamortized issue premiums and discounts, are
summarized below:
June 30, 2016
Market borrowings
Currency swaps
payable (receivable)
Interest rate swaps
notional principal
payable (receivable)
Net currency obligation
Amount
(US$ millions)
Weighted
average
rate (%)
Amount
(US$
millions)
Weighted
average
rate (%)
Notional
amount
(US$ millions)
Weighted
average
rate (%)
Amount
(US$
millions)
Weighted
average
rate (%)
US dollar
$
31,670
1.4
$
19,803
0.8
$
33,781
0.9
$
51,290
0.8
(33,964)
(1.4)
Australian dollar
7,411
3.9
(7,038)
3.9
298
2.3
373
2.3
(298)
(3.5)
Brazilian real
2,234
7.7
(2,234)
(7.7)
-
-
-
-
Japanese yen
2,220
3.5
(2,220)
(3.5)
-
-
New Zealand dollar
2,005
3.8
(2,005)
(3.8)
-
-
-
-
Indian rupee
1,708
7.5
-
-
-
-
1,708
7.5
Chinese renminbi
1219
1.8
(767)
(1.5)
-
-
452
2.4
Turkish lira
1147
8.6
(1,147)
(8.6)
-
-
-
-
Russian ruble
481
7.3
(468)
(7.4)
-
-
13
2.9
South African rand
449
5.6
(449)
(5.6)
-
-
-
-
Euro
438
3.7
(438)
(3.7)
-
-
Hong Kong dollar
381
2.4
(381)
(2.4)
-
-
-
-
Mexican peso
339
4.2
(339)
(4.2)
-
-
-
-
Pound sterling
126
5.4
(126)
(5.4)
-
-
-
-
Costa Rican colon
67
8.0
(67)
(8.0)
-
-
-
-
Nigerian naira
50
11.7
(35)
(12.4)
-
-
15
10.2
Uruguayan peso
39
10.1
(39)
(10.1)
-
-
-
-
Peruvian soles nuevos
36
5.3
(36)
(5.3)
-
-
-
-
Rwandan franc
25
11.6
(5)
(9.0)
-
-
20
12.3
Chilean pesos
22
4.2
(22)
(4.2)
-
-
Zambian kwacha
15
15.0
-
-
-
-
15
15.0
Georgian Lari
13
6.9
(13)
(6.9)
-
-
-
-
Namibia dollar
12
9.8
-
-
12
9.8
Dominican peso
8
10.5
-
-
-
-
8
10.5
Colombian pesos
8
5.3
(8)
5.3
-
-
Ghanaian cedi
6
14.9
(6)
14.9
-
-
-
-
Armenian dram
4
9.7
(4)
9.8
-
-
-
-
Principal at face value
52,133
$
1,956
$
(183)
$
53,906
1.1
Short-term borrowings
from market and other sources
1,873
54,006
Unamortized discounts, net
(863)
Total market borrowings
53,143
Fair value adjustments
695
Carrying amount of market
borrowings
$
53,838
Page 78
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K – BORROWINGS (continued)
June 30, 2015
Market borrowings
Currency swaps
payable (receivable)
Interest rate swaps
notional principal
payable (receivable)
Net currency obligation
Amount
(US$
millions)
Weighted
average
rate (%)
Amount
(US$
millions)
Weighted
average
rate (%)
Notional
amount
(US$
millions)
Weighted
average
rate (%)
Amount
(US$
millions)
Weighted
average
rate (%)
US dollar
$
29,376
1.4
$
19,573
0.2
$
33,548
0.3
$
48,754
0.2
(33,743)
(1.3)
Australian dollar
6,393
4.0
(6,010)
4.0
307
2.4
383
2.4
(307)
(3.5)
Brazilian real
1,988
8.1
(1,988)
(8.1)
-
-
-
-
New Zealand dollar
1,614
4.1
(1,614)
(4.1)
-
-
-
-
Indian rupee
1,606
7.5
-
-
-
-
1,606
7.5
Japanese yen
1,454
5.7
(1,454)
(5.7)
-
-
-
-
Chinese renminbi
1,142
2.3
(452)
(1.8)
-
-
690
2.6
Pound sterling
933
1.4
(775)
(1.5)
157
0.9
158
0.9
(157)
(0.6)
Euro
880
1.7
(880)
(1.7)
-
-
-
-
Turkish lira
837
6.3
(837)
(6.3)
-
-
-
-
Russian ruble
490
6.6
(436)
(7.0)
-
-
54
3.0
Mexican peso
471
4.6
(471)
(4.6)
-
-
-
-
South African rand
396
6.1
(396)
(6.1)
-
-
-
-
Norwegian kroner
335
4.0
(335)
(4.0)
-
-
-
-
Hong Kong dollar
128
5.1
(128)
(5.1)
-
-
-
-
Canadian dollars
94
3.3
(94)
(3.3)
-
-
-
-
Costa Rican colon
65
7.9
(56)
(7.9)
-
-
9
7.9
Nigerian naira
62
10.7
(41)
(10.9)
-
-
21
10.2
Uruguayan peso
44
10.1
(44)
(10.1)
-
-
-
-
Peruvian soles nuevos
37
5.3
(37)
5.3
-
-
-
-
Rwandan franc
26
11.6
-
-
-
-
26
11.6
Zambian kwacha
20
15.0
-
-
-
-
20
15.0
Georgian Lari
13
6.9
-
-
-
-
13
6.9
Dominican peso
9
10.5
-
-
-
-
9
10.5
Ghanaian cedi
5
14.9
(5)
(14.9)
-
-
-
-
Armenian dram
4
9.7
-
-
-
-
4
9.7
Principal at face value
48,422
$
3,520
$
(195)
$
51,747
0.5
Short-term borrowings
from market and other sources
1,352
49,774
Unamortized discounts, net
(356)
Total market borrowings
49,418
Fair value adjustments
498
Carrying amount of market
borrowings
$
49,916
The net currency obligations not fully hedged by borrowings related swaps have generally been invested and/or on-lent to clients in such currencies.
The weighted average remaining maturity of IFC’s borrowings from market sources was 4.1 years at June 30, 2016 (3.3 years - June 30, 2015).
Charges on borrowings for the year ended June 30, 2016 include $2 million of interest expense on secured borrowings ($3 million - years ended June
30, 2015 and 2014) and is net of $6 million of gains on buybacks of market borrowings ($2 million – year ended June 30, 2015; $3 million - year ended
June 30, 2014).
The net nominal amount payable from currency swaps of $1,956 million and the net notional amount receivable from interest rate swaps of $183
million at June 30, 2016 (payable of $3,520 million from currency swaps and receivable of $195 million from interest rate swaps - June 30, 2015),
shown in the above table, are represented by currency and interest rate swap assets at fair value of $1,254 million and currency and interest rate
swap liabilities at fair value of $3,013 million ($619 million and $3,721 million - June 30, 2015), included in derivative assets and derivative liabilities,
respectively, on the consolidated balance sheet.
Page 79
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K – BORROWINGS (continued)
Short-term market borrowings
IFC’s short-term Discount Note Program has maturities ranging from overnight to one year. The amount outstanding under the program at June 30,
2016 is $1,838 million ($1,343 million - June 30, 2015). Charges on borrowings for the year ended June 30, 2016, include $7 million in respect of
this program ($4 million - June 30, 2015 and 2014).
Borrowings from IBRD
Borrowings outstanding from IBRD and currency are summarized below:
June 30, 2016
June 30, 2015
Principal
amount
(US$ millions)
Weighted
average
cost (%)
Principal
amount
(US$ millions)
Weighted
average
cost (%)
Saudi Arabian riyal
$
9
4.0
$
17
4.0
US dollar
196
0.7
196
0.2
Total borrowings outstanding from IBRD
$
205
$
213
The weighted average remaining maturity of borrowings from IBRD was 1.1 years at June 30, 2016 (2.0 years - June 30, 2015). Charges on
borrowings for the year ended June 30, 2016, includes $1 million ($1 million - year ended June 30, 2015 and 2014) in respect of borrowings from
IBRD.
Borrowings from IDA
Borrowings outstanding from IDA are summarized below:
June 30, 2016
IDA Borrowings
Interest rate swap notional
principal
payable (receivable)
Net currency obligation
Principal
amount
(US$ millions)
Weighted
average
cost (%)
Notional
amount
(US$
millions)
Weighted
average
cost (%)
Notional
amount
(US$
millions)
Weighted
average
cost (%)
US dollar
$
1,082
1.8
$
1,082
0.9
$
1,082
0.9
(1,082)
(1.8)
Total IDA borrowings outstanding
1,082
$
-
$
1,082
0.9
Fair value adjustments
17
Carrying amount of IDA borrowings
$
1,099
June 30, 2015
IDA Borrowings
Interest rate swap notional
principal
payable (receivable)
Net currency obligation
Principal
amount
(US$ millions)
Weighted
average
cost (%)
Notional
amount
(US$
millions)
Weighted
average
cost (%)
Notional
amount
(US$
millions)
Weighted
average
cost (%)
US dollar
$
1,154
1.8
$
1,154
0.2
$
1,154
0.2
(1,154)
(1.8)
Total IDA borrowings outstanding
1,154
$
-
$
1,154
0.2
Fair value adjustments
(18)
Carrying amount of IDA borrowings
$
1,136
The weighted average remaining maturity of borrowings from IDA was 5.1 years at June 30, 2016 (5.7 years - June 30, 2015). Charges on borrowings
for the year ended June 30, 2016, includes $21 million ($18 - year ended June 30, 2015; $0 - year ended June 30, 2014) in respect of borrowings
from IDA.
Page 80
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maturity of borrowings
The principal amounts repayable on borrowings outstanding in all currencies, gross of any premiums or discounts, during the years ending June 30,
2017, through June 30, 2021, and thereafter are summarized below (US$ millions):
2017
2018
2019
2020
2021
Thereafter
Total
Borrowings from market sources
$
12,556
$
10,275
$
9,403
$
6,814
$
6,734
$
6,351
$
52,133
Short-term borrowings from
market and other sources
1,873
-
-
-
-
-
1,873
Borrowings from IBRD
9
196
-
-
-
-
205
Borrowings from IDA
113
126
122
124
125
472
1,082
Total borrowings, gross
$
14,551
$
10,597
$
9,525
$
6,938
$
6,859
$
6,823
$
55,293
Unamortized discounts, net
(863)
Fair value adjustments
712
Carrying amount of borrowings
$
55,142
After the effect of interest rate and currency swaps, IFC’s borrowings generally reprice within one year.
NOTE L – PAYABLES AND OTHER LIABILITIES
Payables and other liabilities are summarized below (US$ millions):
June 30, 2016
June 30, 2015
Accrued charges on borrowings
$
340
$
356
Accrued charges on derivative instruments
254
173
Payables for unsettled security trades
1,099
350
Secured borrowings & short sold securities
132
223
Liabilities under retirement benefit plans
985
277
Accounts payable, accrued expenses and other liabilities
1,474
1,419
Deferred income
147
139
Total payables and other liabilities
$
4,431
$
2,937
NOTE M – CAPITAL TRANSACTIONS
During the year ended June 30, 2016, no shares were subscribed and paid by member countries (63,749 shares, at a par value of $1,000 each - year
ended June 30, 2015; 99,233 shares at a par value of $1,000 each - year ended June 30, 2014).
Under IFC’s Articles of Agreement, in the event a member withdraws from IFC, IFC and the member may negotiate on the repurchase of the
member’s capital stock on such terms as may be appropriate under the circumstances. Such agreement may provide, among other things, for a
final settlement of all obligations of the member to IFC. If such an agreement is not made within six months after the member withdraws or such
other time as IFC and the member may agree, the repurchase price of the member’s capital stock shall be the value thereof shown by the books of
IFC on the day when the member withdraws. The repurchase of capital stock is subject to certain conditions including payments in installments, at
such times and in such available currency or currencies as IFC reasonably determines, taking into account the financial position of IFC. IFC’s
Articles of Agreement also provide for the withdrawing member to repay losses on loans and equity investments in excess of reserves provided on
the date of withdrawal.
NOTE N – OTHER INCOME
Other income for the years ended June 30, 2016, June 30, 2015 and June 30, 2014 comprise the following (US$ millions):
June 30, 2016
June 30, 2015
June 30, 2014
Income from consolidated entities
$
66
$
59
$
57
Fees collected from clients
22
22
25
Other reimbursable arrangements
19
19
8
Others
11
24
42
Total Other Income
$
118
$
124
$
132
Page 81
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE O – RETAINED EARNINGS DESIGNATIONS AND RELATED EXPENDITURES AND ACCUMULATED OTHER COMPREHENSIVE
INCOME
Designated retained earnings
The components of designated retained earnings and related expenditures are summarized below (US$ millions):
Grants to
IDA
Advisory
services
Performance-
based grants
SME
Ventures
for IDA
countries
Global
Infrastructure
Project
Development
Fund
Total
designated
retained
earnings
At June 30, 2013
$
-
$
199
$
31
$
28
$
20
$
278
Year ended June 30, 2014
Designations of retained earnings
251
-
-
-
-
251
Expenditures against designated
retained earnings
(251)
(68)
(10)
(3)
(3)
(335)
At June 30, 2014
$
-
$
131
$
21
$
25
$
17
$
194
Year ended June 30, 2015
Designations of retained earnings
340
58
-
-
-
398
Expenditures against designated
retained earnings
(340)
(52)
(5)
(4)
(7)
(408)
At June 30, 2015
$
-
$
137
$
16
$
21
$
10
$
184
Year ended June 30, 2016
Designations of retained earnings
330
14
-
-
-
344
Expenditures against designated
retained earnings
(330)
(53)
(4)
(1)
(7)
(395)
At June 30, 2016
$
-
$
98
$
12
$
20
$
3
$
133
On August 6, 2015, the Board of Directors approved a designation of $330 million of IFC’s retained earnings for grants to IDA and a designation of
$14 million of IFC’s retained earnings for Advisory Services. On October 9, 2015, the Board of Governors noted with approval the designations
approved by the Board of Directors. IFC recognizes designation of retained earnings for advisory services when the Board of Directors approves it
and recognizes designation of retained earnings for grants to IDA when it is noted with approval by the Board of Governors.
On January 15, 2016, IFC recognized grants to IDA of $330 million on the signing of a grant agreement between IDA and IFC concerning the
transfer to IDA and use of funds corresponding to the designation of retained earnings for grants to IDA approved by IFC’s Board of Directors on
August 6, 2015 and noted with approval by IFC’s Board of Governors on October 9, 2015.
Accumulated other comprehensive (loss) income
The components of accumulated other comprehensive (loss) income at June 30, 2016 and June 30, 2015 are summarized as follows (US$ millions):
June 30, 2016
June 30, 2015
Net unrealized losses on available-for-sale debt securities
$
(79)
$
(12)
Net unrealized gains on available-for-sale equity investments
1,255
2,052
Unrecognized net actuarial losses and unrecognized prior service costs on benefit plans
(1,607)
(843)
Total accumulated other comprehensive (loss) income
$
(431)
$
1,197
Page 82
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE P – NET UNREALIZED GAINS AND LOSSES ON NON-TRADING FINANCIAL INSTRUMENTS ACCOUNTED FOR AT FAIR VALUE
Net unrealized gains and losses on non-trading financial instruments accounted for at fair value for the years ended June 30, 2016, June 30, 2015
and June 30, 2014 comprise (US$ millions):
2016
2015
2014
Unrealized gains and losses on loans, debt securities and associated derivatives:
Unrealized (losses) gains on loans and associated derivatives
$
(229)
$
(51)
$
31
Unrealized (losses) on debt securities and associated derivatives
(37)
(3)
-
Total net unrealized (losses) gains on loans, debt securities and associated
derivatives
(266)
(54)
31
Unrealized gains and losses on borrowings from market, IDA and associated
derivatives:
Unrealized gains (losses) on market borrowings accounted for at fair value:
Credit spread component
239
15
(64)
Interest rate, foreign exchange and other components
(436)
(63)
(208)
Total unrealized (losses) gains on market borrowings
(197)
(48)
(272)
Unrealized gains (losses) on derivatives associated with market borrowings
295
(22)
198
Unrealized (losses) gains on borrowings from IDA accounted for at fair value
(36)
18
-
Total net unrealized gains (losses) on borrowings from market, IDA and
associated derivatives
62
(52)
(74)
Net unrealized gains and losses on non-trading financial instruments accounted
for at fair value
$
(204)
$
(106)
$
(43)
As discussed in Note A, “Summary of significant accounting and related policies”, market borrowings economically hedged with financial instruments,
including derivatives, accounted for at fair value with changes therein reported in earnings are accounted for at fair value under the Fair Value Option.
Differences arise between the movement in the fair value of market borrowings and the fair value of the associated derivatives primarily due to the
different credit characteristics. The change in fair value reported in “Unrealized gains and losses on borrowings from market, IDA and associated
derivatives” includes the impact of changes in IFC’s own credit spread. As credit spreads widen, unrealized gains are recorded and when such credit
spreads narrow, unrealized losses are recorded (notwithstanding the impact of other factors, such as changes in risk-free interest and foreign currency
exchange rates). The magnitude and direction (gain or loss) can be volatile from period to period but they do not alter the timing of the cash flows on
the market borrowings.
NOTE Q – DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS
As discussed in Note A, “Summary of significant accounting and related policies”, IFC enters into transactions in various derivative instruments for
financial risk management purposes in connection with its principal business activities, including lending, investing in debt securities, equity
investments, client risk management, borrowing, liquid asset management and asset and liability management. None of these derivative instruments
are designated as hedging instruments under ASC Topic 815. Note A describes IFC’s risk management and use of derivative instruments. The fair
value of derivative instrument assets and liabilities by risk type at June 30, 2016 and June 30, 2015 is summarized as follows (US$ millions):
Consolidated balance sheet location
June 30, 2016
June 30, 2015
Derivative assets
Interest rate
$
646
$
426
Foreign exchange
307
221
Interest rate and currency
2,361
2,319
Equity and other
381
289
Total derivative assets
$
3,695
$
3,255
Derivative liabilities
Interest rate
$
454
$
268
Foreign exchange
96
154
Interest rate and currency
3,396
3,799
Equity and other
6
4
Total derivative liabilities
$
3,952
$
4,225
Page 83
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE Q – DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS (continued)
The effect of derivative instrument contracts on the consolidated statement of operations for the years ended June 30, 2016, June 30, 2015 and June
30, 2014 is summarized as follows (US$ millions):
Derivative risk
category
Income statement location
2016
2015
2014
Interest rate
Income from loans and guarantees, including realized gains and losses
on loans and associated derivatives
$
(24)
$
(31)
$
(35)
Income from debt securities, including realized gains and losses on
debt securities and associated derivatives
(1)
(3)
(2)
Income from liquid asset trading activities
(241)
(181)
(157)
Charges on borrowings
313
423
401
Other income
(1)
1
1
Net unrealized gains and losses on non-trading financial instruments
accounted for at fair value
88
(66)
5
Foreign
exchange
Income from equity investments and associated derivatives
-
-
1
Income from liquid asset trading activities
(25)
(188)
(111)
Foreign currency transaction gains and losses on non-trading activities
8
177
111
Net unrealized gains and losses on non-trading financial instruments
accounted for at fair value
1
2
-
Interest rate and
currency
Income from loans and guarantees, including realized gains and
losses on loans and associated derivatives
(184)
(189)
(172)
Income from debt securities, including realized gains and losses on
debt securities and associated derivatives
(16)
(21)
(23)
Income from liquid asset trading activities
103
57
(71)
Charges on borrowings
653
776
685
Foreign currency transaction gains and losses on non-trading activities
200
(1,906)
30
Net unrealized gains and losses on non-trading financial instruments
accounted for at fair value
87
58
189
Equity
Income (loss) from equity investments and associated derivatives
95
(229)
48
Income from loans and guarantees, including realized gains and losses
on loans and associated derivatives
-
3
-
Net unrealized gains and losses on non-trading financial instruments
accounted for at fair value
(4)
(33)
24
Other derivative
contracts
Net unrealized gains and losses on non-trading financial instruments
accounted for at fair value
-
-
(1)
Total
$
1,052
$
(1,350)
$
923
The income related to each derivative risk category includes realized and unrealized gains and losses.
At June 30, 2016, the outstanding volume, measured by US$ equivalent notional, of interest rate contracts was $64,504 million ($55,792 million at
June 30, 2015), foreign exchange contracts was $14,106 million ($12,020 million at June 30, 2015) and interest rate and currency contracts was
$35,032 million ($33,034 million at June 30, 2015). At June 30, 2016, there were 278 equity contracts related to IFC’s loan and equity investment
portfolio and 2 other derivative contracts recognized as derivatives assets or liabilities under ASC Topic 815 (290 equity risk and other contracts at
June 30, 2015).
NOTE R – FAIR VALUE MEASUREMENTS
Many of IFC’s financial instruments are not actively traded in any market. Accordingly, estimates and present value calculations of future cash flows
are used to estimate the fair values. Determining future cash flows for fair value estimation is subjective and imprecise, and minor changes in
assumptions or methodologies may materially affect the estimated values. The excess or deficit resulting from the difference between the carrying
amounts and the fair values presented does not necessarily reflect the values which will ultimately be realized, since IFC generally holds loans,
borrowings and other financial instruments with contractual maturities with the aim of realizing their contractual cash flows.
The estimated fair values as of June 30, 2016 and June 30, 2015 reflect multiple factors such as interest rates, credit risk, foreign currency exchange
rates and commodity prices. Reasonable comparability of fair values among financial institutions is not likely because of the wide range of permitted
valuation techniques and numerous estimates that must be made in the absence of secondary market prices. This lack of objective pricing standard
in the market introduces a greater degree of subjectivity and volatility to these derived or estimated fair values. Therefore, while disclosure of estimated
fair values of financial instruments is required, readers are cautioned in using these data for purposes of evaluating the financial condition of IFC. The
fair values of the individual financial instruments do not represent the fair value of IFC taken as a whole.
Page 84
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All of IFC’s financial instruments in its liquid assets portfolio are managed according to an investment authority approved by the Board of Directors
and investment guidelines approved by IFC’s Corporate Risk Committee (CRC), a subcommittee of IFC’s Management Team. Third party independent
vendor prices are used to price the vast majority of the liquid assets. The vendor prices are evaluated by IFC’s Treasury department and IFC’s
Corporate and Portfolio Risk Management department maintains oversight for the pricing of liquid assets.
IFC’s regional and industry departments are primarily responsible for fair valuing IFC’s investment portfolio (equity investments, debt securities, loan
investments and related derivatives). IFC’s Portfolio Valuation Unit, in Corporate Risk & Sustainability, and Portfolio Review Unit, in Finance and
Accounting, provide oversight over the fair valuation process by monitoring and reviewing the fair values of IFC’s investment portfolio. Prior to October
1, 2014, IFC’s Valuation Oversight Subcommittee (VOS), which was a subcommittee of CRC, reviewed significant valuation principles and the
reasonableness of high exposure valuations quarterly. Pursuant to a simplification of IFC’s organizational structure effective October 1, 2014, the
committees of IFC’s Management Team, including the VOS, are continuing to be reassessed.
IFC’s borrowings are fair valued by the Quantitative Analysis and Modeling Group in IFC’s Treasury department under the oversight of the Corporate
Portfolio and Risk Management department.
The methodologies used and key assumptions made to estimate fair values as of June 30, 2016, and June 30, 2015, are summarized below.
Liquid assets – The primary pricing source for the liquid assets is valuations obtained from external pricing services (vendor prices). The most
liquid securities in the liquid asset portfolio are exchange traded futures, options, and US Treasuries. For exchange traded futures and options,
exchange quoted prices are obtained and these are classified as Level 1 in accordance with ASC 820. Liquid assets valued using quoted market
prices are also classified as Level 1. Securities valued using vendor prices for which there is evidence of high market trade activity may also be
classified as Level 1. US Treasuries are valued using index prices and also classified as Level 1. The remaining liquid assets valued using vendor
prices are classified as Level 2 or Level 3 based on the results of IFC’s evaluation of the vendor’s pricing methodologies and individual security
facts and circumstances. Most vendor prices use some form of matrix pricing methodology to derive the inputs for projecting cash flows or to derive
prices. When vendor prices are not available, liquid assets are valued internally by IFC using yield-pricing approach or comparables model approach
and these are classified as Level 2 or Level 3 depending on the degree that the inputs are observable in the market.
The critical factors in valuing liquid assets in both Level 2 and Level 3 are the estimation of cash flows and yield. Other significant inputs for valuing
corporate securities, quasi-government securities and sovereign or sovereign-guaranteed securities include reported trades, broker/dealer quotes,
benchmark securities, option adjusted spread curve, volatilities, and other reference data. In addition to these inputs, valuation models for securitized
or collateralized securities use collateral performance inputs, such as weighted average coupon rate, weighted average maturity, conditional
prepayment rate, constant default rate, vintage, and credit enhancements.
Loans and debt securities – Loans and debt securities in IFC’s investment portfolio that do not have available market prices are primarily valued
using discounted cash flow approaches. All loans measured at fair value are classified as Level 3. Certain loans contain embedded conversion and/or
income participation features. If not bifurcated as standalone derivatives, these features are considered in determining the loans’ fair value based on
the quoted market prices or other calculated values of the equity investments into which the loans are convertible and the discounted cash flows of
the income participation features. The valuation techniques and significant unobservable inputs for loans and debt securities classified as Level 3 as
of June 30, 2016 and June 30, 2015 are presented below:
June 30, 2016
Valuation technique
Fair value
(US$
millions)
Significant inputs
Range
(%)
Weighted
average
(%)
Debt securities – preferred shares
Discounted cash flows
$
224
Discount rate
7.5 – 30.0
11.6
Relative valuations
82
Valuation multiples*
Recent transactions
216
Other techniques
27
Total preferred shares
549
Loans and other debt securities
Discounted cash flows
1,903
Credit default swap spreads
1.0 – 20.0
4.6
Recent transactions
457
Expected recovery rates
10.0 – 85.0
42.4
Other techniques
235
Total loans and other debt securities
2,595
Total
$
3,144
* In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided.
Page 85
INTERNATIONAL FINANCE CORPORATION
NO
TES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE R – FAIR VALUE MEASUREMENTS (continued)
J
une 30, 2015
Valuation technique
Fair value
(US$
millions)
Significant inputs
Range
(%)
Weighted
average
(%)
Debt securities – preferred shares
Discounted cash flows
$
274
Discount rate
6.9 – 30.0
10.4
Relative valuations
126
Valuation multiples*
Recent transactions
140
Other techniques
15
Total preferred shares
555
Loans and other debt securities
Discounted cash flows
1,724
Credit default swap spreads
1.2 – 20.0
3.0
Recent transactions
495
Expected recovery rates
10.0 – 85.0
41.6
Other techniques
60
Total loans and other debt securities
2,279
Total
$
2,834
* In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided.
Borrowings – Fair values derived by using quoted prices in active markets are classified as Level 1. Fair values derived by determining the present
value of estimated future cash flows using appropriate discount rates and option specific models where appropriate are classified as Level 2. The
significant inputs used in valuing borrowings classified as Level 2 are presented below:
Classes
Significant Inputs
Structured bonds
Foreign exchange rate and inter-bank yield curves, IFC’s credit curve and swaption volatility matrix, foreign
exchange rate volatility, equity spot price, volatility and dividend yield.
Unstructured bonds
Inter-bank yield curve and IFC’s credit curve.
As of June 30, 2016, IFC had bond issuances with a total fair value of $155 million classified as level 3 in Armenian dram, Costa Rican colones,
Georgian Lari, Nigerian naira and Rwandan francs, where the significant unobservable inputs were yield curve data.
Derivative instruments – The various classes of derivative instruments include interest rate contracts, foreign exchange contracts, interest rate and
currency contracts, equity contracts and other derivative contracts. Certain over the counter derivatives in the liquid asset portfolio priced in-house
are classified as Level 2, while certain over the counter derivatives priced using external manager prices are classified as Level 3. Fair values for
derivative instruments are derived by determining the present value of estimated future cash flows using appropriate discount rates and option specific
models where appropriate.
The significant inputs used in valuing the various classes of derivative instruments classified as Level 2 and significant unobservable inputs for
derivative instruments classified as Level 3 as of June 30, 2016 and June 30, 2015 are presented below:
Level 2 derivatives
Significant Inputs
Interest rate
Inter-bank yield curves, foreign exchange basis curve and yield curves specified to index floating rates.
Foreign exchange
Foreign exchange rate, inter-bank yield curves and foreign exchange basis curve.
Interest rate and currency
Foreign exchange rate, inter-bank yield curves, foreign exchange basis curve and yield curves specified to
index floating rates.
June 30, 2016
Level 3 derivatives
Type
Fair value
(US$ millions)
Significant inputs
Range
(%)
Weighted
average
(%)
Equity related derivatives
Fixed strike price options
$
41
Volatilities
11.8 – 48.8
28.6
Variable strike price options
333
Contractual strike price*
Other
1
Interest rate and
currency swap assets
Vanilla swaps
34
Yield curve points,
exchange rates
Interest rate and
currency swap liabilities
Vanilla swaps
(31)
Yield curve points,
exchange rates
Total
$
378
* In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided.
Page 86
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE R – FAIR VALUE MEASUREMENTS (continued)
June 30, 2015
Level 3 derivatives
Type
Fair value
(US$ millions)
Significant inputs
Range
(%)
Weighted
average
(%)
Equity related derivatives
Fixed strike price options
$
34
Volatilities
12.0 – 50.2
24.7
Variable strike price options
249
Contractual strike price*
Other
2
Interest rate and
currency swap assets
Vanilla swaps
40
Yield curve points,
exchange rates
Interest rate and
currency swap liabilities
Vanilla swaps
(30)
Yield curve points,
exchange rates
Total
$
295
* In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided.
Equity investments – Equity investments valued using quoted prices in active markets are classified as Level 1. Equity investments classified as
Level 2 were valued using quoted prices in inactive markets. The valuation techniques and significant unobservable inputs for equity investments
classified as Level 3 as of June 30, 2016 and June 30, 2015 are presented below:
June 30, 2016
Sector
Valuation technique
Fair value
(US$ millions)
Significant inputs
Range
Weighted
average
Banking and other financial
Discounted cash flows
$
707
Cost of equity (%)
10.3 – 22.3
14.5
Institutions
Asset growth rate (%)
(33.6) – 187.0
11.0
Return on assets (%)
(9.7) – 5.0
1.9
Perpetual growth rate (%)
2.4 – 11.0
4.5
Relative valuations
41
Price to book value
1.0 – 2.4
1.7
Listed price (adjusted)
127
Discount for lock-up (%)
0.0 – 10.4
7.3
Recent transactions
193
Other techniques
32
Total banking and other financial
institutions
1,100
Funds
Recent transactions
98
Total funds
98
Others
Discounted cash flows
647
Weighted average
cost of capital (%)
7.8 – 21.5 13.1
Cost of equity (%)
10.5 – 15.0
15.5
Relative valuations
230
Valuation multiples*
Listed price (adjusted)
144
Discount for lock-up (%)
0.0 – 15.2
12.9
Recent transactions
669
Other techniques
43
Total others
1,733
Total
$
2,931
* In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided.
Page 87
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE R – FAIR VALUE MEASUREMENTS (continued)
June 30, 2015
Sector
Valuation technique
Fair value
(US$ millions)
Significant inputs
Range
Weighted
average
Banking and other financial
Discounted cash flows
$
580
Cost of equity (%)
10.2 – 22.6
15.1
Institutions
Asset growth rate (%)
(18.2) – 392.0
11.6
Return on assets (%)
(8.9) – 6.8
1.8
Perpetual growth rate (%)
2.5 – 11.0
5.0
Relative valuations
17
Valuation multiples*
Listed price (adjusted)
36
Discount for lock-up (%)
0.0 – 10.2
6.0
Recent transactions
216
Other techniques
52
Total banking and other financial
institutions
901
Funds
Recent transactions
55
Total funds
55
Others
Discounted cash flows
522
Weighted average
cost of capital (%)
6.6 – 23.2 12.0
Cost of equity (%)
12.3 – 15.0
14.6
Relative valuations
338
Valuation multiples*
Listed price (adjusted)
201
Discount for lock-up (%)
1.0 - 10.6
7.6
Recent transactions
517
Other techniques
94
Total others
1,672
Total
$
2,628
* In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided.
Page 88
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE R – FAIR VALUE MEASUREMENTS (continued)
Fair value of assets and liabilities
Estimated fair values of IFC’s financial assets and liabilities and off-balance sheet financial instruments at June 30, 2016 and June 30, 2015 are
summarized below (US$ millions):
June 30, 2016
June 30, 2015
Carrying
amount
Fair
value
Carrying
amount
Fair
value
Financial assets
Cash and due from banks, time deposits, trading securities and
securities purchased under resale agreements and receivable for
cash collateral pledged
$
46,212
$
46,212
$
43,817
$
43,817
Investments:
Loans at amortized cost, net of reserves against losses
20,906
20,281
20,552
21,758
Loans accounted for at fair value under the Fair Value Option
962
962
784
784
Total loans
21,868
21,243
21,336
22,542
Equity investments at cost less impairment
3,145
4,221
3,250
4,581
Equity investments accounted for at fair value as available-for-sale
3,526
3,526
4,557
4,557
Equity investments accounted for at fair value
5,917
5,917
5,696
5,696
Total equity investments
12,588
13,664
13,503
14,834
Debt securities accounted for at fair value as available-for-sale
2,474
2,474
2,317
2,317
Debt securities accounted for at fair value under the Fair Value Option
426
426
422
422
Total debt securities
2,900
2,900
2,739
2,739
Total investments
37,356
37,807
37,578
40,115
Derivative assets:
Borrowings-related
1,255
1,255
620
620
Liquid asset portfolio-related and other
489
489
851
851
Investment-related
1,680
1,680
1,615
1,615
Client risk management-related
271
271
169
169
Total derivative assets
3,695
3,695
3,255
3,255
Other investment-related financial assets
1
96
1
75
Financial liabilities
Securities sold under repurchase agreements and payable for cash
collateral received
$
4,143
$
4,143
$
4,695
$
4,695
Market, IBRD, IDA and other borrowings outstanding
55,142
55,141
51,265
51,264
Trading securities - short sold bonds
10
10
-
-
Derivative liabilities:
Borrowings-related
3,014
3,014
3,722
3,722
Liquid asset portfolio-related and other
439
439
244
244
Investment-related
183
183
82
82
Client risk management-related
316
316
177
177
Total derivative liabilities
3,952
3,952
4,225
4,225
Other investment-related financial assets comprise standalone options and warrants that do not meet the definition of a derivative.
The fair value of loan commitments amounted to $33 million at June 30, 2016 ($34 million - June 30, 2015). Fair values of loan commitments are
based on present value of loan commitment fees.
Page 89
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE R – FAIR VALUE MEASUREMENTS (continued)
Fair value hierarchy
The following tables provide information as of June 30, 2016 and June 30, 2015, about IFC’s financial assets and financial liabilities measured at
fair value on a recurring basis. As required by ASC 820, financial assets and financial liabilities are classified in their entirety based on the lowest
level input that is significant to the fair value measurement (US$ millions):
June 30, 2016
Level 1
Level 2
Level 3
Total
Trading securities:
$
$
$
$
Asset-backed securities
-
11,860
-
11,860
Corporate securities
5,125
2,670
47
7,842
Government and agency obligations
10,162
900
21
11,083
Money market funds
427
-
-
427
Total trading securities
15,714*
15,430
68
31,212
Loans (outstanding principal balance $1,093)
-
-
962
962
Equity investments:
Banking and other financial institutions
1,656
136
1,100
2,892
Funds
-
-
98
98
Others
1,515
26
1,733
3,274
Equity investments measured at net asset value***
3,179
Total equity investments
3,171
162
2,931
9,443
Debt securities:
Corporate debt securities
249
144
1,518
1,911
Preferred shares
-
-
549
549
Asset-backed securities
-
-
113
113
Other debt securities
-
-
2
2
Debt securities measured at net asset value***
325
Total debt securities
249
144
2,182
2,900
Derivative assets:
Interest rate
-
646
-
646
Foreign exchange
-
307
-
307
Interest rate and currency
-
2,327
34
2,361
Equity and other
-
-
381
381
Total derivative assets
-
3,280
415
3,695
Total assets at fair value
$
19,134
$
19,016
$
6,558
$
48,212
Borrowings:
Structured bonds
$
-
$
5,179
$
-
$
5,179
Unstructured bonds
42,213
5,328
155
47,696
Total borrowings (outstanding principal balance $53,027**)
42,213
10,507
155
52,875
Trading securities - short sold bonds
10
-
-
10
Derivative liabilities:
Interest rate
-
454
-
454
Foreign exchange
-
96
-
96
Interest rate and currency
-
3,365
31
3,396
Equity and other
-
-
6
6
Total derivative liabilities
-
3,915
37
3,952
Total liabilities at fair value
$
42,223
$
14,422
$
192
$
56,837
* includes securities priced at par plus accrued interest, which approximates fair value.
** includes discount notes (not under the short-term Discount Note Program), with original maturities greater than one year, with principal due at maturity of $2,299
million, with a fair value of $1,390 million as of June 30, 2016.
***In accordance with ASC 820, investments that are measured at fair value using net asset value per share have not been classified in the fair value hierarchy. The fair
value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in consolidated balance sheet.
Note: For the year ended June 30, 2016: Trading securities with fair value of $154 million transferred from level 1 to level 2 and $824 million from level 2 to level 1 due
to decrease/increase in market activities. Equity investments with fair value of $9 million transferred from level 1 to level 2 and $107 million from level 2 to level 1 due to
decrease/increase in market activities. Bonds issued by IFC with a fair value $716 million transferred from level 1 to level 2, while bonds with a fair value of $360 million
were transferred from level 2 to level 1 due to change in quality of market price information.
Page 90
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE R – FAIR VALUE MEASUREMENTS (continued)
June 30, 2015
Level 1
Level 2
Level 3
Total
Trading securities:
Government and agency obligations
$
10,725
$
4,342
$
22
$
15,089
Asset-backed securities
-
12,793
-
12,793
Corporate securities
3,613
2,080
64
5,757
Money market funds
1,092
-
-
1,092
Total trading securities
15,430*
19,215
86
34,731
Loans (outstanding principal balance $802)
-
-
784
784
Equity investments:
Banking and other financial institutions
2,387
176
901
3,464
Funds
-
-
55
55
Others
1,561
92
1,672
3,325
Equity investments measured at net asset value***
3,409
Total equity investments
3,948
268
2,628
10,253
Debt securities:
Corporate debt securities
326
-
1,371
1,697
Preferred shares
-
-
555
555
Asset-backed securities
-
-
122
122
Other debt securities
-
-
2
2
Debt securities measured at net asset value***
363
Total debt securities
326
-
2,050
2,739
Derivative assets:
Interest rate
-
426
-
426
Foreign exchange
-
221
-
221
Interest rate and currency
-
2,279
40
2,319
Equity and other
-
-
289
289
Total derivative assets
-
2,926
329
3,255
Total assets at fair value
$
19,704
$
22,409
$
5,877
$
51,762
Borrowings:
Structured bonds
$
-
$
4,732
$
-
$
4,732
Unstructured bonds
39,671
4,959
103
44,733
Total borrowings (outstanding principal balance $49,342**)
39,671
9,691
103
49,465
Derivative liabilities:
Interest rate
-
268
-
268
Foreign exchange
-
154
-
154
Interest rate and currency
-
3,769
30
3,799
Equity and other
-
-
4
4
Total derivative liabilities
-
4,191
34
4,225
Total liabilities at fair value
$
39,671
$
13,882
$
137
$
53,690
* includes securities priced at par plus accrued interest, which approximates fair value.
** includes discount notes (not under the short-term Discount Note Program), with original maturities greater than one year, with principal due at maturity of $1,755
million, with a fair value of $1,364 million as of June 30, 2015.
***In accordance with ASC 820, investments that are measured at fair value using net asset value per share have not been classified in the fair value hierarchy. The fair
value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in consolidated balance sheet.
Note: For the year ended June 30, 2015: Trading securities with fair value of $1,447 million transferred from level 1 to level 2 and $615 million from level 2 to level 1 due
to decrease/increase in market activities. Equity investments with fair value of $92 million transferred from level 1 to level 2 and $8 million from level 2 to level 1 due to
decrease/increase in market activities. Bonds issued by IFC with a fair value $13 million transferred from level 1 to level 2, while bonds with a fair value of $428 million
were transferred from level 2 to level 1 due to change in quality of market price information.
Page 91
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE R – FAIR VALUE MEASUREMENTS (continued)
The following tables present the changes in the carrying value of IFC’s Level 3 financial assets and financial liabilities for the years ended June 30,
2016 and 2015 (US$ millions). IFC’s policy is to recognize transfers in and transfers out at the beginning of the reporting period.
Year ended June 30, 2016
Balance as
of
July 1, 2015
Net gains and losses (realized
and unrealized) included in
Purchases,
issuances,
sales,
settlements
and others
Transfers
into
Level 3 (*)
Transfers
out of
Level 3
(**)
Balance as
of
June 30,
2016
Net unrealized
gains/losses
included in net
income related
to assets /
liabilities held
at year end
Net
Income
Other
comprehensive
income
Trading securities:
Asset-backed securities
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Corporate securities
64
(6)
-
(11)
-
-
47
-
Government and agency obligations
22
(1)
-
-
-
-
21
(1)
Total trading securities
86
(7)
-
(11)
-
-
68
(1)
Loans
784
(114)
-
292
-
-
962
(121)
Equity investments:
Banking and other financial institutions
901
48
3
(16)
342
(178)
1,100
3
Funds
55
1
-
42
-
-
98
3
Others
1,672
49
(38)
252
60
(262)
1,733
(13)
Total equity investments
2,628
98
(35)
278
402
(440)
2,931
(7)
Debt securities:
Corporate debt securities
1,371
(37)
(68)
365
83
(196)
1,518
(24)
Preferred shares
555
(6)
(22)
22
-
-
549
2
Asset-backed securities
122
(17)
8
-
-
-
113
-
Other debt securities
2
-
-
-
-
-
2
-
Total debt securities
2,050
(60)
(82)
387
83
(196)
2,182
(22)
Derivative assets:
Interest rate and currency
40
18
-
8
-
(32)
34
17
Equity and other
289
94
-
(2)
-
-
381
102
Total derivative assets
329
112
-
6
-
(32)
415
119
Total assets at fair value
$
5,877
$
29
$
(117)
$
952
$
485
$
(668)
$
6,558
$
(32)
Borrowings:
Structured bonds
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Unstructured bonds
(103)
(1)
-
(10)
(41)
-
(155)
(1)
Total borrowings
(103)
(1)
-
(10)
(41)
-
(155)
(1)
Derivative liabilities:
Interest rate
-
-
-
-
-
-
-
-
Interest rate and currency
(30)
(31)
-
-
-
30
(31)
(12)
Equity and other
(4)
(3)
-
1
-
-
(6)
(3)
Total derivative liabilities
(34)
(34)
-
1
-
30
(37)
(15)
Total liabilities at fair value
$
(137)
$
(35)
$
-
$
(9)
$
(41)
$
30
$
(192)
$
(16)
(*) Transfers into Level 3 are due to lack of observable market data resulting from a decrease in market activity for these securities as of June 30, 2016.
(**)Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities that were part of July 1, 2015
beginning balance as of June 30, 2016.
Page 92
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE R – FAIR VALUE MEASUREMENTS (continued)
Year ended June 30, 2015
Balance as
of
July 1, 2014
Net gains and losses (realized
and unrealized) included in
Purchases,
issuances,
sales,
settlements
and others
Transfers
into
Level 3 (*)
Transfers
out of
Level 3
(**)
Balance as
of June 30,
2015
Net unrealized
gains/losses
included in net
income related
to assets /
liabilities held
at year end
Net
Income
Other
comprehensive
income
Trading securities:
Asset-backed securities
$
20
$
-
$
-
$
(20)
$
-
$
-
$
-
$
-
Corporate securities
146
(35)
-
34
11
(92)
64
(66)
Government and agency obligations
22
-
-
-
-
-
22
-
Total trading securities
188
(35)
-
14
11
(92)
86
(66)
Loans
683
(85)
-
186
-
-
784
(80)
Equity investments:
Banking and other financial institutions
1,312
110
(57)
(273)
81
(272)
901
(106)
Funds
45
1
-
9
-
-
55
2
Others
1,010
62
76
523
116
(115)
1,672
38
Total equity investments
2,367
173
19
259
197
(387)
2,628
(66)
Debt securities:
Corporate debt securities
1,410
18
(45)
97
-
(109)
1,371
4
Preferred shares
760
16
(12)
(209)
-
-
555
(23)
Asset-backed securities
144
-
(16)
(6)
-
-
122
-
Other debt securities
1
1
-
-
-
-
2
1
Total debt securities
2,315
35
(73)
(118)
-
(109)
2,050
(18)
Derivative assets:
Interest rate and currency
5
40
-
12
-
(17)
40
19
Equity and other
559
(271)
-
1
-
-
289
10
Total derivative assets
564
(231)
-
13
-
(17)
329
29
Total assets at fair value
$
6,117
$
(143)
$
(54)
$
354
$
208
$
(605)
$
5,877
$
(201)
Borrowings:
Structured bonds
$
(361)
$
189
$
-
$
-
$
-
$
172
$
-
$
-
Unstructured bonds
(70)
(14)
-
(19)
-
-
(103)
(14)
Total borrowings
(431)
175
-
(19)
-
172
(103)
(14)
Derivative liabilities:
Interest rate
-
(7)
-
(5)
-
12
-
-
Interest rate and currency
(63)
(167)
-
(4)
-
204
(30)
(32)
Equity and other
(18)
11
-
3
-
-
(4)
11
Total derivative liabilities
(81)
(163)
-
(6)
-
216
(34)
(21)
Total liabilities at fair value
$
(512)
$
12
$
-
$
(25)
$
-
$
388
$
(137)
$
(35)
(*) Transfers into Level 3 are due to lack of observable market data resulting from a decrease in market activity for these securities as of June 30, 2015.
(**) Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities that were part of July 1,
2014 beginning balance as of June 30, 2015.
Page 93
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE R – FAIR VALUE MEASUREMENTS (continued)
The following tables present gross purchases, sales, issuances and settlements related to the changes in the carrying value of IFC’s Level 3 financial
assets and financial liabilities for the years ended June 30, 2016 and 2015 (US$ millions).
Year ended June 30, 2016
Purchases
Sales
Issuances
Settlements
and others
Net
Trading securities:
Asset-backed securities
$
-
$
-
$
-
$
-
$
-
Corporate securities
-
(8)
-
(3)
(11)
Total trading securities
-
(8)
-
(3)
(11)
Loans
-
-
403
(111)
292
Equity investments:
Banking and other financial institutions
75
(137)
-
46
(16)
Funds
116
(1)
-
(73)
42
Others
377
(167)
-
42
252
Total equity investments
568
(305)
-
15
278
Debt securities:
Corporate debt securities
547
(29)
-
(153)
365
Preferred shares
178
(88)
-
(68)
22
Asset-backed securities
51
-
-
(51)
-
Total debt securities
776
(117)
-
(272)
387
Derivative assets:
Interest rate and currency
-
-
7
1
8
Equity and other
-
-
-
(2)
(2)
Total derivative assets
-
-
7
(1)
6
Total assets at fair value
$
1,344
$
(430)
$
410
$
(372)
$
952
Borrowings:
Structured Bonds
-
-
-
-
-
Unstructured Bonds
-
-
(10)
-
(10)
Total Borrowings
-
-
(10)
-
(10)
Derivative liabilities:
Interest rate
-
-
-
-
-
Interest rate and currency
-
-
(1)
1
-
Equity and other
-
-
-
1
1
Total derivative liabilities
-
-
(1)
2
1
Total liabilities at fair value
$
-
$
-
$
(11)
$
2
$
(9)
Page 94
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE R – FAIR VALUE MEASUREMENTS (continued)
Year ended June 30, 2015
Purchases
Sales
Issuances
Settlements
and others
Net
Trading securities:
Asset-backed securities
$
-
$
(15)
$
-
$
(5)
$
(20)
Corporate securities
131
(89)
-
(8)
34
Total trading securities
131
(104)
-
(13)
14
Loans
-
-
248
(62)
186
Equity investments:
Banking and other financial institutions
199
(467)
-
(5)
(273)
Funds
97
-
-
(88)
9
Others
476
(63)
-
110
523
Total equity investments
772
(530)
-
17
259
Debt securities:
Corporate debt securities
369
-
-
(272)
97
Preferred shares
56
(110)
-
(155)
(209)
Asset-backed securities
2
-
-
(8)
(6)
Total debt securities
427
(110)
-
(435)
(118)
Derivative assets:
Interest rate and currency
-
-
12
-
12
Equity and other
-
-
12
(11)
1
Total derivative assets
-
-
24
(11)
13
Total assets at fair value
$
1,330
$
(744)
$
272
$
(504)
$
354
Borrowings:
Structured Bonds
-
-
-
-
-
Unstructured Bonds
-
-
(19)
-
(19)
Total Borrowings
-
-
(19)
-
(19)
Derivative liabilities:
Interest rate
-
-
-
(5)
(5)
Interest rate and currency
-
-
(9)
5
(4)
Equity and other
-
-
-
3
3
Total derivative liabilities
-
-
(9)
3
(6)
Total liabilities at fair value
$
-
$
-
$
(28)
$
3
$
(25)
Gains and losses (realized and unrealized) from trading securities, loans, equity investments and debt securities included in net income for the
period are reported on the consolidated income statement in income from liquid asset trading activities, Income from Loans and guarantees,
including realized gains and losses on loans and associated derivatives, income from equity investments and associated derivatives, income from
debt securities and realized gains and losses on debt securities and associated derivatives and net unrealized gains and losses on non-trading
financial instruments accounted for at fair value.
As of June 30, 2016, equity investments, accounted for at cost less impairment, with a carrying amount of $1,828 million were written down to their
fair value of $1,444 million ($1,401 million and $1,050 million – June 30, 2015), resulting in a loss of $384 million, which was included in income
from equity investments and associated derivatives in the consolidated statements of operations during the year ended June 30, 2016 (loss of $351
million – year ended June 30, 2015). The amount of the write-down was based on a Level 3 measure of fair value.
Page 95
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE S – SEGMENT REPORTING
For management purposes, IFC’s business comprises three segments: investment services, treasury services and advisory services. The
investment services segment consists primarily of lending and investing in debt and equity securities. The investment services segment also includes
AMC, which is not separately disclosed due to its immaterial impact. Further information about the impact of AMC on IFC’s consolidated balance
sheets and income statements can be found in Note B. Operationally, the treasury services segment consists of the borrowing, liquid asset
management, asset and liability management and client risk management activities. Advisory services provide consultation services to governments
and the private sector. Consistent with internal reporting, net income or expense from asset and liability management and client risk management
activities in support of investment services is allocated from the treasury segment to the investment services segment.
The performance of investment services, treasury services and advisory services is assessed by senior management on the basis of net income
for each segment, return on assets, and return on capital employed. Advisory services are primarily assessed based on the level and adequacy of
its funding sources (See Note U). IFC’s management reporting system and policies are used to determine revenues and expenses attributable to
each segment. Consistent with internal reporting, administrative expenses are allocated to each segment based largely upon personnel costs and
segment headcounts. Transactions between segments are immaterial and, thus, are not a factor in reconciling to the consolidated data.
The methodology for allocating foreign currency transaction gains and losses on non-trading activities between the investment services segment
and the treasury services segment was revised during FY16 Q1 to more closely align with management reporting. This change has been reflected
in the segment results for the years ended June 30, 2016, 2015 and 2014.
An analysis of IFC’s major components of income and expense by business segment for the years ended June 30, 2016, June 30, 2015 and June
30, 2014, is provided below (US$ millions):
June 30, 2016
Investment
services
Treasury
services
Advisory
services
Total
Income from loans and guarantees, including realized gains and losses
on loans and associated derivatives
$
1,126
$
-
$
-
$
1,126
Provision for losses on loans, guarantees and other receivables
(359)
-
-
(359)
Income from equity investments and associated derivatives
518
-
-
518
Income from debt securities, including realized gains and losses on
debt securities and associated derivatives
129
-
-
129
Income from liquid asset trading activities
-
504
-
504
Charges on borrowings
(115)
(294)
-
(409)
Advisory services income
-
-
266
266
Service fees and other income
235
-
-
235
Administrative expenses
(850)
(22)
(61)
(933)
Advisory services expenses
-
-
(308)
(308)
Expense from pension and other postretirement benefit plans
(131)
(8)
(46)
(185)
Other expenses
(38)
-
-
(38)
Foreign currency transaction gains and losses on non-trading activities
(91)
45
-
(46)
Income (loss) before net unrealized gains and losses on non-
trading financial instruments accounted for at fair value and
grants to IDA
424
225
(149)
500
Net unrealized gains and losses on non-trading financial instruments
accounted for at fair value
(266)
62
-
(204)
Income (loss) before grants to IDA
158
287
(149)
296
Grants to IDA
(330)
-
-
(330)
Net (loss) income
(172)
287
(149)
(34)
Net losses attributable to non-controlling interests
1
-
-
1
Net (loss) income attributable to IFC
$
(171)
$
287
$
(149)
$
(33)
Page 96
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE S – SEGMENT REPORTING (continued)
June 30, 2015
Investment
services
Treasury
services
Advisory
services
Total
Income from loans and guarantees, realized gains and losses on loans
and associated derivatives
$
1,123
$
-
$
-
$
1,123
Provision for losses on loans, guarantees and other receivables
(171)
-
-
(171)
Income from equity investments and associated derivatives
427
-
-
427
Income from debt securities, including realized gains and losses on
debt securities and associated derivatives
132
-
-
132
Income from liquid asset trading activities
-
467
-
467
Charges on borrowings
(62)
(196)
-
(258)
Advisory services income
-
-
244
244
Other income
261
-
-
261
Administrative expenses
(821)
(21)
(59)
(901)
Advisory services expenses
-
-
(285)
(285)
Expense from pension and other postretirement benefit plans
(139)
(8)
(50)
(197)
Other expenses
(40)
-
-
(40)
Foreign currency transaction gains and losses on non-trading activities
(51)
104
-
53
Income (loss) before net unrealized gains and losses on non-
trading financial instruments accounted for at fair value and
grants to IDA
659
346
(150)
855
Net unrealized gains and losses on non-trading financial instruments
accounted for at fair value
(54)
(52)
-
(106)
Income (loss) before grants to IDA
605
294
(150)
749
Grants to IDA
(340)
-
-
(340)
Net income (loss)
265
294
(150)
409
Less: Net losses (gains) attributable to non-controlling interests
36
-
-
36
Net income (loss) attributable to IFC
$
301
$
294
$
(150)
$
445
June 30, 2014
Investment
services
Treasury
services
Advisory
services
Total
Income from loans and guarantees, realized gains and losses on loans
and associated derivatives
$
1,065
$
-
$
-
$
1,065
Provision for losses on loans, guarantees and other receivables
(88)
-
-
(88)
Income from equity investments and associated derivatives
1,289
-
-
1,289
Income from debt securities, including realized gains and losses on
debt securities and associated derivatives
89
-
-
89
Income from liquid asset trading activities
-
599
-
599
Charges on borrowings
(91)
(105)
-
(196)
Advisory services income
-
-
254
254
Service fees
75
-
-
75
Other income
132
-
-
132
Administrative expenses
(801)
(24)
(63)
(888)
Advisory services expenses
-
-
(324)
(324)
Expense from pension and other postretirement benefit plans
(119)
(6)
(48)
(173)
Other expenses
(33)
-
-
(33)
Foreign currency transaction gains and losses on non-trading activities
2
(21)
-
(19)
Income (loss) before net unrealized gains and losses on non-
trading financial instruments accounted for at fair value and
grants to IDA
1,520
443
(181)
1,782
Net unrealized gains and losses on non-trading financial instruments
accounted for at fair value
31
(74)
-
(43)
Income (loss) before grants to IDA
1,551
369
(181)
1,739
Grants to IDA
(251)
-
-
(251)
Net income (loss)
1,300
369
(181)
1,488
Less: Net gains (losses) attributable to non-controlling interests
(5)
-
-
(5)
Net income (loss) attributable to IFC
$
1,295
$
369
$
(181)
$
1,483
Page 97
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE T – VARIABLE INTEREST ENTITIES
Significant variable interests
IFC has identified investments in 219 VIEs (43 of which were identified as such due to the adoption of ASU 2015-02 on July 1, 2015) which are not
consolidated by IFC but in which it is deemed to hold significant variable interests at June 30, 2016 (163 investments - June 30, 2015).
The majority of these VIEs do not involve securitizations or other types of structured financing. IFC is usually the minority investor in these VIEs.
These VIEs are mainly: (a) investment funds, where the general partner or fund manager does not have substantive equity at risk, which IFC does
not consolidate because it does not absorb the majority of funds’ expected losses or expected residual returns and (b) entities whose total equity
investment is considered insufficient to permit such entity to finance its activities without additional subordinated financial support or whose activities
are so narrowly defined by contracts that equity investors are considered to lack decision making ability, which IFC does not consolidate because it
does not have the power to control the activities that most significantly impact their economic performance. IFC’s involvement with these VIEs
includes investments in equity interests and senior or subordinated interests, guarantees and risk management arrangements. IFC’s interests in
these VIEs are recorded on IFC’s consolidated balance sheet primarily in equity investments, loans, debt securities, and other liabilities, as
appropriate.
Based on the most recent available data of these VIEs, the balance sheet size, including committed funding, in which IFC is deemed to hold
significant variable interests, totaled $32,122 million at June 30, 2016 ($26,173 million - June 30, 2015). IFC’s maximum exposure to loss as a result
of its investments in these VIEs, comprising both carrying value of investments and amounts committed but not yet disbursed, was $6,058 million
at June 30, 2016 ($4,096 million - June 30, 2015).
The industry sector and geographical regional analysis of IFC’s maximum exposures as a result of its investment in these VIEs at June 30, 2016
and June 30, 2015 is as follows (US$ millions):
June 30, 2016
Loans
Equity
investments
Debt
securities
Guarantees
Risk
management
Total
Manufacturing, agribusiness and services
Asia
$
161
$
21
$
21
$
-
$
-
$
203
Europe, Middle East and North Africa
367
64
-
-
-
431
Sub-Saharan Africa, Latin America and
Caribbean
197
98
-
-
-
295
Other
-
30
-
-
-
30
Total manufacturing, agribusiness and
services
725
213
21
-
-
959
Financial markets
Asia
147
10
-
-
10
167
Europe, Middle East and North Africa
66
-
184
-
-
250
Sub-Saharan Africa, Latin America and
Caribbean
38
26
255
-
-
319
Other
2
95
225
-
9
331
Total financial markets
253
131
664
-
19
1,067
Infrastructure and natural resources
Asia
535
187
3
-
3
728
Europe, Middle East and North Africa
570
308
3
-
19
900
Sub-Saharan Africa, Latin America and
Caribbean
1,121
204
15
-
77
1,417
Other
220
-
-
-
-
220
Total infrastructure and natural resources
2,446
699
21
-
99
3,265
Telecom, media & technology, and venture
investing
Asia
-
223
-
-
-
223
Europe, Middle East and North Africa
-
124
5
-
-
129
Sub-Saharan Africa, Latin America and
Caribbean
28
198
7
-
1
234
Other
143
38
-
-
-
181
Total telecom, media & technology, and
venture investing
171
583
12
-
1
767
Maximum exposure to VIEs
$
3,595
$
1,626
$
718
$
-
$
119
$
6,058
of which:
Carrying value
3,110
1,122
491
-
78
4,801
Committed but not disbursed
485
504
227
-
41
1,257
Page 98
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE T – VARIABLE INTEREST ENTITIES (continued)
June 30, 2015
Loans
Equity
investments
Debt
securities
Guarantees
Risk
management
Total
Manufacturing, agribusiness and services
Asia
$
164
$
13
$
-
$
-
$
-
$
177
Europe, Middle East and North Africa
328
37
-
-
-
365
Sub-Saharan Africa, Latin America and
Caribbean
181
97
-
-
1
279
Total manufacturing, agribusiness and
services
673
147
-
-
1
821
Financial markets
Asia
167
-
-
-
10
177
Europe, Middle East and North Africa
23
13
118
2
-
156
Sub-Saharan Africa, Latin America and
Caribbean
6
1
124
-
-
131
Other
3
-
218
-
9
230
Total financial markets
199
14
460
2
19
694
Infrastructure and natural resources
Asia
450
57
2
-
-
509
Europe, Middle East and North Africa
439
31
51
-
19
540
Sub-Saharan Africa, Latin America and
Caribbean
1,059
25
1
4
44
1,133
Other
-
1
-
-
-
1
Total infrastructure and natural resources
1,948
114
54
4
63
2,183
Telecom, media & technology, and venture
investing
Asia
2
71
13
-
-
86
Europe, Middle East and North Africa
-
25
17
-
-
42
Sub-Saharan Africa, Latin America and
Caribbean
44
99
9
-
1
153
Other
-
109
8
-
-
117
Total telecom, media & technology, and
venture investing
46
304
47
-
1
398
Maximum exposure to VIEs
$
2,866
$
579
$
561
$
6
$
84
$
4,096
of which:
Carrying value
2,553
368
507
6
54
3,488
Committed but not disbursed
313
211
54
-
30
608
The carrying value of investments and maximum exposure to VIEs at June 30, 2016 and June 30, 2015 is as follows (US$ millions):
June 30, 2016
Investment category
Carrying value
of investments
Committed but
not yet disbursed
Maximum
exposure
Loans
$
3,110
$
485
$
3,595
Equity investments
1,122
504
1,626
Debt securities
491
227
718
Guarantees
-
-
-
Risk management
78
41
119
Maximum exposure to VIEs
$
4,801
$
1,257
$
6,058
June 30, 2015
Investment category
Carrying value
of investments
Committed but
not yet disbursed
Maximum
exposure
Loans
$
2,553
$
313
$
2,866
Equity investments
368
211
579
Debt securities
507
54
561
Guarantees
6
-
6
Risk management
54
30
84
Maximum exposure to VIEs
$
3,488
$
608
$
4,096
Page 99
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE U – ADVISORY SERVICES
IFC provides advisory services to government and private sector clients. Since July 1, 2014, IFC advisory services to governments on investment
climate and financial sector development have been delivered in partnership with IBRD through WBG Global Practices. IFC funds this business line
by a combination of cash received from government and other donors and IFC’s operations via retained earnings and operating budget allocations as
well as fees received from the recipients of the services.
IFC administers donor funds through trust funds. Donor funds are restricted for purposes specified in agreements with the donors.
Donor funds under administration and IFC’s funding can be comingled in accordance with administration agreements with donors. The comingled
funds are held in a separate liquid asset investment portfolio managed by IBRD, which is not commingled with IFC’s other liquid assets and is reported
at fair value in other assets. Donor funds are refundable until expended for their designated purpose.
As of June 30, 2016, other assets include undisbursed donor funds of $512 million ($467 million - June 30, 2015) and IFC’s advisory services
funding of $191 million ($165 million - June 30, 2015). Included in other liabilities as of June 30, 2016 is $512 million ($467 million - June 30, 2015)
of refundable undisbursed donor funds.
NOTE V – PENSION AND OTHER POSTRETIREMENT BENEFITS
IBRD, IFC and MIGA participate in a defined benefit Staff Retirement Plan (SRP), a Retired Staff Benefits Plan and Trust (RSBP) and a Post-
Employment Benefits Plan (PEBP) that cover substantially all of their staff members.
All costs, assets and liabilities associated with these plans are allocated between IBRD, IFC and MIGA based upon their employees’ respective
participation in the plans. Costs allocated to IBRD are then shared between IBRD and IDA based on an agreed cost-sharing ratio. The expenses
for the SRP, RSBP, and PEBP are included in expense from pension and other postretirement benefit plans.
The following table summarizes the benefit costs associated with the SRP, RSBP, and PEBP allocated to IFC for the years ended June 30, 2016,
June 30, 2015 and June 30, 2014 (US$ millions):
SRP
RSBP
PEBP
2016
2015
2014
2016
2015
2014
2016
2015
2014
Benefit cost
Service cost
$
138
$
139
$
121
$
33
$
35
$
26
$
24
$
21
$
14
Interest cost
136
131
121
23
23
21
15
13
9
Expected return on plan
assets
(188)
(185)
(155)
(29)
(27)
(21)
-
-
-
Amortization of
unrecognized prior
service costs
1
1
1
3
3
3
2
2
*
Amortization of
unrecognized net
actuarial losses
15
21
21
-
6
6
12
14
6
Net periodic pension
cost
$
102
$
107
$
109
$
30
$
40
$
35
$
53
$
50
$
29
* Less than $0.5 million
The expenses for the SRP, RSBP, and PEBP are included in expense from pension and other postretirement benefit plans. For the years ended
June 30, 2016, June 30, 2015 and June 30, 2014, expenses for these plans of $185 million, $197 million and $173 million, respectively, were
allocated to IFC.
Page 100
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE V – PENSION AND OTHER POSTRETIREMENT BENEFITS (continued)
The following table summarizes the Projected Benefit Obligations (PBO), fair value of plan assets, and funded status associated with the SRP,
RSBP and PEBP for IFC for the years ended June 30, 2016 and June 30, 2015 (US$ millions). Since the assets for the PEBP are not held in an
irrevocable trust separate from the assets of IBRD, they do not qualify for off-balance sheet accounting and are therefore included in IBRD's
investment portfolio. IFC has recognized a receivable (prepaid asset) from IBRD and a payable (liability) to IBRD equal to the amount required to
support the plan. The assets of the PEBP are mostly invested in fixed income, equity instruments and alternative investments.
SRP
RSBP
PEBP
2016
2015
2016
2015
2016
2015
Projected benefit obligations
Beginning of year
$
3,253
$
3,188
$
506
$
531
$
345
$
326
Service cost
138
139
33
35
24
21
Interest cost
136
131
23
23
15
14
Net entity transfers
(2)
(32)
1
(5)
-
-
Participant contributions
44
41
3
2
4
9
Federal subsidy received
-
-
*
*
-
-
Plan amendments
-
-
5
-
-
-
Benefits paid
(135)
(124)
(9)
(8)
(7)
(6)
Actuarial loss (gain)
464
(90)
74
(72)
103
(19)
End of year
3,898
3,253
636
506
484
345
Fair value of plan assets
Beginning of year
3,027
2,939
455
412
-
-
Net entity transfers
(2)
(32)
1
(5)
-
-
Participant contributions
44
41
2
2
-
-
Actual return on assets
58
126
9
21
-
-
Employer contributions
73
77
26
33
-
-
Benefits paid
(135)
(124)
(9)
(8)
-
-
End of year
3,065
3,027
484
455
-
-
Funded status**
(833)
(226)
(152)
(51)
(484)
(345)
Accumulated benefit obligations
$
3,343
$
2,786
$
636
$
506
$
369
$
258
* Less than $0.5 million
** Negative funded status is included in Payables and other liabilities under liabilities under retirement benefits plans, in Note L.
During the fiscal year ended June 30, 2016, IFC amended the plan to reflect the increase of the mandatory retirement age from 62 to 67 for the
life insurance benefits. The effect of this change was a $5 million increase to the projected benefit obligation at June 30, 2016. During the fiscal
year ended June 30, 2015, there were no amendments made to the retirement benefit plans.
During the fiscal year ended June 30, 2014, several amendments were made to the SRP. The primary amendments that resulted in an overall
increase in SRP and PEBP PBO are as follows: (i) Improvements to the survivors' benefits, (ii) Increasing the Mandatory Retirement Age for all
current and future participants from age 62 to age 67 for all staff on board on or after December 31, 2015, (iii) Increasing the Normal Retirement
Age (NRA) to age 65 for all participants entering the SRP on or after December 31, 2015, the NRA remains at age 62 for all other participating in
the SRP before that date, and (iv) Ceasing pension accrual for certain participants after the age of 62.
The following tables present the amounts included in Accumulated Other Comprehensive Income relating to Pension and Other Postretirement
Benefits (US$ millions):
Amounts included in Accumulated other comprehensive loss in the year ended June 30, 2016:
SRP
RSBP
PEBP
Total
Net actuarial loss
$
1,139
$
165
$
255
$
1,559
Prior service cost
11
23
14
48
Net amount recognized in accumulated other comprehensive loss
$
1,150
$
188
$
269
$
1,607
Amounts included in Accumulated other comprehensive loss in the year ended June 30, 2015:
SRP
RSBP
PEBP
Total
Net actuarial loss
$
560
$
71
$
165
$
796
Prior service cost
12
20
15
47
Net amount recognized in accumulated other comprehensive loss
$
572
$
91
$
180
$
843
Page 101
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE V – PENSION AND OTHER POSTRETIREMENT BENEFITS (continued)
The estimated amounts that will be amortized from Accumulated Other Comprehensive Income into net periodic benefit cost in the year ending
June 30, 2017 are as follows (US$ millions):
SRP
RSBP
PEBP
Total
Net actuarial loss
$
56
$
5
$
20
$
81
Prior service cost
1
3
2
6
Net amount recognized in accumulated other comprehensive loss
$
57
$
8
$
22
$
87
Assumptions
The actuarial assumptions used are based on financial market interest rates, inflation expectations, past experience, and management’s best
estimate of future benefit changes and economic conditions. Changes in these assumptions will impact future benefit costs and obligations.
The expected long-term rate of return for the SRP assets is a weighted average of the expected long-term (10 years or more) returns for the various
asset classes, weighted by the portfolio allocation. Asset class returns are developed using a forward-looking building block approach and are not
strictly based on historical returns. Equity returns are generally developed as the sum of expected inflation, expected real earnings growth and
expected long-term dividend yield. Bond returns are generally developed as the sum of expected inflation, real bond yield, change in yields and risk
premium/spread (as appropriate). Other asset class returns are derived from their relationship to equity and bond markets. The expected long-term
rate of return for the RSBP is computed using procedures similar to those used for the SRP. The discount rate used in determining the benefit
obligation is selected by reference to the year-end yield of AA corporate bonds.
Actuarial gains and losses occur when actual results are different from expected results. Amortization of these unrecognized gains and losses will
be included in income if, at the beginning of the fiscal year, they exceed 10 percent of the greater of the projected benefit obligation or the
market-related value of plan assets. If required, the unrecognized gains and losses are amortized over the expected average remaining service
lives of the employee group.
The following tables present the weighted-average assumptions used in determining the projected benefit obligations and the net periodic pension
costs for the years ended June 30, 2016, June 30, 2015, and June 30, 2014:
Weighted average assumptions used to determine projected benefit obligation (%), except years
SRP
RSBP
PEBP
2016
2015
2014
2016
2015
2014
2016
2015
2014
Discount rate
3.40
4.30
4.20
3.60
4.50
4.40
3.50
4.40
4.30
Rate of compensation
increase
5.30
5.40
5.40
5.30
5.40
5.40
Health care growth rates
- at end of fiscal year
5.30
4.90
5.30
Ultimate health care growth
rate
4.00
4.10
4.10
Year in which ultimate rate
is reached
2030
2030
2022
Weighted average assumptions used to determine net periodic pension cost (%), except years
SRP
RSBP
PEBP
2016
2015
2014
2016
2015
2014
2016
2015
2014
Discount rate
4.30
4.20
4.60
4.50
4.40
4.80
4.40
4.30
4.50
Expected return on plan
assets
6.20
6.30
5.90
6.20
6.30
6.00
Rate of compensation
increase
5.40
5.40
5.70
5.40
5.40
5.70
Health care growth rates
- at end of fiscal year
4.90
5.30
5.90
Ultimate health care growth
rate
4.10
4.10
3.90
Year in which ultimate rate
is reached
2030
2022
2022
Page 102
INTERNATIONAL FINANCE CORPORATION
NO
TES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE V – PENSION AND OTHER POSTRETIREMENT BENEFITS (continued)
T
he medical cost trend rate can significantly affect the reported postretirement benefit income or costs and benefit obligations for the RSBP. The
following table shows the effects of a one-percentage-point change in the assumed healthcare cost trend rate (US$ millions):
One-percentage-point increase
One-percentage-point decrease
Effect on total service and interest cost
$
21
$
(14)
Effect on postretirement benefit obligation
$
204
$
(142)
Investment Strategy
The investment policies establish the framework for investment of the plan assets based on long-term investment objectives and the trade-offs
inherent in seeking adequate investment returns within acceptable risk parameters. A key component of the investment policy is to establish a
Strategic Asset Allocation (SAA) representing the policy portfolio (i.e., policy mix of assets) around which the plans are invested. The SAA for the
plans is reviewed in detail and reset about every three to five years, with more frequent reviews and changes if and as needed based on market
conditions.
The key long-term objective is to generate asset performance that is reasonable in relation to the growth rate of the underlying liabilities and the
assumed sponsor contribution rates, without taking undue risks. Given the relatively long investment horizons of the SRP and RSBP, and the
relatively modest liquidity needs over the short-term to pay benefits and meet other cash requirements, the focus of the investment strategy is on
generating sustainable long-term investment returns through a globally diversified set of strategies including public and private equity and real
estate.
T
he SAA is derived using a mix of quantitative analysis that incorporates expected returns and volatilities by asset class as well as correlations
across the asset classes, and qualitative considerations such as the liquidity needs of the plans. The SAA is comprised of a diversified portfolio
drawn from among fixed-income, equity, real assets and absolute return strategies.
The following table presents the policy asset allocation at June 30, 2016 and the actual asset allocation at June 30, 2016 and June 30, 2015 by
asset category for the SRP and RSBP.
SRP
RSBP
Policy
Allocation
2016 (%)
% of Plan Assets
Policy
Allocation
2016 (%)
% of Plan Assets
2016
2015
2016
2015
Asset class
Public equity
33
34
35
33
34
35
Fixed income & cash
26
20
22
26
22
24
Private equity
20
17
17
20
19
18
Hedge funds
8
11
10
8
10
9
Real assets*
13
14
13
13
12
11
Other**
-
4
3
-
3
3
Total
100
100
100
100
100
100
* Real assets include public and private real estate, infrastructure and timber.
** Includes investments that are outside the policy allocations such as directional hedge funds and long-term private debt funds.
S
ignificant concentrations of risk in plan assets
T
he assets of the SRP and RSBP are diversified across a variety of asset classes. Investments in these asset classes are further diversified across
funds, managers, strategies, geographies and sectors, to limit the impact of any individual investment. In spite of such level of diversification, equity
market risk remains the primary source of the overall return volatility of the Plans. As of June 30, 2016, the largest exposure to a single counterparty
was 6% and 5% of the plan assets in SRP and RSBP, respectively.
R
isk management practices
Managing investment risk is an integral part of managing the assets of the Plans. Asset diversification and consideration of the characteristics of
the liabilities are central to the overall investment strategy and risk management approach for the SRP. Absolute risk indicators such as the overall
return volatility and drawdown of the Plans are the primary measures used to define the risk tolerance level and establish the overall level of
investment risk. In addition, the level of active risk (defined as the annualized standard deviation of portfolio returns relative to those of the policy
portfolio) is closely monitored and managed on ongoing basis.
M
arket risk is regularly monitored at the absolute level, as well as at the relative levels with respect to the investment policy, manager benchmarks,
and liabilities of the Plans. Stress tests are performed periodically using relevant market scenarios to assess the impact of extreme market events.
M
onitoring of performance (at both manager and asset class levels) against benchmarks, and compliance with investment guidelines, is carried out
on a regular basis as part of the risk monitoring process. Risk management for different asset classes is tailored to their specific characteristics and
is an integral part of the external managers’ due diligence and monitoring processes.
Page 103
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE V – PENSION AND OTHER POSTRETIREMENT BENEFITS (continued)
Credit risk is monitored on a regular basis and assessed for possible credit event impacts. The liquidity position of the Plans is analyzed at regular
intervals and periodically tested using various stress scenarios to ensure that the Plans have sufficient liquidity to meet all cash flow requirements.
In addition, the long-term cash flow needs of the Plans are considered during the SAA exercise and are one of the main drivers in determining
maximum allocation to the illiquid investment vehicles. The plans mitigate operational risk by maintaining a system of internal controls along with
other checks and balances at various levels.
Fair value measurements and disclosures
All plan assets are measured at fair value on a recurring basis. The following table presents the fair value hierarchy of major categories of plan
assets as of June 30, 2016 and June 30, 2015 (US$ millions):
June 30, 2016
SRP
RSBP
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Debt securities
Time deposits
$
2
$
-
$
-
$
2
$
*
$
-
$
-
$
*
Securities purchased
under resale agreements
44
-
-
44
8
-
-
8
Government and agency
securities
361
95
-
456
69
17
-
86
Corporate and convertible
bonds
-
53
-
53
-
9
-
9
Asset-backed securities
-
24
-
24
-
4
-
4
Mortgage-backed securities
-
46
-
46
-
7
-
7
Total debt securities
407
218
-
625
77
37
-
114
Equity securities
US common stocks
143
-
-
143
18
-
-
18
Non-US common stocks
501
-
-
501
73
-
-
73
Mutual funds
48
-
-
48
8
-
-
8
Real estate investment trusts
85
-
-
85
11
-
-
11
Total equity securities
777
-
-
777
110
-
-
110
Other funds at NAV**
Commingled funds
-
-
-
337
-
-
-
56
Private equity
-
-
-
599
-
-
-
102
Hedge funds
-
-
-
365
-
-
-
53
Real estate (including
infrastructure and timber)
-
-
-
361
-
-
-
49
Total other funds
1,662
260
Derivative assets/ liabilities
*
1
-
1
*
*
-
*
Other assets/ liabilities***, net
-
-
-
*
-
-
-
*
Total Assets
$
1,184
$
219
$
-
$
3,065
$
187
$
37
$
-
$
484
* Less than $0.5 million.
** Investments measured at fair value using NAV, have not been classified under the fair value hierarchy.
*** Includes receivables and payables carried at amounts that approximate fair value.
Page 104
INTERNATIONAL FINANCE CORPORATION
NO
TES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE V – PENSION AND OTHER POSTRETIREMENT BENEFITS (continued)
June 30, 2015
SRP
RSBP
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Debt securities
Time deposits
$
2
$
-
$
-
$
2
$
*
$
-
$
-
$
*
Securities purchased
under resale agreements
31
-
-
31
9
-
-
9
Government and agency
securities
476
114
-
590
70
35
-
105
Corporate and convertible
bonds
-
31
-
31
-
5
-
5
Asset-backed securities
-
18
-
18
-
3
-
3
Mortgage-backed securities
-
26
-
26
-
3
-
3
Total debt securities
509
189
-
698
79
46
-
125
Equity securities
US common stocks
100
-
-
100
11
-
-
11
Non-US common stocks
523
-
-
523
75
-
-
75
Mutual funds
60
-
-
60
14
-
-
14
Real estate investment trusts
80
-
-
80
9
-
-
9
Total equity securities
763
-
-
763
109
-
-
109
Other funds at NAV**
Commingled funds
-
-
-
340
-
-
-
46
Private equity
-
-
-
543
-
-
-
89
Hedge funds
-
-
-
356
-
-
-
50
Real estate (including
infrastructure and timber)
-
-
-
319
-
-
-
40
Total other funds
1,558
225
Derivative assets/ liabilities
*
2
-
2
*
*
-
*
Other assets/ liabilities***, net
-
-
-
6
-
-
-
(4)
Total Assets
$
1,272
$
191
$
-
$
3,027
$
188
$
46
$
-
$
455
* Less than $0.5 million.
** Investments measured at fair value using NAV, have not been classified under the fair value hierarchy.
*** Includes receivables and payables carried at amounts that approximate fair value.
Valuation methods and assumptions
The following are general descriptions of asset categories, as well as the valuation methodologies and inputs used to determine the fair value of
each major category of Plan assets. It is important to note that the investment amounts in the asset categories shown in the table above may be
different from the asset category allocation shown in the Investment Strategy section of the note. Asset classes in the table above are grouped by
the characteristics of the investments held. The asset class break-down in the Investment Strategy section is based on management’s view of the
economic exposures after considering the impact of derivatives and certain trading strategies.
Debt securities
D
ebt securities include time deposits, U.S. treasuries and agencies, debt obligations of foreign governments and debt obligations in corporations of
domestic and foreign issuers. Fixed income also includes investments in ABS such as collateralized mortgage obligations and mortgage backed
securities. These securities are valued by independent pricing vendors at quoted market prices for the same or similar securities, where available. If
quoted market prices are not available, fair values are based on discounted cash flow models using market-based parameters such as yield curves,
interest rates, volatilities, foreign exchange rates and credit curves. Some debt securities are valued using techniques which require significant
unobservable inputs. The selection of these inputs may involve some judgment. Management believes its estimates of fair value are reasonable given
its processes for obtaining securities prices
from multiple independent third-party vendors, ensuring that valuation models are reviewed and validated,
and applying its approach consistently from period to period. Unless quoted prices are available, money market instruments and securities purchased
under resale agreements are reported at face value which approximates fair value.
Equity securities
Equity securities (including REITs) are invested in companies in various industries and countries. Investments in public equity listed on securities
exchanges are valued at the last reported sale price on the last business day of the fiscal year.
Commingled funds
Commingled funds are typically common or collective trusts reported at NAV as provided by the investment manager or sponsor of the fund based
on valuation of underlying investments.
Page 105
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE V – PENSION AND OTHER POSTRETIREMENT BENEFITS (continued)
Private equity
Private equity includes investments primarily in leveraged buyouts, distressed investments and venture capital funds across North America, Europe
and Asia in a variety of sectors. A large number of these funds are in the investment phase of their life cycle. Private Equity investments do not have
a readily determinable fair market value and are reported at NAV provided by the fund managers, taking into consideration the latest audited financial
statements of the funds. The underlying investments are valued using inputs such as cost, operating results, discounted future cash flows and
trading multiples of comparable public securities.
Real estate
Real estate includes several funds which invest in core real estate as well as non-core type of real estate investments such as debt, value add, and
opportunistic equity investments. Real estate investments do not have a readily determinable fair market value and are reported at NAV provided
by the fund managers, taking into consideration the latest audited financial statements of the funds. The valuations of underlying investments are
based on income and/or cost approaches or comparable sales approach, and taking into account discount and capitalization rates, financial
conditions, local market conditions among others.
Hedge fund investments
Hedge fund investments include those seeking to maximize absolute returns using a broad range of strategies to enhance returns and provide
additional diversification. Hedge Funds include investments in equity, event driven, fixed income, multi strategy and macro relative value strategies.
These investments do not have a readily determinable fair market value and are reported at NAV provided by external managers or fund
administrators (based on the valuations of underlying investments) on a monthly basis, taking into consideration the latest audited financial
statements of the funds.
Investments in hedge funds and commingled funds can typically be redeemed at NAV within the near term while investments in private equity and
most real estate are inherently long term and illiquid in nature with a quarter lag in reporting by the fund managers. Reporting of those asset classes
with a reporting lag, management estimates are based on the latest available information taking into account underlying market fundamentals and
significant events through the balance sheet date.
Investment in derivatives
Investment in derivatives such as equity or bond futures, TBA securities, swaps, options and currency forwards are used to achieve a variety of
objectives that include hedging interest rates and currency risks, gaining desired market exposure of a security, an index or currency exposure and
rebalancing the portfolio. Over-the-counter derivatives are reported using valuations based on discounted cash flow methods incorporating market
observable inputs.
Estimated future benefits payments
The following table shows the benefit payments expected to be paid in each of the next five years and subsequent five years. The expected benefit
payments are based on the same assumptions used to measure the benefit obligation at June 30, 2016 (US$ millions):
SRP
RSBP
PEBP
July 1, 2016 - June 30, 2017
$
123
$
7
$
11
July 1, 2017 - June 30, 2018
132
8
12
July 1, 2018 - June 30, 2019
140
9
13
July 1, 2019 - June 30, 2020
148
10
15
July 1, 2020 - June 30, 2021
158
12
16
July 1, 2021 - June 30, 2026
952
82
104
Expected contributions
IFC’s contribution to the SRP and RSBP varies from year to year, as determined by the Pension Finance Committee, which bases its judgment on
the results of annual actuarial valuations of the assets and liabilities of the SRP and RSBP. The best estimate of the amount of contributions
expected to be paid to the SRP and RSBP for IFC during the year beginning July 1, 2016 is $73 million and $25 million, respectively.
Page 106
INTERNATIONAL FINANCE CORPORATION
NO
TES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE W – OFFSETTING OF DERIVATIVES, RESALE, REPURCHASE AND SECURITIES LENDING AGREEMENTS AND COLLATERAL
IFC does not present derivative assets and liabilities or amounts due or owed under resale, repurchase and securities lending transactions related
to contracts entered into with the same counterparty under a legally enforceable netting agreement on a net basis on its consolidated balance sheet.
The following table provides the gross and net positions of IFC’s derivative contracts, resale, repurchase and securities lending agreements
considering amounts and collateral held or pledged that are subject to enforceable counterparty credit support and netting agreements described
below (US$ millions). Collateral amounts are included only to the extent of the related net derivative fair values or net resale, repurchase and
securities lending agreements amounts.
June 30, 2016
Assets
Gross amount of
assets presented in
the consolidated
balance sheet
Gross amounts not offset in
the consolidated balance sheet
Financial
instruments
Collateral
received
Net amount
Derivative assets
$
4,094*
$
2,467
$
618***
$
1,009
Resale agreements
-
-
-
-
Total assets
$
4,094
$
2,467
$
618
$
1,009
June 30, 2016
Liabilities
Gross amount of
liabilities presented in
the consolidated
balance sheet
Gross amounts not offset in
the consolidated balance sheet
Financial
instruments
Cash
Collateral
pledged
Net amount
Derivative liabilities
$
4,206**
$
2,467
$
473
$
1,266
Repurchase and securities lending agreements
3,842
3,842
-
-
Total liabilities
$
8,048
$
6,309
$
473
$
1,266
June
30, 2015
Assets
Gross amount of
assets presented in the
consolidated
balance sheet
Gross amounts not offset in
the consolidated balance sheet
Financial
instruments
Collateral
received
Net amount
Derivative assets
$
3,626*
$
1,759
$
966***
$
901
Resale agreements
68
67
-
1
Total assets
$
3,694
$
1,826
$
966
$
902
June 30, 2015
Liabilities
Gross amount of
liabilities presented in
the consolidated
balance sheet
Gross amounts not offset in
the consolidated balance sheet
Financial
instruments
Collateral
pledged
Net amount
Derivative liabilities
$
4,398**
$
1,759
$
-
$
2,639
Repurchase and securities lending agreements
4,458
4,418
-
40
Total liabilities
$
8,856
$
6,177
$
-
$
2,679
* Includes accrued income of $399 million and $371 million as of June 30, 2016 and June 30, 2015 respectively.
** Includes accrued charges of $254 million and $173 million as of June 30, 2016 and June 30, 2015 respectively.
*** Includes cash collateral of $286 million and $216 million as of June 30, 2016 and June 30, 2015 respectively. The remaining amounts of collateral received consist of
off-balance-sheet US Treasury securities reported in the above table at fair value.
IFC’s derivative contracts with market counterparties are entered into under standardized master agreements published by the International Swaps
and Derivatives Association (“ISDA” Agreements). ISDA Agreements provide for a single lump sum settlement amount upon the early termination
of transactions following a default or termination event whereby amounts payable by the non-defaulting party to the other party may be applied to
reduce any amounts that the other party owes the non-defaulting party. This setoff effectively reduces any amount payable by the non-defaulting
party to the defaulting party.
Page 107
INTERNATIONAL FINANCE CORPORATION
NO
TES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE W – OFFSETTING OF DERIVATIVES, RESALE, REPURCHASE AND SECURITIES LENDING AGREEMENTS AND COLLATERAL
(continued)
IFC’s ISDA Agreements are appended by a Credit Support Annex (“CSA”) that provides for the receipt, and in some cases, posting, of collateral in
the form of cash, U.S. Treasury securities or U.K. gilts to reduce mark-to market exposure among derivative market counterparties. IFC recognizes
cash collateral received and a corresponding liability on its balance sheet for the obligation to return it. Securities received as collateral are not
recognized on IFC’s balance sheet. As of June 30, 2016, $495 million of cash collateral was posted under CSAs ($0 June 30, 2015). IFC recognizes
a receivable on its balance sheet for its rights to cash collateral posted. In accordance with the CSAs, IFC may rehypothecate securities received
as collateral, subject to the obligation to return such collateral and any related distributions received. In the event of a counterparty default, IFC may
exercise certain rights and remedies, including the right to set off any amounts payable by the counterparty against any collateral held by IFC and
the right to liquidate any collateral held. As of June 30, 2016, IFC had $303 million ($237 million at June 30, 2015) of outstanding obligations to return
cash collateral under CSAs. The estimated fair value of all securities received and held as collateral under CSAs of June 30, 2016, all of which may
be rehypothecated was $415 million ($756 million - June 30, 2015). As of June 30, 2016, $279 million of such collateral was rehypothecated under
securities lending agreements ($210 million - June 30, 2015).
Collateral posted by IFC in connection with repurchase agreements approximates the amounts classified as Securities sold under repurchase
agreements. At June 30, 2016, trading securities with a carrying amount (fair value) of $197 million ($171 million - June 30, 2015) were pledged in
connection with borrowings under a short-term discount note program, the carrying amount of which was $1,838 million ($1,343 million - June 30,
2015).
Under certain CSA’s IFC is not required to pledge collateral unless its credit rating is downgraded from its current AAA/Aaa. The aggregate fair
value of derivatives containing such a credit risk-linked contingent feature in a net liability position was $900 million at June 30, 2016 ($1,862 million
at June 30, 2015). At June 30, 2016, IFC had no collateral posted under these agreements. If IFC’s credit rating were to be downgraded from its
current AAA/Aaa to AA+/Aa1 or below, then collateral in the amount of $456 million would be required to be posted against net liability positions
with counterparties at June 30, 2016 ($1,097 million at June 30, 2015).
IFC’s resale, repurchase and securities lending transactions are entered into with counterparties under industry standard master netting agreements
which generally provide the right to offset amounts owed one another with respect to multiple transactions under such master netting agreement
and liquidate the purchased or borrowed securities in the event of counterparty default. The estimated fair value of all securities received and held
as collateral under these master netting agreements as of June 30, 2016 was $0 ($68 million - June 30, 2015).
The following table presents an analysis of IFC’s repurchase and securities lending transactions by (1) class of collateral pledged and (2) their
remaining contractual maturity as of June 30, 2016 and June 30, 2015 (US$ millions):
Remaining Contractual Maturity of the Agreements - June 30, 2016
Overnight and
Continuous
Up to 30
days
30-90
days
Greater than
90 days
Total
Repurchase agreements
U.S. Treasury securities
$
-
$
3,564
$
-
$
-
$
3,564
Agency securities
-
-
-
-
-
Municipal securities and other
-
-
-
-
-
Total Repurchase agreements
-
3,564
-
-
3,564
Securities lending transactions
U.S. Treasury securities
$
278
$
-
$
-
$
-
$
278
Total Securities lending transactions
278
-
-
-
278
Total Repurchase agreements and Securities lending
transactions
$
278
$
3,564
$
-
$
-
$
3,842
As of June 30, 2016, IFC has no repurchase-to-maturity transactions outstanding.
Page 108
INTERNATIONAL FINANCE CORPORATION
NO
TES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE W – OFFSETTING OF DERIVATIVES, RESALE, REPURCHASE AND SECURITIES LENDING AGREEMENTS AND COLLATERAL
(continued)
Remaining Contractual Maturity of the Agreements - June 30 2015
Overnight and
Continuous
Up to 30
days
30-90
days
Greater than
90 days
Total
Repurchase agreements
U.S. Treasury securities
$
8
$
3,409
$
11
$
-
$
3,428
Agency securities
-
70
95
64
229
Municipal securities and other
18
394
141
-
553
Total Repurchase agreements
26
3,873
247
64
4,210
Securities lending transactions
U.S. Treasury securities
$
209
$
-
$
-
$
-
$
209
Total Securities lending transactions
209
-
-
-
209
Total Repurchase agreements and Securities lending
transactions
$
235
$
3,873
$
247
$
64
$
4,419
As of June 30, 2015, IFC has no repurchase-to-maturity transactions outstanding.
NOTE X – SERVICE AND SUPPORT PAYMENTS
IFC obtains certain administrative and overhead services from IBRD in those areas where common services can be efficiently provided by IBRD.
This includes shared costs of the Boards of Governors and Directors, and other services such as communications, internal auditing, administrative
support, supplies, and insurance. IFC makes payments for these services to IBRD based on negotiated fees, chargebacks and allocated charges,
where chargeback is not feasible. Expenses allocated to IFC for the year ended June 30, 2016, were $113 million ($118 million - year ended June
30, 2015; $97 million - year ended June 30, 2014). Other chargebacks include $18 million for the year ended June 30, 2016 ($17 million - year
ended June 30, 2015; $20 million - year ended June 30, 2014).
NOTE Y – RELATED PARTY TRANSACTIONS
During FY16 Q2, IFC sold a portion of its building in Accra, Ghana to IBRD for $13 million that generated a gain of $3 million that is included in
Other income.
During FY15 Q1, IFC issued an amortizing, non-interest bearing promissory note, maturing September 15, 2039, to IDA (the Note) in exchange for
$1,179 million. The Note requires payments totaling $1,318 million, resulting in an effective interest rate of 1.84%. With IFC’s consent, IDA may
redeem the Note after September 2, 2019, upon an adverse change in its financial condition or outlook. The amount due to IDA upon such
redemption is equal to the present value of the all unpaid amounts discounted at the effective interest rate. IDA may transfer the Note; however, its
redemption right is not transferrable. IFC has elected the Fair Value Option for the Note.
NOTE Z – CONTINGENCIES
In the normal course of its business, IFC is from time to time named as a defendant or co-defendant in various legal actions on different grounds in
various jurisdictions. Although there can be no assurances, based on the information currently available, IFC’s Management does not believe the
outcome of any of the various existing legal actions will have a material adverse effect on IFC’s financial position, results of operations or cash flows.
KPMG
llP
S
uit
e
12000
180
1
K
S
tr
ee
t
.
N
W
Was
hin
g
t
on
.
DC
20
006
Independent Auditors' Report
President and Board
of
Directors
International Finance Corporation:
We have audited the accompanying consolidated financial statements
<if
the International
Finance
'
Corporation
(IFC)
,
which comprise the consolidated balance sheets as
of
June
30
,
2016 and
2015
,
and the
related consolidated statements
of
operations, changes in
capital
,
and cash flows for each
of
the years in the
three-year period ended June 30, 2016
,
and the related notes to the financial statements.
Management's Responsibility
for
the Financial Statements
Management is responsible for the preparation and fair presentation
of
these financial statements in
accordance with accounting principles generally accepted in the United States
of
America; this includes the
design,
implementation
,
and maintenance
of
internal control relevant to the preparation and fair presentation
of
financial statements that are free from material
misstatement
,
whether due to fraud or error.
Auditors
=
Responsibility
Our responsibility
is
to express an opinion on these financial statements based on our audits. We conducted
our audits in accordance with auditing standards generally accepted in the United States
of
America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial
statements
.
The procedures selected depend on the
auditors
'
judgment
,
including the assessment
of
the risks
of
material misstatement
of
the financial statements, whether due to fraud or error. In making those
risk
assessments
,
the auditor considers internal control relevant to the entity's preparation and fair
presentation
of
the financial statements in order to design audit procedures that are appropriate in the
circumstances. An audit also includes evaluating the appropriateness
of
accounting policies used and the
reasonableness
of
significant accounting estimates made by
management
,
as well as evaluating the overall
presentation
of
the financial statements.
We believe that the audit evidence we have obtained
is
sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our
opinion
,
the financial statements referred to above present
fairly
,
in all material respects, the financial
position
of
the International Finance Corporation as
of
June 30, 2016 and 2015
,
and the results
of
its
operations and its cash flows for each
of
the years in the three-year period ended June 30, 2016 in accordance
with accounting principles generally accepted in the United States
of
America.
KPMG LLP
is
a
De
l
awa
r
e
l
imited
l
iabi
l
ity
partne
r
ship,
the U.S.
mem
be
r
firm
o
f
K
P
MG
In
tern
a
tiona
l
Coo
p
erative
("KPMG
I
nternationa
l
"
).
a
S
w
iss entity.
Page 109
Other Matters
Our audit was conducted for the purpose of forming an opinion on the financial statements
as
a whole. The
consolidated statement
of
capital stock and voting power as of June
30
,
2016
is
presented for purposes of
additional analysis and are not a required part of the financial
statements
.
Such information
is
the
responsibility
of
management and was derived from and relates directly to the underlying accounting and
other records used to prepare the financial statements. The information has been subjected to the auditing
procedures applied in the audit
of
the financial statements and certain additional
procedures
,
including
comparing and reconciling such information directly to the underlying accounting and other records used to
prepare the financial statements or to the financial statements
themselves
,
and other additional procedures
in
accordance with auditing standards generally accepted in
th
eU
nited States
of
America. In our
opinion
,
the
information
is
fairly stated in all material respects
in
relation
tothe
financial statements as a whole.
We also have
e
x
amined in accordance with attestation standards established by the
Am
e
rican Institute of
Certified Public
Accountants
,
management's
assertion
,
included in the
accompan
y
ing Management's Report
Regarding
Eff
ec
ti
veness
of
Int
e
rnal Control Over External Financial
Reporting
,
that IFC maintained
effective internal control over financial reporting as
of
June
30
,
2016
,
based on criteria established in the
Int
e
rnal C
ontrol-
Int
e
grat
e
d
Fram
e
work
(
2013) issued by the Committee
of
Sponsoring Organizations of
the Treadway Commission (COSO) and our report dated August
4
,
20
1
6
expressed an unqualified opinion
on management's
assertion
.
August
4
,
2016
Page 110